Cryptocurrency Hacks Still Growing — What Does That Mean for the Industry?

Though once synonymous with underground networks and black hat
hackers, bitcoin and other cryptocurrencies have gone mainstream
over the past two years.

In 2017, we saw the skyrocket of bitcoin to an all-time high of
close to $20,000 followed by a significant decline the following
year.

But beyond the ups and downs in the market for the world’s
largest cryptocurrency is a much more sinister story revolving
around cyber-attacks of the economy’s newest asset class.

In 2018, it estimated that as much as $1.7 billion worth of
cryptocurrencies were swindled away from investors (likely more)
through a variety of means.

Whether accomplished through hacking, phishing, or other forms
of scamming, it’s clear that the crypto industry is facing a
serious dilemma with security.

For a technological movement based on decentralization and the
advantages it offers for security, the number of breaches occurring
is startling.

Cryptocurrencies offer users a way to send money without the
need for a third party, yet the industry as a whole is dealing with
more security vulnerabilities than centralized financial firms
doing the same thing. During the same time period, more traditional companies
that transfer money^[1]
and banks have seen nowhere near the same amount of issues with
hackers. So, what’s the problem?

The Weakness: Crypto Exchange Services

While cryptocurrencies and blockchain technology are decentralized
in nature, there are many aspects of the cryptosphere that aren’t.
The number one culprit in 2018 was cryptocurrency exchanges. Unlike
the underlying technology behind currencies like bitcoin, ether,
and Litecoin, cryptocurrency exchanges are centralized in
nature^[2] and not yet regulated to
the same extent that most financial firms are.

According to data from CipherTrace’s 2018 cryptocurrency report,
$950 million of the total $1.7 billion stolen were from exchanges
and infrastructure services. Exchange services are a particular
pain point for the industry because they’re one of the easiest ways
for users to get started with cryptocurrencies as some even handle
fiat currency.

Often referred to as “on-ramps” for the crypto industry, fiat
friendly exchanges are easy for beginners to use and purchase their
first crypto.

However, with that ease of use comes a major target for hackers
and phishers. 2018 was undoubtedly a big year for cryptocurrency
hacks, setting new records for theft, but 2019 may not be far off.
Just four months into the new year, here are two of the major cyber
attacks that have already occurred in 2019.

Bithumb

Last month, popular South Korean exchange Bithumb announced that it
suffered a security breach and theft to the tune of $19 million worth
of cryptocurrencies^[3], making it the largest
of the year.

The exchange suspects that the attack may have been carried out
with the help of an insider to steal EOS and XRP. More notable is
that this is not the first time the exchange has been
compromised.

In 2017, hackers managed to get away with $31 million worth of
cryptocurrencies from the exchange and around $1 million the year
before^[4].

DragonEx

Also occurring in March, Singapore-based cryptocurrency exchange
DragonEx revealed^[5]
that it too had been hacked.

After going public with the announcement, the company revealed
that it estimates somewhere around $7 million worth of
cryptocurrencies were stolen and transferred off the exchange to
various other exchanges and wallets.

DragonEx has stated that it’s working on a preliminary
compensation plan for clients whose funds were stolen and has
denied rumors of potential bankruptcy.

The exchange has publicly released the addresses of wallets it
believes to be possibly holding stolen funds and has asked for
assistance from other exchanges and wallet providers.

Looking Forward

As the total amount of cryptocurrencies stolen from investors
continues to rise each year, security experts are scrambling to
find the most effective methods to combat hacking.

However, also included in CipherTrace’s report was the changing
landscape of crypto hackers and scams. In the first three quarters
of 2018, the majority of theft happened via direct exchange hacks,
now that’s starting to change.

With exchange services beginning to take security concerns more
seriously, different forms of attacks are becoming more common.

Looking forward into 2019, experts suggest that tactics like
social engineering and the utilization of insiders may be the
largest threats.

Scammers and phishers see the cryptocurrency space as low
hanging fruit over recent years as more newcomers flock to the
scene.

Between fraudulent social media accounts claiming to be
influential people to bogus “exchange support members” accounts
claiming to help with logging in problems, the way the industry
thinks about security breaches is changing.