$40 million worth bitcoin stolen

Hackers stole more than 7000 bitcoin from crypto exchange Binance, the world’s largest cryptocurrency exchanges. Can Bitcoins be stored safely?

Background 

Released as open-source software in 2009, Bitcoin is often credited as the world’s first cryptocurrency. There is no central issuing authority or political institution that controls the amount of bitcoin in circulation. There are currently 17 million bitcoins in circulation. 

Bitcoin holders are able to transfer via a peer to peer network. These transfers are tracked on a blockchain referred to as a giant ledger. Since Bitcoin is decentralized, ‘miners’ constantly verify and update the blockchain. 

Analysis

Binance, world’s largest cryptocurrency exchange based on trading volume has been hacked. They were able to withdraw 7000 bitcoin (approximately $40million) in one transaction

Binance announced that a “large scale security breach” was discovered earlier on May 7, finding that malicious actors were able to access user API keys, two-factor authentication codes and “potentially other info,” the exchange’s CEO, Changpeng Zhao, said in a letter. As a result, they were able to withdraw roughly $40 million in bitcoin from the exchange, according to a transaction published in the security notice. According to company statement, the breach only impacted Binance’s hot wallet, which contains roughly 2 percent of the exchange’s total bitcoin holdings.

Zhao said the hackers executed “well-orchestrated actions through multiple seemingly independent accounts” which allowed them to pass the platforms existing security checks. “It was unfortunate that we were not able to block this withdrawal before it was executed. Once executed, the withdrawal triggered various alarms in our system. We stopped all withdrawals immediately after that.”

The exchange will conduct “a thorough security review” encompassing its systems and data during the next week. The exchange will use its Secure Asset Fund for Users (SAFU fund) to cover the loss, which won’t impact users, according to the notice.  Deposits and withdrawals on Binance’s platform will remain suspended but trading will be allowed. Binance also warned that “hackers may still control certain user accounts and may use those to influence prices.”

Prices have so far responded with bitcoin, the world’s premier cryptocurrency, dropping $290 alongside most other cryptocurrencies, which are down between 1-10 percent at press time.

Last year, $950 million of cryptocurrencies was stolen from cryptocurrency exchanges and infrastructure services such as wallets, up nearly 260 percent from the previous year, research from U.S.-based cyber security firm CiptherTrace showed. Exchanges in Japan and South Korea accounted for 58 percent of the thefts last year, the research found. 

Last week, Outlook hackers stole Bitcoin and other cryptocurrencies from users. The breach centered around a hacker getting hold of a Microsoft customer support worker’s login credentials; from there, the hacker could dive into the content of any non-corporate Outlook, Hotmail, or MSN account, Motherboard found.

Dave Jevans of CipherTrace, a cryptocurrency security firm, said “There is a growing trend of hacking the hot wallets of cryptocurrency exchanges. This is certainly not the first 2FA hack against an exchange that we’ve seen this week.”Jevans noted that “Using a two-factor approach, social engineering and SIM card porting of phone numbers can give attackers access to sensitive systems inside exchanges.”

Assessment 

Our assessment is that most cryptocurrency exchanges hold clients’ assets under their own digital signature which identifies the exchange as the owner of the cryptocurrency rather than clients. This means all cryptocurrency assets are commingled or not segregated. The exchanges require clients to deposit their assets into the exchange’s wallet – hot or cold. Hot wallets are connected online and exposed to cybersecurity risks. 

It can be noted that while exchanges have the responsibility in securing their clients’ digital assets, the other half of the responsibility of equal importance lies in designing an operational workflow and process that remove human access to the underlying private keys. We feel that many exchanges have not thought about the processes related to security and legal implications. 

We believe that blockchains are particularly attractive to hackers because fraudulent transactions can’t be reversed as they often can be in the traditional financial system. It can be noted that susceptibility to 51% attacks is inherent to most cryptocurrencies because most are based on blockchains that use proof of work as their protocol for verifying transactions. These proof-of-work blockchains that use the same algorithms as larger blockchains are particularly vulnerable to attacks, as there are no barriers to entry in terms of capital costs