Cryptocurrency Exchange Hacks: How to Protect Your Cryptocurrencies from Hacks
Recent years have seen the rise of cryptocurrencies, with words like “Bitcoin,” “Ethereum,” and “Dogecoin” entering the common language and appearing as pop culture references. However, the popularity of cryptocurrencies has also led to an exponential increase in cryptocurrency exchange hacks.
What is a cryptocurrency?
Built on blockchain technology, cryptocurrency exchange development is a decentralized and unregulated digital currency. Unlike official and regulated currencies issued by governments, anyone can create, issue, and exchange cryptocurrencies. That’s why there are so many different crypto “currencies.” Some of the most popular cryptocurrencies include Bitcoin, Ethereum, Tether, Cardano, and Dogecoin.
In theory, it is possible to use cryptocurrencies as regular currencies. However, this type of use is still developing, and few major retailers currently accept cryptocurrency payments.
The decentralized nature of cryptocurrencies, however, makes them vulnerable to a range of issues. For example, the advent of cryptocurrency trading has led traders to treat cryptocurrencies with the same speculation that investors treat stocks, trading them based on the assumption that their value will increase (or decrease). More importantly, malicious actors can take advantage of this decentralization to hack cryptocurrency exchanges or cryptocurrency operations.
Types of Cryptocurrency Hacks
In 2022, cryptocurrency hacks resulted in a total of $3.8 billion being stolen from multiple exchanges, up from $3.3 billion in 2021. This is despite the fact that the value of many cryptocurrencies fell over the year, largely due to a loss of trust and attacks.
Cryptocurrency owners and dealers can protect their funds by being aware of the differences between the various sorts of hacks. These are the top three cryptocurrency-related offenses.
Bridge attacks
As the name suggests, a bridge attack is a type of crypto transaction hack in which cybercriminals target currencies as they are transferred between different blockchains. Transferring cryptocurrencies from one blockchain to another, such Ethereum to Dogecoin, requires a transfer mechanism called "cross-chain bridges," because each cryptocurrency is housed on its own blockchain. Despite being crucial to preserving the crypto environment, they can easily compromised, for instance, by exploiting cryptographic keys or introducing defects into the bridge code.
Wallet Hacks
Cryptocurrency owners use wallets to store, manage, and transfer their cryptocurrencies. There are different types of wallets – cold and hot – and since hot wallets are always connected to the internet, they are vulnerable to hacks by cryptocurrency exchanges. It is possible for cybercriminals to exploit network vulnerabilities to break into a cryptocurrency wallet and steal its contents.
Hacking of exchange platforms
Some owners choose to manage their cryptocurrencies on exchanges, which are essentially online services that allow users to trade or store their coins. Since these platforms typically hold large reserves of cryptocurrencies, they are prime targets for hackers.Hackers use a variety of tactics, including social engineering and phishing, to take money from the exchange's hot wallets.
How do cryptocurrency hacks happen?
Hackers use many methods to carry out cryptocurrency hacks. Understanding how they work can help owners and traders protect their money. Here are the three most commonly used methods.
Phishing: This is one of the most common types of digital attacks. Malicious actors send emails that trick cryptocurrency owners into disclosing confidential information or downloading malware that could allow the hacker to access their cryptocurrency wallet and steal their assets.
Malicious Code: Since cryptocurrencies and the software associated with them are all built on code, they can contain vulnerabilities that hackers can exploit. Malicious actors can manipulate the code of any weak point in the cryptographic infrastructure to implement cryptocurrency exchange hacks or bridge attacks, for example.
Key theft: Cryptocurrency wallets and exchanges require owners to use keys to access their coins, and if cybercriminals can steal these keys, they can easily achieve their goals.
8 Cryptocurrency Exchange Hacks You Should Know About
The growing popularity of cryptocurrencies has been accompanied by an increase in the number of hacks of cryptocurrency exchanges. The most significant attacks, such as the FTX hack, have led to the theft of millions of dollars, the shutdown of the exchanges in question, and, in some cases, legal consequences for their owners. For some exchanges and wallets, such as Stormgain, hacks are not yet a major problem, but it may only be a matter of time. Here are the most infamous cryptocurrency hacks.
1. Ronin Network
In March 2022, the largest cryptocurrency exchange development company hack to date saw a group of cybercriminals (believed to be a North Korean hacking group) break into the gaming platform Ronin Network and steal some $615 million worth of Ethereum and stablecoin USDC. The hackers pulled off the attack by using stolen private keys from the owners to withdraw their cryptocurrencies, making it a prime example of a hack carried out by key theft.
2. Poly Network
Another major hack of a cryptocurrency exchange in August 2021 exploited a vulnerability in Poly Network’s software to steal $611 million worth of cryptocurrency. However, it turned out that the hacker had carried out the attack just to test whether it was possible. He eventually returned all the stolen funds.
3. FTX
The FTX hack, which took place in November 2022, is perhaps one of the most famous. At the time, the exchange was one of the most powerful in the crypto industry, but on the day it filed for bankruptcy, the FTX exchange was hacked, and over $600 million was stolen from its wallets. This was the first of two hacks of the FTX exchange. In January 2023, a second FTX hack resulted in the theft of $15 million worth of cryptocurrencies.
4. Binance
Cybercriminals targeted the Binance exchange in October 2022 and stole $570 million, arguably the most high-profile hack in the cryptocurrency trading space. To carry out the attack, the hackers exploited the BSC Token Hub cross-chain bridge to create additional Binance coins and then stole all available coins.
5. Coincheck
Occurring in January 2018 in Tokyo, the Coincheck attack was one of the first hacks of cryptocurrency exchanges. Hackers stole $534 million worth of NEM by taking advantage of a flaw in the exchange's hot wallet. Setting a high bar for companies that fall victim to cryptocurrency exchange hacks, Coincheck used its capital to reimburse customers whose funds were stolen in the attack.
6. Mt. Gox
The exchange has suffered two major attacks, which is part of the reason it no longer exists. In the first one—in 2011, when Mt. Gox handled nearly 70% of all cryptocurrency transactions—hackers stole about $400,000 worth of funds. However, when the exchange was hacked in 2014—when it handled only about 7% of all available bitcoins—hackers made off with about $437 million from the exchange’s hot wallets. Mt. Gox began liquidating itself in the aftermath of the attack.
7. Bitmart
More than $196 million was stolen when hackers attacked the Bitmart exchange in December 2021. The cryptocurrency hack was carried out by using stolen admin keys to access the exchange's funds and then mining them via Ethereum and Binance.
8. Nomad Bridge
A prime example of a bridge attack is the hack of the cryptocurrency exchange Nomad Bridge, which cost its users $190 million. Only $36 million of the lost funds were ultimately recovered.
How to prevent cryptocurrency exchange platform hacks?
Anyone who owns or trades cryptocurrencies should protect their bitcoins by taking security measures. While there are many measures to put in place, the following tips are among the most recommended:
Get a “cold wallet.” These wallets store your bitcoins offline (on a physical medium), making them much harder for hackers to target.
Use a VPN (virtual private network), such as Kaspersky VPN Secure Connect, which encrypts all online traffic, providing an extra layer of security against hackers.
Be defensive – protect your devices by using antivirus software or firewalls and ensuring all software is up to date.
Strengthen basic password security – Keep your passwords and cryptocurrency wallets secure by remembering basic tips, such as updating passwords regularly, creating strong passwords, or using password managers.
Try multi-factor authentication – requiring multiple levels of verification to access cryptocurrency wallets allows users to protect their bitcoins from potential cryptocurrency hacks.
Beware of phishing scams – be wary of any potentially suspicious emails, phone calls, or text messages that may be intended to steal information or install malware, and use the information obtained to hack cryptocurrency exchanges. Never click on suspicious links or enter information on unsecured or potentially fraudulent sites.
Strong passwords – Passwords are used to access information needed to protect cryptocurrencies stored on exchanges or in wallets. Losing these passwords can result in a user losing access to their bitcoins forever, but if a hacker gains access to them, they can steal the bitcoins associated with the account.
Stay vigilant against cryptocurrency hacks
The FTX hack, the legal drama and media circus that accompanied it, and the many other high-profile cryptocurrency exchange development solution hacks, have demonstrated the need for cryptocurrency owners and traders to be aware of the risks. While protecting these assets requires implementing basic internet security measures, such as using antivirus software, VPNs, and strong passwords, one important security tip is to use a “cold wallet,” which is much harder for hackers to target.