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A review of the top ten centralized exchanges hacked in history

Beosin

24-08-13 14:21

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Original title: "Top Centralized Exchange Hacks: Lessons Learned from History"

Original source: Beosin

Reference source: Top Centralized Exchange Hacks: Lessons Learned from History

In recent years, centralized exchanges (CEXs) like Mt. Gox and WazirX have suffered heavy losses from external hacker attacks, while others such as FTX have collapsed due to internal fund misuse. Even industry giants Binance and Coinbase face existential threats from the world's most powerful financial regulators.

Decentralized exchanges (DEXs) can effectively defend against the three major threats - hacking, fraud, and over-regulation - that have plagued CEXs. Of course, there are other threats besides "hacker attacks." For example, the downfall of FTX involved mismanagement and misuse of customer funds by its executives, something that is less feasible on a DEX, whose inherent structure promotes transparency and user control.

This article explores the biggest breaches in the history of top centralized exchange hacks From infamous intrusions to systemic vulnerabilities, the crypto world has experienced turmoil. Here, we review the top 10 worst centralized exchange hacks.

10. Bithumb Hack: Repeated Hacks

Founded in 2014, Bithumb quickly became a cornerstone of the South Korean cryptocurrency market, with more than 8 million registered users and a trading volume of more than $1 trillion. Despite its reputation, Bithumb has been repeatedly attacked.

Since 2017, Bithumb has suffered multiple breaches:

February 2017: Hackers stole $7 million.

June 2018: Employee personal data was exploited to steal nearly $32 million in cryptocurrency.

March 2019: Bithumb announced it had been hacked again, suspending deposits and withdrawals after losing about $20 million in EOS and XRP.

June 2019: Bithumb was attacked again, with hackers stealing $30 million worth of digital tokens.

Bithumb reported stolen assets during the June 2018 hack

In response to the repeated breaches, the Ministry of Science and Technology (MIC) of South Korea launched a thorough investigation, with key findings including:

· Inadequate network isolation.

· Poor monitoring systems that failed to distinguish between normal and suspicious activity.

· Inadequate management of cryptographic keys and passwords.

9. WazirX Crypto Hack

Over $473 million worth of crypto was lost to hacks and fraud in 108 incidents in 2024. WazirX alone accounted for 86.4% of the total amount of crypto lost to hacks in July.

Indian CEX WazirX announced plans to reverse all transactions after freezing withdrawals on July 18, 2024. On that day, WazirX suffered a major wallet vulnerability attack, resulting in the unauthorized transfer of more than $230 million in crypto assets. The attack targeted WazirX's multi-signature wallet on Ethereum.

More than $100 million in Shiba Inu (SHIB), 20 million MATIC tokens ($11 million), 640 billion PEPE tokens ($7.5 million), 5.7 million USDT, and 135 million GALA tokens ($3.5 million) were stolen.

Despite advanced security measures such as hardware wallets and address whitelisting, WazirX suffered a sophisticated attack. This requires a comprehensive security audit and continuous improvement of digital asset protection measures. The risks of centralized control of private keys are obvious.

8. Binance Hack: A Grim Reminder of Crypto Vulnerabilities

In 2019, Binance, the world’s leading cryptocurrency exchange, suffered a major centralized exchange hack. On May 7, malicious attackers used phishing and viruses to attack Binance’s security systems and steal users’ two-factor authentication codes and API keys.

The intrusion enabled them to steal 7,074 Bitcoins from the exchange’s hot wallet in a single transaction, worth more than $40 million at the time.

Following the incident, Binance CEO Changpeng Zhao announced the creation of the Secure Asset Fund for Users (SAFU) to protect user funds in extreme cases. Despite these measures, Binance faced another major security challenge in October 2022. Hackers used the cross-chain bridge BSC Token Hub to illegally generate and steal 2 million BNB tokens, equivalent to approximately $570 million.

7. KuCoin: Suffered a Hollywood-style theft

In September 2020, KuCoin suffered a Hollywood-style theft that ranks among the top centralized exchange hacks. The hackers first launched a cunning attack to steal Bitcoin and Ethereum into a mysterious wallet. The conspiracy became more complicated as the digital thieves gained access to the vault by stealing the private keys of KuCoin's hot wallet.

The next day, when KuCoin CEO Johnny Lyu addressed the world in a live broadcast, the crypto community was already on edge. The KuCoin team responded quickly, moving the remaining funds to a new hot wallet, closing the stolen wallet, and temporarily freezing all customer transactions to mitigate further risks.

Further investigation revealed that the stolen funds involved a variety of cryptocurrencies including BTC, ETH, LTC, XRP, totaling approximately $281 million. Despite the heavy losses, the proactive measures taken by KuCoin recovered approximately $204 million in stolen funds within a few weeks.

Even more intriguingly, KuCoin worked with international law enforcement to attribute this cyberattack to a suspected North Korean hacking group.

6. BitGrail: An Inside Job

Italian cryptocurrency exchange BitGrail is embroiled in controversy after €120 million ($146.55 million) was stolen from its platform. Italian police allege that Firano, also known as “FF,” may have been involved in the hack or negligently failed to strengthen security measures after the initial discovery of the vulnerability.

The series of events resulted in the loss of funds for approximately 230,000 users, and Firano faces charges including computer fraud, fraudulent bankruptcy, and money laundering, one of the largest financial violations in Italian history.

Afterwards, the Italian Bankruptcy Court took decisive action and declared Firano and BitGrail bankrupt. The court also ordered Firano to return as much of the stolen assets to customers as possible.

In addition, the court approved the seizure of Firano’s assets, including more than $1 million in personal belongings and millions in cryptocurrencies in BitGrail accounts. The court found that a software flaw in the BitGrail platform led to multiple improper withdrawal requests.

In CEXs like BitGrail, control of all assets and security measures is centralized, making them an attractive target for hackers.

5. Poloniex: A Tale of Two Hacks

Poloniex has suffered two serious security breaches.

In March 2014, hackers exploited a software vulnerability to steal 97 bitcoins, or 12.3% of the exchange’s bitcoin holdings at the time. Despite the setback, Poloniex managed to bounce back and fully compensated affected users.

Fast forward to November 2023, the exchange was attacked again, this time with a more serious attack. The attackers, suspected to be the North Korea-linked Lazarus group, stole private keys and stole approximately $126 million from Poloniex's hot wallets.

The modus operandi included the use of social engineering and malware to obtain critical private keys. After the hack, a complex strategy was adopted, including sending different tokens to specific addresses and laundering funds using decentralized exchanges, which made tracking and recovery difficult.

4. Bitstamp theft

Cybercriminals targeted Bitstamp's system administrator Luka Kodric, who unknowingly downloaded a malicious file that compromised the exchange's security. Hidden in a harmless document, the malware activated a script that infected Bitstamp's servers, giving the hackers access to the critical wallet.dat file and passwords.

Once Bitstamp became aware of the breach, it took swift action, establishing an emergency response team and alerting the entire company. Despite these measures, hackers were able to steal 18,866 bitcoins from hot wallets, resulting in losses of approximately $5 million at the time of the hack.

In the aftermath, Bitstamp undertook a massive overhaul of its trading platform, opting to rebuild it from the ground up rather than patch it. They migrated their infrastructure to Amazon’s secure cloud servers in Europe, implemented multi-signature wallet access, and hired Xapo for cold wallet management.

3. Bitfinex theft

In August 2016, Bitfinex suffered a cyberattack. Hackers exploited a vulnerability in the exchange’s multi-signature security system, which is powered by BitGo. They manipulated the security protocol and illegally withdrew 120,000 bitcoins from Bitfinex’s hot wallet.

After the hack, Bitfinex was transparent about its financial losses. The losses were spread across user accounts, with each account losing 36%. To mitigate the losses, Bitfinex issued BFX tokens to affected users, redeemable for U.S. dollars or iFinex Inc. shares, to facilitate a gradual recovery.

2. Coincheck theft

In late January 2018, Coincheck, a well-known Japanese cryptocurrency exchange, suffered one of the worst centralized exchange hacks in history. Hackers breached the exchange’s hot wallets and stole 523 million NEM tokens, worth about $534 million at the time.

Despite previous experience with other hacks, Coincheck still stored a large amount of assets in hot wallets and lacked adequate multi-signature protection. Immediately after the attack, the exchange halted all deposits and withdrawals to stop the flow of the stolen funds.

The cryptocurrency community quickly rallied to prevent the stolen assets from being liquidated. Exchanges such as ShapeShift banned trading of the stolen NEM coins and marked related addresses to prevent further trading. Despite these efforts, a full recovery of the funds has not been feasible.

1. Mt. Gox: A hack that will never be forgotten

The Mt. Gox hack remains arguably the most infamous and high-profile cryptocurrency theft, primarily due to its size and timing. This major incident is a classic example of a top centralized exchange hack.

In 2011, Mt. Gox, then the world’s largest Bitcoin exchange, suffered its first major security breach, resulting in the loss of 25,000 Bitcoins. The situation deteriorated further in 2014, culminating in a catastrophic theft of approximately 850,000 Bitcoins.

The impact of this hack was huge, affecting the price of Bitcoin and the trust of the global cryptocurrency community. "I lost almost everything. It has changed my perspective on digital currency security forever," one forum user shared, highlighting the far-reaching personal and financial impact of this hack.

Precautions for Exchange Security

Exchange security issues have become a focus of the entire cryptocurrency industry in recent years, especially after some major security incidents and internal problems led to the closure of exchanges or financial losses. In order to improve security, exchanges can take a variety of measures.

For example, keeping most of the assets in offline cold wallets and only storing a small amount of funds in online hot wallets to cope with daily trading needs can significantly reduce the risk of hackers successfully stealing large amounts of funds. On the other hand, by requiring multiple key holders to sign transactions, multi-signature can prevent the loss of funds due to the leakage of a single key.