Crypto Finance’s Perennial Problem
The crypto world has its share of high-stakes gambles, but nothing can quite compare to the high-seas adventure presented by the Bybit hack on February 21, 2023. The numbers are staggering: 499,000 ETH stolen, worth about $1.5 billion at the time, and a hastily laundering of 89,500 ETH in just 2.5 days.
This series of events pulls back the curtain on the perennial problem of crypto finance: how do we prevent these kinds of hacks — or at least make it harder for them to happen?
Bybit’s CEO, Ben Zhou, was coy but insistent in his announcement that the exchange was close to achieving 100% of its ETH reserves and had returned a 40,000 ETH loan to Bitget. It’s a testament to how quickly some exchanges can get back on their feet after a hit to their crypto wallet and exchange reserves.
The Criminal Mindset
It’s hard to understate how sophisticated the laundering operation was. The hackers laundered 89,500 ETH, nearly 18% of the stolen funds, at breakneck speed. They used cross-chain asset exchanges, which are notoriously difficult to track, to do their dirty work.
Rumor has it they were doing 2-3 transactions per minute, pausing every 45 minutes to not get caught, which sounds suspiciously like a well-crafted movie plot. A good crypto trading fund needs a plan, and these hackers may have seen themselves as entrepreneurs on a mission.
Building a Better Crypto Exchange
If exchanges want to see more than just a tiny fraction of their stolen funds returned, they need to up their security game.
Exchanges like Bybit could tighten their KYC and AML processes. They could also invest in multi-factor authentication, cold wallet storage, and regular security audits. Transaction monitoring systems using algorithms and machine learning could also help work on the front lines of preventing hacks.
The Role of Fintech Startups
Fintech startups are also getting involved in what appears to be a bid to create a safe, secure ecosystem.
They might be hopping on the bandwagon of advanced security technologies and regulatory compliance, but are they really going to be the ones to save the crypto world?
They'll need to be able to track and disrupt illicit activities as well, and by ensuring safe and transparent transactions, they might help keep the crypto world running.
The Price of Reputation
At the end of the day, loss of faith is a high price to pay. "Money laundering terms" might be the common parlance, but they don't make for a good marketing tool.
Cybercriminals reportedly laundered $8.6 billion in cryptocurrency in 2021, a 30% increase from 2020. The need to clean up the reputation of cryptocurrency is as important as ever, but will the price be too high?
