Over the past few years, there has been a significant increase in the number of cryptocurrency exchanges being hacked. In this blog post, we look at which exchanges are most vulnerable to hackers and why. We also provide some tips on how to protect your funds from hackers.
The term “cryptocurrency exchange” is a bit of an umbrella term because they are not all created equal. There are essentially five types:
4. Decentralized exchanges (DEXs)
5. Atomic swap exchanges
Each of these exchange types has its own strengths and weaknesses, making each more or less vulnerable to hackers than others. Let’s take a closer look at each one and how they compare in terms of security.
One of the biggest fears for cryptocurrency investors is not seeing their coins ever again. This is something that happens quite often; exchanges are being hacked on a regular basis, and many of us have witnessed this first hand. In fact, according to two companies – CipherTrace and Ernst & Young – more than $950 million worth of cryptocurrency has been stolen from exchanges in 2018 alone.
These numbers are staggering and it’s no surprise that hackers are getting more and more creative. But, one has to wonder which exchanges are the most vulnerable to hackers?
Surprisingly enough, South Korean exchanges have been hit the hardest. In January 2018, $500 million worth of NEM cryptocurrency coins was stolen from Japanese exchange Coincheck, while in June 2018 another $30 million was stolen from Korean exchange Bithumb. At the same time, another Korean exchange – Coinrail – was also hacked, with losses amounting to nearly $40 million.
But it’s not just South Korea where exchanges are feeling the heat; even big fish like Binance aren’t immune to attacks. Only recently, a phishing scam made its way around the internet, claiming Binance would give away 2 BTC for anyone that submitted their login credentials. The scam resulted in users losing 2 BTC altogether
Cryptocurrency exchanges are under siege. In the past week alone, South Korean exchange Coinrail was hacked, losing more than 30 percent of its virtual currencies, and Bithumb, another South Korean exchange, was hacked for the second time in less than a year. The loss from the Bithumb hack is thought to be as high as $31 million.
These hacks follow on the heels of a $500 million theft from Japanese cryptocurrency exchange Coincheck and $532 million stolen from another Japanese exchange, Zaif. That’s roughly $1 billion in cryptocurrency value stolen from three exchanges within four months.
How safe are exchanges? There’s no way to know how many other attacks may have been successful or foiled in secret. But there is a way to measure which cryptocurrency exchanges are the most vulnerable: by the total value of their digital currency holdings, versus how much they have secured those holdings with offline “cold wallets.” The more cash you keep in your bank account, the bigger target you make for thieves — it’s that simple.
Most of the cryptocurrency exchanges that were hacked are no longer in operation.
Bitstamp was hacked in Jan 2015 and lost 18,866 Bitcoins (BTC) then worth $5 million. The exchange has since become one of the most successful crypto exchanges around.
The exchange managed to take the lesson from its hack and has since made a name for itself as one of the most secure exchanges around, with decent fees and a great user interface.
Mt. Gox was one of the first major cryptocurrency exchanges, but it fell victim to a large-scale hack in 2014 which saw it lose 850,000 BTC then worth around $450 million.
The exchange filed for bankruptcy after the hack and is currently embroiled in a massive legal battle to pay back creditors and its users who lost funds on the exchange.
A recent report from Bloomberg around cryptocurrency and hacking shows that hackers are stealing upwards of $1.5 billion in cryptocurrencies.
The Bitcoin price could be one of the reasons for the high number of hacking incidents. Having over 1,000 cryptocurrencies and a market cap north of $500 billion, the crypto market has become too big to ignore. As such, it is natural that cybercriminals are active in the cryptocurrency space.
According to a report by CipherTrace published in October 2018, in the first nine months of 2018 alone hackers stole $927 million worth of cryptocurrencies. This represents an increase of more than 250% compared to 2017 when only $266 million was stolen.
There are many ways through which hackers can steal cryptocurrencies, including phishing attacks, malware attacks, and exchange hacks. However, exchange hacks seem to be more effective when it comes to stealing large amounts of money.
Founded in 2014, Bitstamp is one of the most popular cryptocurrency exchanges in the world. Headquartered in Luxembourg, Bitstamp offers services to trade Bitcoin, as well as Bitcoin cash, Ethereum, Litecoin, Ripple, and Stellar. However, it does not offer trading against fiat currencies.
Bitstamp has long been considered a secure exchange by many in the cryptocurrency community. However, over the course of its existence, it has been hacked several times.
The first hack occurred in January 2015 when an unknown hacker or group of hackers stole approximately 19,000 BTC from Bitstamp’s hot wallet (approximately $5 million at the time). The hack forced Bitstamp to suspend its service while it investigated what had happened and worked to recover its customers’ funds.
In a statement released following the incident, Bitstamp CEO Nejc Kodric stated that it was conducting a thorough investigation into the matter and that he would publish updates on their progress on their website and social media feeds. The firm detailed how they were able to identify the issue and resolve it within days.
The second hack occurred in April 2015 when hackers were able to compromise less than 19,000 user accounts and transfer their bitcoins to an address controlled by the hackers.