According to researchers CipherTrace, crypto exchanges lost around $927 million during the first three quarters of 2018. It's 3.5 times higher than it was in 2017. Experts predict that the number may exceed $1 billion by the end of this year. The tendency is scary,, so it's essential to know about hackers' strategies and be prepared for them. To do so, let's check the most significant crypto-related crimes and learn from these cases.
Why do hacking attacks occur?
Traditional banking systems always were attractive to hackers, who now tend to switch to cryptocurrency as its adoption grows. There are a few reasons why people attack crypto exchanges more often now:- Increasing attention. The hype around crypto makes fraudsters more active.
- Anonymity. It's way easier to launder cryptos than fiats because they are barely tracked by governments or financial authorities.
- High price. Realising the value of significant coins, hackers get tempted by possible profits.
Hacking cryptocurrency itself would be extremely hard, as cryptography secures this decentralised system. That's why the focus is on attacking centralised exchanges that hold a lot of vulnerabilities.
Exchanges store users' money in built-in crypto wallets that have public keys (they act similarly to email addresses) and private ones (they are like passwords). But trading platforms don't share private keys with users, so people don't own their money until they withdraw it. That's why it's always better to keep most coins in separate wallets, preferably hardware ones.
The prominent hacks in the history of crypto
Let's discover the biggest regarding the stolen amount cases. Additionally, you can check the complete list of amazing hacks.1. Mt.Gox – approx. $700,000,000 (2011 and 2014)
Mt. Gox was probably the biggest crypto exchange, which controlled around 70% of BTC transactions in early 2014. The platform was hacked twice! The first attack in 2011 resulted in the loss of 500,000 BTC or $8.75 million. Mt.Gox survived and regained the customers' trust. During the second attack in 2014, the exchange lost 850,000 BTC or $700 million, and its owners declared bankruptcy. The investigation is still going.The result: Bitcoin lost about half of its price, Mt.Gox was destroyed.
2. Coincheck – $534,800,000 (2018)
While there are many unclear things in Mt.Gox history, the January attack on the Japanese exchange Coincheck was the biggest proven hack. It was possible because of poor protection: the exchange stored users' coins in hot wallets without multi-signatures. Frauds got 523 million of NEM (more than $534 million). Customers were outraged not only because of losses but because of miserable excuses.The result: Coinchek was absorbed by financial company Monex Group.
3. BitGrail – $195,000,000 (2018)
Here is one of the suspicious cases when the community isn't sure about what actually happened. In February 2018, the Italian-based exchange BitGrail claimed that it was hacked for 17 million of Nano worth $195 million. People blamed the exchange's owner Francesco Firano who justified that there were problems in data tracking. However, experts and users found out that unauthorised transactions were performed weeks before this statement.The result: BitGrail was shut down but then re-opened.
4. Bitfinex – $72,000,000 (2016)
Hackers exploited the bug in the multi-signature wallet system to steal 120,000 BTC or $72 million in August 2016. At that time, this attack was the second largest after Mt. Gox's one. Even two-factor authentication didn't save customers' funds. Bitfinex reacted quickly by issuing specific tokens, which were redeemed in April 2017. Their launch is still considered by many to be a scam.The result: Bitcoin’s price decreased by 20% right after the attack.
5. Zaif – $60,000,000 (2018)
After the Coincheck situation, in September 2018, another Japanese crypto exchange was hacked for Bitcoin, Bitcoin Cash, and MonaCoin worth $60 million. Because Zaif had only $20 million in reserve, it was forced to cooperate with the investment company Fisco to cover all losses. After the hack, local financial authorities launched tests for crypto exchanges focused on increasing safety.The result: Fisco got a significant share of ownership, Japan started inspections.
Protection from hacks on exchanges
Trading platforms and wallets' owners invest millions in cybersecurity, but hackalways invent new approachestime. Indeed, it's necessary to develop better safety measures like new-age encryption protocols, security certificates, and cold storage. Adopting protection strategies used by fiat exchanges, such as comprehensive attack response instructions, is also advisable.According to CryptooGuide, the most promising approach to security is represented by decentralised exchanges. They don't store money and therefore have nothing to be stolen. Instead, DEXs provide direct peer-to-peer sales where people use their private wallets. As for now, decentralised platforms are too complicated and need a broader audience, though we can expect their growth in popularity, not least due to notorious hacks.
