If you were to rely on mainstream headlines to form an opinion on cryptocurrencies, you might have the impression that this “internet money” is unsafe and easily hackable. Fortunately, nothing could be further from the truth. The source of these unflattering headlines usually comes from hacked crypto exchanges, as is their interest to hold users funds on their behalf. But there is a world of difference between the safety of cryptocurrencies versus exchanges.
Isn’t Blockchain Supposed to Be Unhackable?
The very reason why cryptocurrencies, with Bitcoin (BTC) leading the charge at a $218 billion market cap, gained prominence so quickly is that they are powered by virtually unhackable blockchain technology.
Blockchain achieves this by distributing cryptographically chained blocks of data across nodes on a computer network. That means every block refers to another block on the network. Therefore, each change of record must be approved across the entire blockchain network for the modified record to be verified. The longer the chain grows, the more difficult it becomes to rewrite its history.
Why Are Crypto Exchanges Hacked So Often?
In short, if you own a cryptocurrency, only you should be able to access the funds on the blockchain. If you give up your private key for the sake of convenience, you will lose the critical feature of cryptocurrency — decentralization — which makes it so impervious to hacking!
This is exactly what has been happening ever since cryptocurrencies amassed billions of dollars’ worth of value. When people give up their private keys, so they can trade easier on crypto exchanges, these centralized platforms become enticing targets for criminal miscreants.
Mostly, they appear to target Japanese and other Asian exchanges, but that doesn’t mean others aren’t exposed to the same potential risks. The largest exchange hack happened in 2018 on Coincheck (Japan), with $534.8 million worth of NEM pilfered. The second-largest crypto hack occurred in 2014 on Mt.Gox (Japan), with $460 million worth of BTC stolen. That hack alone caused the drop of BTC value by 36%, thanks to Mt.Gox covering over 70% of the world’s BTC transactions at the time.
Image credits: Coinmarketcap
Overall, it is estimated that at least $11 billion worth of cryptocurrencies has been stolen since 2011.
In recent years, thanks to greater diversification of crypto exchanges, better security measures, and the creation of hardware wallets, subsequent hacks have had less of an impact on the cryptocurrency market.
2020 — The Hacks Continue
Last year, a total of 12 big crypto exchange hacks occurred, accounting for more than $292 million worth of stolen crypto assets. 2020 has also seen a number of exchange hacks, listed below in chronological order:
- Altsbit — on February 5, 2020
This small Italian exchange suffered a loss of five types of cryptocurrencies:
- 6.929 Bitcoin (BTC), of which 53.10% were refunded.
- 23.21 Ethereum (ETH), of which 28.06% were refunded.
- 3924082 Pirate Chain (ARRR), of which 59.20% were refunded.
- 414154 Verus Coin (VRSC), of which 51.24 were refunded.
- 1066 Komodo (KMD), of which 97.77% were refunded.
Overall, Altsbit lost about $70,000, but that was enough to close its doors in May 2020.
2. Uniswap — on April 18, 2020
Due to the ERC777-token vulnerability combined with Uniswap contracts, this American exchange suffered a loss from two reentrancy hacks. One resulted in a loss of $300,000, and the second one resulted in $1.1 million worth of imBTC tokens.
3. Coincheck — on May 31, 2020
Japanese Coincheck holds the ignoble title of being the victim of the largest crypto hack ever, as we mentioned above. This time, it didn’t suffer a huge monetary loss. Instead, hackers engaged in a spear-phishing operation on Coincheck’s customers. Much of their personal data was pilfered, but without any crypto assets stolen.
4. Balancer — on June 28, 2020
This exchange was relieved of half a million USD worth of Ethereum (ETH), Wrapped Bitcoin (WBTC), Chainlink (LINK), and Synthetix (SNX) — all against Statera (STA) tokens. The attack was quite unusual and sophisticated. Balancer’s CTO, Mike McDonald, explained that the hacker exploited a flash loan in WETH tokens, which he then used to drain Statera (STA) liquidity pool. Consequently, this resulted in greater margins with each trade.
5. Cashaa — on July 11, 2020
This UK-based OTC exchange reported a loss of 336 Bitcoin (BTC). It seems that the hacker infected one of the exchange’s servers with malware, which was then activated when an employee conducted a couple of transfers. They tracked the hacker to India and informed the Delhi’s Cyber Crime division.
6. KuCoin — on September 26, 2020
Based in Singapore, KuCoin suffered the worst loss in 2020, with $150 million stolen in Bitcoin SV (BSV), Tron (TRX), Litecoin (LTC), Stellar Lumens (XLM), Tether (USDT), Ripple (XRP), Bitcoin (BTC), and Ethereum (ETH). As you would expect, the latter two — BTC and ETH — comprised the bulk of the stolen funds.
Interestingly, the hacker(s) got a hold of the exchange’s private keys, which enabled them access to its hot wallets. Hacker(s) then transferred funds to new wallets and froze deposits and withdrawals. Thankfully, KuCoin assured affected wallet owners they will be completely refunded in due time.
As you can see, the pattern is repeating itself. Once you relinquish your private keys, you rely on a third-party repository — exchange — to keep them safe. Even if they follow all the safety guidelines, they will forever be in an arms race with criminals.
How Can You Fortify Your Crypto Assets?
Image credits: Coindesk
There is one sure way to keep your assets safe: hardware wallets. The best example of this is the Ledger Nano S. This memory-stick-sized hardware wallet allows you to retain the ownership of your private key, while also making it easy to trade with a wide range of cryptocurrencies when you safely connect to a computer. By securely switching between the functionality of hot and cold wallets, you can rest assured that your crypto wealth is in your hands, even if you lose the device.
To check out the full range of wallets Coinstop offers, please check out our store.