Hacking Cryptocurrency Exchanges
Nov 7th, 2017
Hacking Cryptocurrency Exchanges does not necessarily include heists. However it may use “good-old” techniques.
One day an old Swiss farmer told me: “Son, if you want to stop the milk industry, unplug the electric milking machines”. Likewise, governments can declare exchanges illegal. Hacking Cryptocurrency Exchanges becomes then a political act. It’s as efficient as unplugging a milking machine.
Hacking Cryptocurrency Exchanges
Governments’ hacks are not the only ones, though, in a pretty open and deregulated realm.
Never mind if cryptocurrences seemingly offer a secure, digital way to conduct financial transactions
Exchange collapses like the one of Mount Gox, Moolah, Cryptsy, etc., just to quote a few, are there to show how easy it is to loose in this “perfect world”. And, for the moment at least, the actors of these collapses may come out unscathed.
That is not to speak about the volatility of valuation, but that’s “business like usual”, right? Unlike stock exchanges Cryptocurrencies may have unmitigated flash-crashes, have no stop-loss mechanisms, and no one can suspend quotations.
The only caveat is that when any product increases so rapidly in price, appetites grow, and new genres of malevolent actions arise. The “realm of cryptocurrency” is totally unregulated, and no government or central bank is backing it.
Exchanges level of security is extremely variable. Some inflate their trading volume to get new customers, a procedure similar to false advertisement or “salting” gold samples.
At least three highly publicized thefts in exchanges happened since 2011. When such event occurs, generally the exchange ends-up shutting down later.
In today’s value 4BUS$ worth of bitcoins have reportedly been stolen to date. The recovery rate is very poor, burning the wings of many investors. For example approximately 25,000 customers of Mount Gox are still awaiting for compensation.
Are cryptocurrencies a fraud, or even worse?
Voices are raising around the world declaring the cryptocurrency world a fraud, a bubble, and predicting it will blow-up soon. One could even imagine that banks could boycott cryptocurrencies and refuse to carry out transactions used to feed buy/sell orders of cryptocurrency. Another easy way to Hacking Cryptocurrency Exchanges without using any sophisticated technique. That Swiss farmer should have won the Nobel Prize in Economics!
And, of course government may use all their might if they consider cryptocurrencies laundering tools, or sanctions’ circumvention tools. The fact that exchanges may allow users to work anonymously boosts those suspicions.
In a little more than one year one of the largest exchanges, a four years old exchange called Bitfinex has reportedly been fined by a U.S. regulator, lost US$72 million worth of bitcoins to hackers and was cut off by Wells Fargo. That’s not to say that Wells Fargo has a spotless reputation these days, but at least it is somewhat kept in check by rules of law. Bitfinex has reportedly no head office. Three executives who live in Hong Kong, the United States and Europe manage Bitfinex. A British Virgin Islands company is the Bitfinex owner. No HQ to raid… I guess.
So what about Risk Management?
Do you want to play? Play!
However remember not to put all your eggs in the same basket and be very aware of your risk tolerance!
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