5 Bitcoin Hacks that Shaped Blockchain and Cryptocurrency
No doubt when a single bitcoin cost around $0.06 in 2009, dropping a few percent in value wasn’t that big a deal.
As the currency gained dramatically in value, diverting part of its fame to a new protocol called “blockchain,” the rewards for successfully making off with a user’s BTC have grown massively over the last two years.
Hackers look to the novelty of the technology for weaknesses, and also the rising value of bitcoin for illicit gains
It’s important to note that the Bitcoin blockchain has never been breached. “Hacks” of bitcoin have been the result of crooks targeting exchanges and individual wallets, not the blockchain itself.
Moreover, although there have been technical bitcoin hacks, the majority of recent thefts occur due to a successful phishing attempt where users erroneously part with their private keys.
Exchanges have begun to cold vault the bulk of their earnings, and verification protocols now secure the user interface more than ever before.
These protocols also include multi-sig and other multiple-step methods that make it very hard for a third party to intervene anywhere in a transaction.
Top five most notable cases of hacking and fraud since the birth of Bitcoin.
1. Mt. Gox
The unfortunate and now-defunct Mt. Gox was probably the most publicized exchange hack in the cryptosphere. It has subsequently set the tone for the security and behavioral discourses within the community since.
On June 19, 2011, the Japanese platform had its first successful hack, although it pales in comparison to the second. Some 2609 bitcoins were cleared out of the exchange, but the company put on its game face and recovered.
The second and most devastating attack occurred in the first week of May 2014, costing 750,000 bitcoins, worth several hundred million USD at the time.
As it transpired, the hack was sufficiently devastating to completely sink the exchange, unable as it was to cover the losses. Within a few days of the hack, Mt. Gox halted operations entirely and filed for bankruptcy.
The hack impacted the industry heavily, as Mt. Gox was then the largest bitcoin exchange, having been in operation since 2010.
In September 2012, the BitFloor exchange suffered a hack that cost 24,000 bitcoins.
Tragically, after a mistake no modern exchange would make, hackers availed themselves of unencrypted keys stored online as a backup.
The exchange put its best foot forward and refunded users who lost money, although for unrelated reasons it did close shortly thereafter.
The founder Roman Shtylman published a post explaining that the exchange’s US banking facilities were about to be terminated and concluded by saying that he was closing shop.
Poloniex a slightly more modern platform, enjoyed great publicity when it launched.
That said, subsequent to generous uptake and continuing fanfare as the exchange established, it suffered a major blow on March 14, 2014.
Although “only” 12 percent of bitcoin holdings were stolen from the exchange, that was already a bite in 2014.
A bitcoin-focused yet not exclusive exchange, Poloniex also trades other altcoins and is today one of the busiest exchanges in the world.
This attack was perpetrated after hackers had scrutinized withdrawal protocol code on the exchange, and found a weak spot.
The exchange suspended operations briefly and addressed losses in an egalitarian manner for all users, subsequently refunding individuals who had lost their BTC.
There were persistent rumors of a successful 2017 hack of Poloniex at the time, but this has never been officially confirmed or acknowledged.
In January 2015, the Bitstamp exchange found new friends among compromised exchanges, when it too suffered the successful hacking of 19,000 bitcoins.
Ironically, although founded in Slovenia, Bitstamp was set up to rival Mt. Gox, fishing for the same clientele. Both exchanges ended up presenting as pariahs in the end, although Bistamp regained its status.
Bitstamp still runs today, unlike Mt. Gox, and it runs a tighter ship than ever before.
Because of the company’s approach to users’ losses and other issues over the years, it has managed to maintain a loyal following, today employing state-of-the-art security measures to safeguard holdings.
The Bitfinex exchange enjoys the dubious honor of being the most recent successful hack target, as during August 2016 the industry’s second largest digital coin hack hit the company.
The Bitfinex attack saw 120,000 bitcoins worth $72 million stolen from the exchange.
Most damningly, the bitcoin hack was successful due to attackers finding vulnerabilities in the exchange’s multisig wallets.
Both the basic Bitfinex build and the BitGo wallet app were found to be ill-prepared for an assault.
This remains particularly painful as the company now pitches an institutional custody offer to entice big investors.
In spite of the embarrassing revelations of the details of the attack, the exchange has grown strong by issuing its native BTX tokens to victims at the time, these being redeemable in fiafiat currency such as USD.
As the company basically refunded everyone, it gained no small amount of loyalty and today thrives as a reputable exchange.
While various financial security breaches are common amongst almost any industry, recent and continued updates within blockchain and cryptocurrency have seen a reduction in the frequency and severity of such attacks.
Adding to this is the increased knowledge and awareness of individuals with cryptocurrency holders, making them and exchanges a far less attainable target to crypto crooks.
Feature image: Shutterstock.com
In-Post Image: crypnotic.com, financemagnates.com, thehacktoday.com
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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