Knob and tube wiring is safe if it is in good condition and it is doing no more than it was designed to do. In fact it was an very good wiring system designed to keep the two wires far apart from each other and well protected as it ran through the house.
What could make it unsafe?
Rodents gnawing through the insulation can be a problem, especially squirrels. In fact this is the primary reason to chase them out of the attic.
Plugging powerful modern appliance into outlets designed for an old fashioned radio can overload circuits. The knob & tube system is a two wire system so there is no safety ground. This is very bad for modern computer equipment and some sound systems as they use the safety ground to help them work. Where you do need the ground protection and you are not overloading an old circuit, you can add a GFI outlet in place of the old two prong outlet. Rated in increasing levels of security you have: a two wire outlet; two wires to a GFI; a properly grounded three wire outlet; three wires to a GFI.
You are not permitted by the electrical code to add new wires on the end of a knob & tube circuit. You are permitted to leave the old wiring in place. Most commonly, ceiling lighting circuits are left as knob and tube because they are complicated to replace and do not carry large currents. Kitchens, bathrooms, laundry rooms, entertainment centres and home offices are most often newly wired with modern outlets, even if much of the rest of the house is still on knob & tube.
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