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The three biggest crypto hacks since 2011
#1: The first major hack on a crypto exchange happened back in 2011, at crypto exchange Mt. Gox.
Hackers managed to steal around 500,000 BTC through the previous exchange owner’s audit account.
Then in February 2014, the exchange lost another 850,000 BTC from user wallets. Attackers used a loophole in one of the protocols, which allowed changing transaction identifiers so they could repeatedly sell the same asset.
In total, around $450 million was stolen and bitcoin’s price crashed around 30%.
But in 2018, a process called “Civil Rehabilitation” was launched. This entailed a trust fund, which was required to sell 35,841 BTC and 34,008 BCH (bitcoin cash) to pay the affected customers.
#2: In August 2016, the second-largest hack occurred at Bitfinex.
The amount of stolen funds equalled 120,000 BTC or $72 million at the time of the hacking. This time, hackers managed to take advantage of a security vulnerability.
Subsequently, this hack saw the Bitcoin price fall around 18%
However, Bitfinex issued tokens that were converted into dollars as compensation to the affected users. All the funds were returned to the investors.
#3: In May 2019, the largest and one of the most reliable crypto exchanges in the world, Bianance, was hacked.
More than 7,000 BTC was stolen from its accounts. Considering the exchange rate at the time of the attack, the cost of stolen funds equalled approximately $40 million.
Attackers used a series of phishing attacks for two months. And from this, collected the account data of a large number of users.
The good news, however, was Binance announced its “insurance fund” would be used to cover losses fully, and initiated an audit of the existing security system.
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So, what can you learn from these hacks?
Hackers are becoming more inventive.
Back in 2013, they simply stole BTC from exchanges and transferred them to their addresses.
Now they create API keys to exchange cryptocurrencies to cover their tracks by laundering funds to another less-traceable asset on the same exchange and then withdrawing the funds.
But here are some important tips to help you protect/minimize crypto losses in case of a hack…
1. You should not store all your coins on one exchange because if it gets hacked, you can lose everything. Rather distribute assets between several exchanges or keep them in a wallet and only send funds on an exchange to perform the necessary operation and withdraw them back to your wallet when you are done.
2. If you open a crypto account, make sure the exchange has a good reputation. Large exchanges often have an insurance fund, which can be used to compensate the customers for losses in case of hacking.
3. Use two-factor authentication, a unique username/password pair for each account, pay close attention to which site you visit, and occasionally check your mail for suspicious emails. NEVER click on emailed links to exchange log-in pages; go directly to the exchange website by typing the name into your browser address bar.
See you next week.
Managing Editor, The South African Investor