OPINION: Earlier today, top Korean cryptocurrency exchange platform Bithumb was hacked for a loss of about $30 million. While this has been the buzz in the crypto world, many have forgotten that another infamous hack occurred on this day.
The hack occurred 7 years ago almost on the same day that Bithumb was compromised. The hack on Mt. Gox happened on 19th June 2011, a fateful day where the security of the exchange was compromised. A hacker used a compromised company and accessed the exchange to artificially alter the value of Bitcoin to one cent.
The hacker then proceeded to transfer 2000 Bitcoin tokens from customer accounts. Some investors bought Bitcoin during the hack, as a reported 650 BTC were purchased at this time.
This was the beginning of security concerns for Mt. Gox, as it saw one of the biggest and longest-running hacks soon after. Starting in September 2011, Mt. Gox was hacked for over two years, with the hackers making away with 850,000 Bitcoin tokens. The exchange then declared bankruptcy in February 2014.
With this monumental hack in the history of exchanges, it is important to note that exchanges must enforce stringent security measures. With 2 hacks over the past 12 months, Bithumb is falling short on these standards.
In July of last year, Bithumb suffered an attack that occurred through the PC of their one of their employees. The hack involved the theft of personal details of about 31,000 users, which constitutes about 3% of the platform’s userbase. This was then followed by losses from targeted accounts to costs of $8700 reported by a few users.
The recent hack that occurred in the early hours of the morning on 20th June, with the exchange reporting $31 million lost in various cryptocurrencies. The remaining funds were shifted to a cold wallet for safe-keeping. Although it has said that it will use reserve funds to compensate all users who lost currency in the hack, continued attacks represent a bigger problem.
Charlie Lee, the Creator of Litecoin, emphasized his point not to store funds on exchange platforms. He said on Twitter:
“Another day, another hack. Hopefully BitThumb is able to cover this amount, though $30MM is not a small amount. As I’ve said many times, be smart and only keep on exchange coins that you are actively trading. It’s best to withdraw right after trading.”
Exchanges are being used as the custody solution for many investors, as the wallets of top exchanges hold millions, if not billions in cryptocurrencies. As wallet offerings such as the Trezor hardware wallet and Ledger wallets become more easily available, it is important to emphasize the shift of funds to these solutions. While they are undoubtedly more secure, they also allow investors to take control of their funds.
Custody solutions for institutional investors are also coming to the forefront, as enterprise-level storage solutions are being offered by mainstream exchanges like Coinbase. Institutional exchanges such as LDAX and SBIVC are gaining popularity as exchanges backed up by trusted financial institutions.
Such ironclad storage solutions will drive adoption and safe custody of larger amounts of digital assets, as will be seen by institutional investors. Millions of money that will flow into the market driven by institutional investors will need a place to securely store their funds.
The standards for their custody needs have already been set by industry leaders in custody, but the standards for the crypto world are yet to be established.
Hacks such as these provide opportunities for exchanges to set these standards, not only for the safety of funds in their own wallets but also for the safety of funds with investors.
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