Crypto's Cyber Security Challenge

September 28, 2020 12:07 AM
Crytpo and Bitcoin Market Cap Story of Day

Crytpo and Bitcoin Market Cap Story of Day





Crypto prices were positive this morning as bitcoin (BTC) threatens a breakout at USD 11,000. Volumes over the weekend were light and spot activity remains just 50% of the 30-day average.


This weekend KuCoin Exchange, one of Asia's largest, reported what appears to be a USD 150 million equivalent hack in BTC and several other digital assets. The platform has announced that all customer impairments will be covered either by the company or their insurance fund. Despite the loss, we believe this episode is an example of improved counterparty risk within the crypto ecosystem.

KuCoin’s CEO Johnny Lyu said, in a live stream, that the hacker obtained the exchange’s hot wallet private keys while cold (offline) wallets remained untouched. The company clearly states in their press release that, “If any user fund is affected by this incident, it will be covered completely by KuCoin and our insurance fund.” The exchange released a list wallets where stolen funds were transferred. Bitfinex and Tether CTO Paolo Ardoino tweeted that those firms had frozen approximately USD 34 million worth of tether suspected of being associated with the attack.

The reality of the matter is that cybersecurity is an increasingly difficult task in any industry. It is relatively well understood, for example, that traditional banks lose 100s of millions in unreported cyberattacks each year. With crypto being so online-oriented, it’s most likely going to take a major innovation to eliminate the risk entirely. That said, the difference between the KuCoin hack of USD 150 million equivalent over the weekend and, for example, the Bitfinex hack of USD 80 million in 2016 is the more robust environment and infrastructures these exchanges have now built. While the 2016 hack almost brought down Bitfinex, KuCoin is able to manage nearly double that loss through both their insurance fund and with internal resources. While cybersecurity remains an arms race, similar to within the banking system, counterparty risk is reduced as customers build expectations that large and stable partners are able to absorb the inevitable security vulnerability.


About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at