Author: Gan Jia Ci
The recent cryptocurrency exchange hack surrounding Bithumb has caused a great hoo-ha among investors and influencers alike.
While the South Korean exchange platform has been scrambling to make amends by offering compensations to cover the loss of over $30 million, many still remain perplexed by the lack of explanation offered by Bithumb.
In a bid to salvage the tragedy efficiently, Bithumb announced on Twitter that they would be freezing the deposit and withdrawal services temporarily to reduce the damage caused.
South Korean investors are starting to lose faith in local exchanges, especially since the recent Bithumb hack transpired only weeks after the Coinrail cyber attack that resulted in a loss of over $40 million.
With blockchain, the repercussions of a cyber hack proves to be more severe compared to traditional technology. While many have resigned to the mentality that large trading platforms serve as an inevitable bait for cyber attacks, this may only be a misconception. Many major players including UPBit, Binance, Gemini and Huobi have maintained a long-standing position without getting hacked.
Industry Leaders on Building Confidence and Preventing Hacks
CEOs of Hosho, Kowala and Radar Relay have spoken out on the recent Bithumb saga and highlighted the key approaches towards building confidence among community members and preventing hacks.
“These hacks are becoming more frequent as the incentives for hackers remain enticing. Companies need to make a dedicated and continuous effort, through penetration testing and smart contract auditing, for example, to provide the security necessary to protect the assets of their investors and users.”
– Yo Kwon, CEO of Hosho
“The Bithumb hack serves as yet another reminder that implementing crypto industry-friendly regulatory frameworks are of critical importance to the prolonged success of the industry. Without them in place, there is no way to ensure that security measures throughout the crypto landscape are held to a uniform standard. Once regulators define the rules of the road and security protocols for digital asset exchanges, these exchanges will mature and strengthen in turn.”
– Eiland Glover, CEO and co-founder of Kowala
“Centralized exchanges are built for speed and convenience, not security. Their architecture uses active wallets, often called hot wallets, to move assets in and out while each user’s balance is maintained internally. To a bad actor or a hacker, this security model looks like a target, with billions of dollars worth of assets available to steal if they find a flaw in the exchange app or underlying security architecture.
While there are clear best practices for architecture design, there is no cyber security oversight from global regulators on exchanges. In the wake of significant hacks, service providers like BitGo have partnered with exchanges to implement robust security management controls.
Large institutional investors gravitate to platforms with a track record of operational excellence, support, and business lines they are familiar with. Meanwhile, the large hacks are motivating some savvy institutional investors to work with non-custodial trading venues (like Radar Relay) so they don’t have to face the operational risks of a centralized exchange.”
– Alan Curtis, CEO of Radar Relay
With great power comes great responsibility, it seems that there is still much to work on for these leading platforms to strengthen security.