Can crypto coins and exchanges be hacked? It is said and believed that a Bitcoin network is pretty hard to hack but then the risk of the coins being stolen from the wallets on the crypto currency exchanges always remains.
And, this applies to all types of crypto coins. Ideally, it is more feasible to say that the risks of crypto coins are pretty low but are not nil.
A crypto network is usually underpinned by the blockchain technology which is transparent, decentralized and difficult to hack and there are lots of good reasons to say so.
Blockchain technology is quite innovative and the data of the transactions are not stored in the central server.
Instead, it is distributed across a large network of computers called nodes.
These nodes are checking the records constantly and verifying them for their legitimacy and accuracy.
This makes it very difficult for a bad actor to hack the system because it will need breaching a large number of these nodes to get into the network and gather information.
However, this is not impossible mind you. There are lots of incidents of crypto exchanges and wallets being hacked before.
However, there has been no incident, especially in the case of Bitcoin, when an entire crypto network was hacked.
Still the potential security risks are always there in different stages of the crypto trading process.
And, since crypto coins are stored in digital wallets and traded via the crypto exchanges, it is not very difficult for a hacker to get access to any one or both of them and steal the coins of others.
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Can Crypto Coins and Exchanges be Hacked?
Usually, the crypto exchanges are quite secure to trade coins since they have advanced security measures in place.
And, as for the crypto wallets, these are also quite secure with specific security measures such as 2FA or Two Factor Authentication are used commonly.
The hackers can infiltrate these wallets and steal the coins if only they can access the personal information that is not related to cryptocurrency, well at least some of it.
Moreover, all crypto users know the value and potential of these digital assets and usually take proper precautions to safeguard their coins.
As you may know the crypto market is worth hundreds of billions of dollars as of now and therefore it is quite natural that it will experience threats of hacking, cracking, hijacking, and phishing.
The crypto market takes proper precautions to mitigate such risks with proper measures, which is why the assaults on it, till date, were typically around the edges.
The most burning example of it is the hacking of Mt. Gox, a Tokyo-based crypto exchange that functioned between 2010 and 2014, and the heist did not kill cryptocurrency.
Yes, there have been several incidents of data breaches in the past but that does not mean this system is unsafe.
One of the most notable data breaches was when the personal information of over 270,000 Bitcoin and crypto users was stolen, according to a Forbes report of December 23, 2020.
It is this blockchain technology that is quite efficient to fend off hacking attacks from other crypto platforms and coins as well due to its decentralized and distributed nature.
If ever the entire network is hacked or even a 51% attack will create a doomsday scenario.
However, having said all these, the vulnerabilities cannot be taken away completely from the crypto wallets and crypto exchanges.
Therefore, these get hacked and there is very little one can do to eliminate such chances completely.
It is all due to the development of technology that has had both good and bad effects on crypto.
As for the good done to crypto, it has made trading faster, simpler, and safer due to the use of blockchain technology.
But, on the other hand, such developments have allowed the hackers to find new ways to compromise the systems.
It is for this reason you should be well versed with the inherent risks and take proper measures to ensure that your personal information as well as your coins are safe in the wallets and in the crypto exchanges.
The Hack-Proof Concept
Bitcoin, in particular, is considered to be hack-proof because attacks on the network are less likely to happen since the Bitcoin blockchain is reviewed by the entire network continuously.
You will be surprised to know that Bitcoin itself has not been hacked right from the day it was launched till date.
Just like Bitcoin, other crypto networks also follow the same process to ensure accuracy, transparency, and legitimacy of transactions.
No new block is added to the chain without verifying the contents in it properly. This is typically done by a specific process called mining.
In this process each participant of the network, called a miner, needs to update the distributed ledger continuously by solving complex mathematical problems.
These math problems or algorithms are built by the cryptographic hash function.
Every miner needs to use their respective computing power of the computers, called nodes, to solve the puzzle.
It involves a lot of permutations and combinations with lots of small changes made in the input to get the desired output.
Once it is obtained, it is needed by the miner to get it confirmed by all other participants in the network.
It is only when all of them, or the majority of them, agree to it the new block will be considered to be valid and will be added to the chain.
The miner who solves the puzzle first however is rewarded for the effort with the same coins which incentivizes and motivates further.
It is nearly impossible to hack such a well-connected network and manipulate the transaction records.
This is because manipulating only one hash will not be enough because it will then change all other blocks related to it.
This means that hacking a single node will not do which is why it is said that there is no single point failure in crypto blockchain.
What Really Happens?
In spite of the decentralized, power-intensive and chronological computing characteristics of the blockchain hackers can still get into the system and may erase or overwrite a block.
This will cause double spending of crypto.
In such a situation what really happens is that the hacker hacks not one but more than half of the nodes participating in the network.
This is called the 51% attack and is considered to be the most common and significant threats to crypto blockchain networks.
It gives the hacker the power to control the network and manipulate transactions according to his wish.
However, this is an extremely difficult and costly method because the hackers need to use an exceptional amount of computing power and therefore it is less likely to happen or be achieved.
Therefore, the hackers turn towards hacking the crypto wallets and exchanges that are relatively easier to hack since they seldom need to perform a 51% attack for that.
They can do so in several other ways which are also good for you to know to gain a more comprehensive knowledge. These are:
Phishing:
This is the most widely used technique followed by the hackers to get into wallets and crypto exchanges and is quite an effective technique as well.
This is ideally a process in which the users themselves give away their sensitive info to the bad actors thereby giving them the opportunity to access their wallets.
In this process fake yet legitimate-looking websites, malicious ‘confirmation’ or ‘potential hack’ emails are sent to the potential targets. These emails contain links to a fake website.
When you click on them to visit the site, it will ask you to furnish your personal and other authentication details which will be stolen from you by the hacker eventually.
SMS verification:
Sometimes compromising SMS verification may also be sent to the potential targets.
Since 2FA verification messages are sent through mobile phones, the hackers try to intercept these messages through their fake messages.
The hackers steal the desired info through different methods such as cloning of SIM card, wiretapping, and vishing, which is also known as voice phishing.
Malware:
This is the traditional method of hacking the crypto wallets but is very effective overall.
Sending malicious software or malware as it is commonly known is one of the main hacking methods of crypto in particular.
In this process, the device is infected with keyloggers to steal PINs or passwords.
Sometimes there are cross-scripting injections on the web pages which redirect the legit user to the malicious websites.
From there, either the sensitive information is stolen or malware and ransomware are downloaded to the device of the user.
Mobile applications:
Mobile apps are good to use to deal with crypto but sadly not all of these applications are safe.
Most of these apps come with poor and weak architecture along with security backdoors making them vulnerable to different types of cyber attacks such as MITM attack.
The API keys also result in data leakage that is typically stored in unencrypted databases.
The hackers may have several reasons to attack mobile apps right from brute-force attacks to stealing the PINs or to perform illegal actions on your behalf to manipulate the market positions.
This is usually done by dropping your positions from some crypto coins or by creating a demand for it.
Stealing key pairs:
You will need a pair of keys, public and private, to make any financial transaction with crypto.
The private key is available to the holder only and acts as a digital signature that authorizes to perform a transaction.
The public key, on the other hand, confirms the private one. The private key is typically stored in the crypto wallet and the hacker usually targets this.
They try different methods to get hold of the private keys such as apps with spell checkers, browser extensions, common system vulnerabilities and more.
Possibilities of a Shutdown
Since Bitcoin has not experienced 51% attack, the network was not shut down since its inception to date even for a very short period of time.
However, banking officials, government institutions, and other actors all try hard to shut down this project even today as they did before but the Bitcoin network in particular has been running for more than 10 years now with nearly 100% uptime.
As for the other crypto coins, it is also the same but there are several coins that went out of the market but that is mainly for some other reasons apart from hacking incidents.
However, in really extreme situations, there can be a few specific scenarios that may result in the end of crypto or Bitcoin.
Here are some of the scenarios:
- A very big power outage on a global scale that may shut down internet and all communications across the globe thereby preventing the nodes from operating and resulting in a complete failure of the system and
- An undetected bug in the coin update that may cause an impairment for a short time in the network which may consequently result in a fork of the blockchain or a steep fall in the price of the coin.
However, crypto networks usually cannot shut down.
This is because the network is decentralized which means that one single government cannot shut it down as the nodes may be spread all over the world in different countries where the governments may have different opinions about crypto.
However, like China has done, crypto has been banned in some countries but that is to eliminate or restrict the use of crypto in a specific region with respect to the government that banned it.
Though all other countries of the globe may not follow the footsteps of China, several governments are trying to impose some regulations on the operating and functioning of crypto.
However, this is done in order to collect taxes and based on the apprehension that the digital coins may take over fiat currencies.
A 51% attack is also a possibility which may overthrow a crypto network though such a heist by the attackers is less likely due to the huge cost involved in making such attacks.
Then there is the chance of market saturation and fatigue.
With more and more different types of crypto coins launched into the market that are supposed to be more improved on a daily basis, a day may come when almost everyone will have bought a digital asset.
However, such a situation may not result in a complete shutdown of crypto because it will only result in unavailability of buyers and sellers in the market which will result in the decline in price but not a demise of the crypto project.
This means that all crypto coins, just as Bitcoin has done for the past ten years, are very likely to hold on to their repute and store of value.
Chances of Pilferage
You may ask now, why do crypto coins including Bitcoin get stolen if blockchain technology is so able to secure it?
Well, the simple answer to this question is that it is primarily due to the discrepancies in the security aspects of the website.
The higher these are the more will be the chances of crypto being stolen.
Add to that, it is also due to the irrational behavior of the individuals who do not take enough precautionary measures.
They often store crypto in places that are particularly not secure and thereby have their coins stolen easily.
For example, the hot wallets, or those that are connected to the internet and are typically hosted by the crypto exchanges are more vulnerable to hacks and cyber attacks.
These wallets can also be on mobile or desktop devices.
More often than not, these wallets do not have state-of-the-art security mechanisms in place.
Therefore, it can be hacked easily and the keys stolen by the bad actors.
After what happened to Mt. Gox, the crypto world however learnt a lesson and several of the crypto exchanges all over the world started implementing appropriate security measures since then to prevent frauds and hacks.
Still, it is recommended that the users practice safe habits while dealing with crypto to mitigate the chances of hacks and funds being stolen in spite of such foolproof security measures to protect the crypto wallets.
Exchange Hacks
Crypto has not only allowed the knowledgeable and diligent investors to become rich by making millions but has also offered the hackers to make off billions of dollars worth crypto through their combined efforts last year.
The only difference is in the approach.
While the investors make the best use of the crypto exchanges legally to make profits from their speculations and efforts, the hackers make the most out of the vulnerabilities of the crypto exchanges.
This actually should be taken as a warning signal for all, but more importantly by the beginners and those who are thinking of trying their luck in this exciting crypto space.
Crypto exchanges are now one of the most lucrative targets for the hackers all over the world.
This is because hacking a Fortune 500 company may let a hacker steal a few usernames and passwords but, on the other hand, by hacking a crypto exchange a hacker will have millions of dollars to steal!
Crypto exchange hackers of today are like modern bank robbers.
Crypto has emerged significantly over the years and has become a more mainstream investment tool.
People can buy and sell a diverse range of coins right from Bitcoin to Altcoins like Dogecoin.
There are lots of crypto exchanges available out there and more are being launched by the tech entrepreneurs almost anywhere in the world.
And, with no regulations in place, they can run these exchanges anyway they want.
Typically, crypto exchanges work more or less like the traditional stock exchanges setting prices for different coins and charging a small fee from the users when they trade on them.
Crypto coins as such offer some amount of security because it is encrypted, which ideally gives it the name.
However, the crypto exchanges that manage trading these seldom have proper security features especially the new ones that have a small staff which means a few, if at all any, full-time cyber security experts.
The developers sometimes leave flaws in the design accidentally when they try hard to make the code work.
This gives the hackers a chance to exploit these vulnerabilities.
Moreover, the fact that the volatile crypto market often gives them a chance to hold a large amount of money make these crypto exchanges particularly ripe targets for the cyber criminals.
Crypto exchanges often hold the assets in cold wallets but they do keep a considerable amount in the hot wallets that are liquid and connected to the internet.
If a hacker can get hold of an employee account by breaching the security of the internet, they can wipe off a considerable amount of money.
This means that if a hacker manages to get hold of the private keys of the users somehow from the hot wallet of the crypto exchange, they do not just steal the database of the names and Social Security Numbers of people but literally steal all their money.
If a crypto exchange is quite wealthy, it may have an emergency fund to pay off the users to compensate for their losses when the exchange is hacked but sadly not all crypto exchanges are that wealthy.
In such situations, most of the crypto exchanges go out of business.
The primary reason a crypto exchange is hacked is that they avoid government regulations and most of them are set up in countries where law enforcement do not have much authority to go after the hackers.
The crypto exchanges also do not seek help from the government if hacked due to ideological grounds!
They want to be anti-bank and stay like that which is why they are often reluctant to work with the law enforcement agencies even if it would have been valuable for them.
This, on the other hand, leaves very little for the consumers to do who have no recourse or closure because there is hardly any physical evidence of such incidents.
Therefore, it is quite difficult to build a solid case. It takes a lot of time which fails in keeping pace with the attacks.
Vulnerable Transaction Process and Wallets
Crypto coins can also be lost due to the vulnerable wallets and the transaction process.
As you may know crypto coins are held in digital wallets and are traded over the crypto exchanges.
Both these elements are subject to several security risks.
The crypto users usually receive private keys that allow them to access their wallets.
If this key is lost they will not be able to access it and their money will be lost forever.
The hackers try to infiltrate these wallets and get hold of the private key of the users and steal their money.
Inadequate safety measures make these wallets vulnerable.
Developers are continuously on the lookout for ways to improve wallet security but as they are, the hackers are also engaged to find ways to outsmart them and get access illegally to the wallets of other people and swipe their coins.
As far as the transaction process is concerned, 2FA is one of the most commonly used safety measures.
However, this too is quite vulnerable because having the security aspect linked to a mobile phone number or an email address means that any person who has access to these components can validate transactions.
And, it may not be you always. If the hackers can get hold of some of your personal information they can infiltrate into it and manipulate the transactions.
Blockchain Hacking
Out of several use cases of blockchain technology, crypto blockchain is more common and popular. This is termed as unhackable due to:
- The distributed nature
- Immutable record maintenance
- Trustless nature and
- Mining process that ensures accuracy and legitimacy of each transaction.
However, crypto blockchain can also be hacked and it is mainly because the technology is relatively new and in its developing stage just as the crypto market itself is.
There are several recent incidents that have unfortunately established this possibility in specific situations.
These are:
- 51% attacks on smaller blockchain networks which allows the hackers to create a completely different series of transactions or even create a second version of the current blockchain called fork and post it as the true version so that they can double spend cryptocurrency
- Creation errors that may result in security glitches especially in larger and more intricate blockchain networks that are transpired through smart contracts to the hackers who then exploit such vulnerabilities to get through and create a fork or steal the money simply and
- Insufficient security measures surrounding the crypto exchanges that provide the hackers with easy access to steal data, information, and money of course.
According to recent reports, blockchain hacking has grown significantly over the last couple of years due to the existence of such vulnerabilities in it.
The hackers are interested in hacking a blockchain due to several good reasons such as:
- The potential of it to multiply investments quickly
- The lack of governmental regulation
- The high speed of transactions
- Data and user confidentiality.
With the technology emerging continually, the bad actors always find a better way to outsmart the developers of a blockchain and penetrate in it to compromise transactions.
Therefore, users need to be very cautious and research well before getting into it.
On the other hand, crypto exchanges should apprise others about the risks especially if it is a new solution.
However, the good news is that at this point there is no need to be extremely worried and apprehensive about this technology because it is still quite secure in design.
It is expected that the developers and administrators will be looking for better ways to continually improve their network to deter hackers in the future.
Conclusion
The crypto word is growing fast and people are taking more interest in it.
However, crypto exchanges and wallets, two of the most important things that allow crypto trading, can be hacked and so you should be very careful with your actions.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.
