Hacks

Safety in plain sight

Hacks and exploits in the blockchain industry refer to the unauthorised access to or theft of digital assets on the blockchain network. These can take many forms, such as wallet-related issues, bad key storage issues, and other vulnerabilities in the underlying technology. Wallet-related issues refer to the compromise of a user's wallet, which can be caused by a variety of factors such as poor security practices, lack of two-factor authentication, or malware.

One example of a wallet-related hack is the 2017 attack on Parity Wallet, which resulted in the theft of 153,000 Ether (worth around $30 million at the time). The attack was caused by a vulnerability in the wallet's smart contract, which allowed the attacker to gain access to the funds of multiple users. This hack highlights the importance of proper security practices, such as regular software updates, the use of secure, audited and battle-tested smart contract development practices and a permanent process of monitoring every transactions initiated through that wallet.

Another key aspect in the blockchain industry is bad key storage issues, which refer to the improper handling and storage of private keys. Private keys are used to sign transactions on the blockchain and are the only way to access digital assets. If a private key is lost or stolen, the assets it controls can be lost forever. A notable example of bad key storage is the incident involving the Canadian cryptocurrency exchange QuadrigaCX in 2019. The founder of the exchange passed away, taking with him the keys to the exchange's cold wallets, resulting in the loss of $190 million worth of assets. This incident highlights the importance of proper key storage practices and the need for secure cold storage solutions. Additionally, it also shows the importance of having backup and recovery plans in case of the unexpected loss of keys.

A third aspect in the blockchain industry is the exploitation of smart contract vulnerabilities - known in the industry as protocol exploits. Smart contracts are self-executing contracts with the terms of the agreement written directly into the code. They are used to facilitate, verify and enforce the negotiation or performance of a contract. Smart contract vulnerabilities can be exploited by malicious actors to steal funds or gain unauthorized access to sensitive information. An example of this is the hack of the decentralized exchange (DEX) platform DAO in 2016. An attacker exploited a vulnerability in the platform's smart contract and stole $50 million worth of Ethereum.