Hacks of cryptocurrency exchanges seem to occur with alarming frequency and ultimately many of them close down with investors left counting their losses. It’s ironic that the funds of a decentralized ledger like the Bitcoin blockchain are left so exposed on centralized exchanges. Until decentralized exchanges become more popular with traders, we should expect the hacks to continue.
Early Bitcoin Protocol Hack
Unless you were around in the very early days of crypto, you might not know that the Bitcoin protocol was hacked back in 2010. A bug in the core Bitcoin code, associated with integer overflows, allowed someone to create a staggering 184 billion coins.
At the time Bitcoin was only seven cents, but that would still have netted the hacker almost $13 billion. Fortunately, the hack was spotted within a couple of hours, and the developers quickly fixed the code for Bitcoin founder, Satoshi Nakamoto, to approve. It required a hard fork to roll back the blockchain to just before the hack and the rest, as they say, is history.
DAO Smart Contract Bugs
A much more heated debate arose when the DAO (Decentralised Autonomous Organisation) Smart Contract was hacked in 2016. This time a recursive call exploit was used to siphon off 3.6 million Ether worth around $70 million. Unlike the earlier bug in the Bitcoin protocol, this wasn’t a bug in the underlying Ethereum blockchain code. Nonetheless, something had to be done, so a smart contract was created to return 1 ETH for every 100 DAO tokens that investors had bought via the original smart contract.
To be able to create the new smart contract, a hard fork of Ethereum was necessary, and this split the community. Some argued that the blockchain should remain immutable and others that the hacker couldn’t be allowed to benefit from the flaws in the smart contract. Almost 90% of the community voted for the hard fork and those that didn’t maintained the original blockchain as a new coin, Ethereum Classic.
Mt Gox Exchange
The Mt Gox saga seems to run and run having been hacked for the second time in 2014. At the time, the exchange was handling over 70% of Bitcoin trades. Initially, it was established that 850,000 coins had disappeared between 2011 and 2015. Of those, 200,000 coins were subsequently recovered and handed over to the bankruptcy trustee. It was recently announced that the trustee had sold 40,000 Bitcoins between December 2017 and early February 2018 bringing in around $450 million for the Mt Gox creditors.
The crypto community was worried what would happen to the price of Bitcoin when the trustee sold the remaining 160,000 coins. As the creditors have now been repaid, I think their concerns are unfounded, and the remaining coins will be returned to the original shareholders, like CEO Mark Karpelès, for them to hodl or trade as they wish.
You can keep up to date with all the latest news and community banter by joining our lively Telegram community. See you there!
Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.