Why does Cryptocurrency get stolen?
Crypto theft is a very lucrative business. Given the large sums of money being stored, and in most cases, available for anonymous transfer, makes them a prime target for attackers. Combined with the still fairly unregulated sections of this market, the growth of blockchain as a whole, makes for a large incentive for criminals to target cryptocurrencies.
Being a digital currency, often directly connected to the internet. Also means less physical risk, or at least less perceived risk in stealing cryptocurrencies. The same phenomena is noticed with hacking or developing/distributing malicious software. Doing something illegal and risky from the comfort of your own home, feels much safer than breaking open a window on someone’s physical property and climbing in.
Combining all of these factors makes the cryptocurrency industry very prone to large scale theft of cryptocurrencies.
The bigger the harder they fall
When there’s money, there’s criminals. And when there’s a lot of money, there’s big criminals. The same goes for cryptocurrency. Even if a certain blockchain is hard to hack with digital measures. The people responsible or who own large sums of cryptocurrency, can still be social engineered or otherwise targeted. If you make the pay-off big enough, criminals will find a way to get the money.
The most bizarre Cryptocurrency heist
MT Gox is still by far the most interesting example of a cryptocurrency heist. Over 850k Bitcoin was stolen between 2011 and 2014. While Mt Gox claimed that this fault was caused by a bug in Bitcoin itself, a transaction malleability. Which is the process of altering a transaction’s unique identifier by altering the digital signature that was used to produce it.
In 2011 it was discovered that Mt Gox’s private keys were compromised and they did not use any techniques to discover the breach. Mt Gox even went as far as re-using Bitcoin addresses regularly, making it possible to constantly have currencies stolen.
The re-using of addresses wasn’t the only way criminals syphoned large sums of cryptocurrency. During it four years of operation, Mt Gox had overal terrible security posture. Leading also to network protocol deficiencies, failures to audit and huge blind spots in it’s overal infrastructure.
At the time, Mt Gox was responsible for about 70% of all Bitcoin transactions. Making it a huge target for criminals. Together with it’s horrible security and management issues, Mt Gox was defenseless against the criminals.
All this lead to the eventual bankruptcy and closing of the website in 2014. What followed was a seven and a half year legal battle, which was finally settled in 2021. When creditors and the Tokyo District Court reached an agreement on the Mt Gox rehabilitation plan.
Mt. Gox litigation has dragged on because of a $16 billion claim by CoinLab. Back in 2019, former Mt Gox CEO Mark Karpeles was found not guilty of embezzlement related to the bankruptcy, but was convicted of records tampering and received a two and a half year suspended sentence.
As recently as March 2022, the case got even more bizarre. With former CEO Mark Karpeles offered a token of commemoration to former Mt Gox customers. This token comes in the form of an NFT, which people can claim upon confirming they were indeed a customer of Mt Gox.
Conclusion and Takeaway
We can only marvel at the insanity of everything that went on during these turbulent times of cryptocurrency growth. The story of Mt Gox is a big one, it’s a story I highly recommend digging deep into if you’re up for a fun rabbit hole adventure.
I think an important, though expensive lesson, for everyone interested in owning cryptocurrencies or other valuable blockchain assets. Is to make sure you really understand the core technologies, what makes that blockchain work and the people behind the technology. Until we see better controls and regulations, apart from some taxation on trading currencies, it will remain a wild-west out there.