Finance has been revolutionized by the rise of cryptocurrency, a miracle of possibility for creative development and investment.
However, with these opportunities come high risks of becoming a hacker’s target. If you have lived under a rock for the past decade, you may not know that hackers have targeted the cryptocurrency landscape for years, stealing millions (and sometimes billions) of dollars.
In this article, we will look at the top ten crypto hacks, digging into what happened, what came next, and what the biggest lessons were.
Table of Contents
Mt. Gox Hack (2014)
Overview
Quite possibly the most infamous event in crypto history is the Mt. Gox hack. Mt. Gox was one of the world’s largest Bitcoin exchanges and handled about 70 percent of all Bitcoin transactions at its peak.
The exchange filed for bankruptcy in February 2014, with about 850.000 Bitcoins (worth around $450 million at the time) stolen.
Security breach scenario
Some poor security practices were what made it possible. For months, investigations found Mt. Gox had been under attack. The hackers exploited a flaw in the exchange’s wallet system to transfer funds that were unable to detect.
Impact
The hack was devastating as far as the crypto market was concerned and it negatively affected the value of bitcoin and shunned investor confidence.
That prompted regulatory scrutiny and called into question the security of cryptocurrency exchanges overall.
Lessons Learned
– Implement Robust Security Measures: Cold storage and multi-signature wallets are all things that should be standard practice.
– Transparency is Key: Security protocols must be communicated openly to the users and there is no hiding of possible vulnerabilities.
The DAO Hack (2016)
Overview
The goal of the DAO (a cryptocurrency built on Ethereum which is a decentralized venture capital fund) was to give investors the ability to vote on which projects they would fund.
Later that same year, a hacker was able to steal about $60 million worth of Ether, thanks to a vulnerability in its code.
Security breach scenario
In the hack, the hacker used the recursive withdrawal function from the DAO’s smart contract to repeatedly drain funds.
Several hours passed unnoticed since the hack, during which time the attacker made off with a huge chunk of tokens before anyone did anything.
Impact
Of course, it has meant a split within the Ethereum community and a hard fork which resulted in two different coins – Ethereum (ETH) and Ethereum Classic (ETC).
From blockchain immutability to governance within decentralized systems, this event raised important questions.
Lessons Learned
– Thorough Code Audits are Essential: Before the deployment of smart contracts, they must be tested rigorously and then audited independently.
– Clear Governance Structures: The only way this can be done is if projects provide governance frameworks that provide clear solutions to vulnerabilities, and then effectively manage crises when they do arise.
Bitfinex Hack (2016)
Overview
One well-known example is the hack of Bitfinex, a cryptocurrency exchange in August 2016, leading to the hack of almost 120,000 Bitcoins worth about $72 million.
Security breach scenario
The flaw that was exploited by the attackers has to do with Bitfinex’s multi-signature wallet system. The added security features did not play off well, because the hackers were able to bypass those protective measures.
Impact
It had serious impacts on Bitfinex’s reputation and users suffered loss. The exchange responded by issuing tokens to assist affected users which it received mixed reactions from throughout the community.
Lessons Learned
– Proper Implementation of Security Protocols: Correct implementation of multi-signature wallets and regular audits are needed.
– User Education is Crucial: Users need to hear about best practices in security and use them, enforced through the exchanges.
Coincheck Hack (2018)
Overview
In January 2018, the Japanese crypto exchange Coincheck was the target of a massive hack that saw 523 million NEM tokens (or $500 million worth) siphoned off.
Security breach scenario
Coincheck’s NEM tokens were targeted by hackers who hit the hot wallet. Most of the cryptocurrencies they had were kept in cold wallets on the exchange, which is why they had not implemented adequate security measures such as storing most of their assets in cold wallets.
Impact
It was one of the largest hacks in crypto history, and it prompted Mark Zuckerberg to warn the Japanese regulators that you shouldn’t run your cryptocurrency exchange from your basement.
The extent of the loss was also comparable to that of other cryptocurrencies.
Lessons Learned
– Prioritize Cold Storage: It’s always better for exchanges to store assets in cold wallets to reduce risks.
– Regulatory Compliance: Regulatory standards must be adherent for user trust and security reasons.
Binance Hack (2019)
Overview
In May 2019, the world’s largest cryptocurrency exchange, Binance, reported losing over 7,000 Bitcoins to a hack that was worth some $40 million.
Security breach scenario
They achieved this by a combination of phishing techniques and malware acquisition of API keys and two-factor authentication codes. Unusual withdrawal activity was detected and a breach was found.
Impact
Loss of money is added by Binance after the stolen funds are covered by its Secure Asset Fund for Users (SAFU).
As most Bitcoin trading is on exchanges, this incident helped to highlight the importance for exchanges to upgrade their security and educate users about the kinds of risks that exist.
Lessons Learned
– User Vigilance is Essential: One must educate users on phishing, and a variety of other security threats.
– Emergency Funds Should be Established: If an exchange doesn’t have emergency funds to cover potential losses and protect user assets, it should not operate.
KuCoin Hack (2020)
Overview
In September 2020, KuCoin, a leading cryptocurrency exchange, suffered a big hack that resulted in the loss of about $280m worth of many cryptocurrencies from the platform.
Security breach scenario
Access was gained by hackers to KuCoin’s hot wallets that were not properly secured. The tokens that were lost could have belonged to many projects and investors, who in turn will lose out on their gains.
Impact
KuCoin said it wrangled with other exchanges to get back lost assets and froze the stolen funds after the hack. The incident threatened centralized exchanges’ security.
Lessons Learned
– Enhance Hot Wallet Security: Centralized exchanges have to impose strict measures on the security of their hot wallets.
– Collaboration Among Exchanges is Vital: Hacks can be mitigated in conjunction with cooperation and protect user funds.
Ronin Network Hack (2022)
Overview
In March 2022, the $620 million withdrawal of Ethereum and USDC from the Axie Infinity game was stolen from the Ronin Network, back in March 2022.
Security breach scenario
They were able to take over the network’s validator nodes’ private keys and started withdrawing fraudulent money. Security loopholes were found when the breach went unnoticed for a couple of days.
Impact
This had results on players and investors alike on the Axie Infinity ecosystem. However, it has raised critical questions about how secure blockchain gaming actually could be, particularly when it comes to securing private keys.
Lessons Learned
– Strengthen Validator Security: Preventing such attacks is only possible by enhancing the security of validator nodes.
– Educate Users on Private Key Security: In decentralized networks, keys are important, and users should know about protecting them.
Poly Network Hack (2021)
Overview
In August 2021, over $600 million of money in cryptocurrencies was lost at cross-chain DeFi platform Poly Network.
Security breach scenario
Poly Network’s smart contracts got hacked by the hackers, who exploited the weakness to transfer assets between blockchains.
Impact
It was interesting, then, that the hacker returned most of the stolen money because they said they did it to expose vulnerabilities. Security in DeFi got questioned and how hacking made you ethical.
Lessons Learned
– Focus on Smart Contract Security: Smart contract auditing is very important before deploying any smart contract to the mainnet.
– Community Engagement: Talking to the community and ethical hackers can provide better insights and better safety.
Ledger Data Breach (2020)
Overview
In that same year, 2020, Ledger, a top manufacturer of hardware wallets, suffered a breach that exposed the personal data of more than a million customers.
Security breach scenario
Hackers got into Ledger’s e-commerce and marketing databases. This leak showed the email addresses and phone numbers of sensitive customer information and resulted in targeted phishing attacks.
Impact
The breach damaged user trust in Ledger, and it caused an increase in attempts to phishing Ledger customers. This also brought to light the significance of security even for hardware wallets.
Lessons Learned
– Prioritize User Data Security: To protect customer information from breaches, companies must take significant steps.
– Educate Users on Phishing Risks: Phishing campaigns are to be aware to help the user recognize and avoid their attempts.
Bitmart Hack (2021)
Overview
Bitmart, a cryptocurrency exchange, had almost $196 million in stolen tokens removed in December 2021.
Security breach scenario
The vulnerabilities in Bitmart’s security systems allowed hackers inside the exchange’s hot wallets. The breach allowed for the theft of a lot of Ethereum and Binance Coin.
Impact
The incident left the cryptocurrency community worried about the security of smaller exchanges. However, Bitmart’s promise to cover user losses drew the spotlight to whether smaller exchanges offer the same level of asset protection.
Lessons Learned
– Implement Comprehensive Security Protocols: A robust security measure must be in force by smaller exchanges to protect user funds.
– Build User Trust Through Transparency: Security measures serve the function of building trust with users, and all parties involved in the process must be open about what security measures they’re using.
Conclusion
Cryptocurrency hack history is a reminder of the loopholes that can be found in the world of cyber threats. These incidents demonstrate the urgency of security determinants, sensible governance, and education for users.
The crypto ecosystem is growing and therefore, as a matter of priority, security has to be a top priority for everyone involved.
Investors, Developers, and users alike need to understand these hacks and what they mean.
From the past, the industry can learn and work towards a more secure future by doing what best practices call for and finally pave the way for wider adoption and product innovations in crypto.