Korean Crypto Exchange Bithumb lost more than $30 million in the most recent crypto hack, further emphasizing the need for security in the industry. With blockchain technologies, the repercussions of a hack are much greater than in traditional technology. Bloomberg reported that Exchanges are a juicy target for hackers, with more than a billion dollars worth of cryptocurrency being stolen.
In response to the latest hack, industry leaders highlight the importance to build confidence in the industry, follow best practice, implement a regulatory framework as well as decentralise the custody of customer funds, a tactic to heighten security in order to prevent future 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.” stated Yo Kwon, CEO of Blockchain security firm Hosho
Eiland Glover from Kowala, believes regulatory framework for the crypto industry is vital, “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.”
As more people are introduced to cryptocurrency, more hot wallets are opened. While it is best practice to only use exchanges for what they are intended, buying and selling crypto, many new investors and traders do keep their digital assets on an exchange despite the risk.
Alan Curtis from Radar Relay says “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.”
The incidence of hacking, malware, and intrusion by malicious actors is increasing in the digital economy. Cybersecurity is essential.
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