Blockchain security firm CipherTrace recently reported that $731 million worth of cryptocurrencies were stolen from crypto exchanges during the first half of 2018.
Last year, crypto exchanges recorded around $266 million in losses from security breaches and heists. The first half of 2018 recorded triple the amount stolen from crypto exchanges in 2017, triggering investors in the cryptocurrency space to develop concerns regarding the standard of security measures implemented by crypto trading platforms.
Poor Regulation, Lack of Talent
Two of the biggest crypto exchange hacks in 2018 were the $500 million Coincheck hack in Japan and the $40 million Coinrail hack in South Korea. Both exchanges stored an unusually large amount of crypto assets in their hot wallets, or wallets connected to the internet, instead of cold wallets stored offline.
As such, as soon as hackers gained access to the system of Coincheck and Coinrail, they were immediately able to steal hundreds of millions of dollars in cryptocurrencies without any hurdle.
Subsequent to its hack, Coincheck admitted that its $500 million security breach was a result of the lack of talented and experienced developers working on the platform’s security systems.
Coincheck CEO Koichiro Wada said in an interview with Bloomberg:
“We were aware we didn’t have enough people working on internal checks, management and system risk. We strived to expand using headhunters and agencies, but ended up in this situation.”
However, the statement was released after a controversial press conference regarding the hacking attack that prompted investors to outrage over the company’s attitude about its infrastructure. Merely days after the breach, Coincheck held a press conference to outline the company’s future and the method that will be used to deal with the breach.
As CCN.com previously reported, Yuji Nakamura, a technology reporter based in Japan, said that Coincheck claimed:
- Only NEM was impacted
- Coincheck plans to continue operating
- Not decided on how to reimburse customers
- No Multi-Signature
- Would not admit security was weak
- Not sure how it was hacked
Essentially, investors were outraged by the fact that the exchange did not know how the hacking attack occurred, its failure to utilize multi-signature technology to secure user funds, and its reluctance to admit that its security was weak.
Coinrail, formerly the fifth-largest digital asset exchange in the South Korean market, also admitted after its breach that it did not have enough resources and developers to fix and improve its security system.
How Can Exchange Hacks be Prevented?
Japan and South Korea, two countries that experienced the largest security breaches in 2018, have already started to implement strict regulatory policies to establish industry standards regarding cryptocurrency exchange security.
The government of South Korea has chosen to regulate cryptocurrency exchange as banks, providing local financial agencies the authority to monitor and oversee crypto exchanges.
With stricter regulations and consistent monitoring of the security systems implemented by exchanges, authorities of Japan and South Korea expect the magnitude of security breaches in the cryptocurrency sector to decline over time.
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Last modified: March 4, 2021 5:09 PM