2009 was the year Bitcoin launched – marking the year cryptocurrency went mainstream.
Without getting into too much technical detail, cryptocurrency was based on blockchain technology that was designed to be safe, secure, and hacker-proof.
Since its launch cryptocurrency has been anything but safe, secure, or hacker-proof.
Using multi-factor authentication blockchain technology was designed to solve the “double-spending” problem associated with early digital currency systems by preventing hackers from masking the transaction history of a particular currency to spend it more than once.
For example, buying an Xbox on eBay with a particular block of cryptocurrency, rewriting the transaction history of that eBay transaction to hide it from having ever occurred, and then using that same block of currency to buy a Playstation on Amazon.
Blockchain was supposed to make cryptocurrency unhackable.
The problem with declaring something unhackable is it attracts attention from hackers eager for a challenge.
And what is particularly appealing to thieves is fraudulent transactions can’t be reversed as they often can be in the traditional financial systems.
In traditional financial systems backed by government institutions like the FDIC in the US, consumers are protected from theft and fraudulent transactions by these government organizations as well as the institutions themselves.
You see an unauthorized charge on your card, you call up the bank and they typically reverse the charge with no questions asked.
The problem with a decentralized monetary system like cryptocurrency with no government backing, once your cryptocurrency is stolen, it is gone. You’re never getting it back.
The other problem with cryptocurrency is because of its unique security features, it has also been found to have unique vulnerabilities.
The one vulnerability hackers targeted wasn’t in the blockchain technology but in the exchanges where cryptocurrencies are parked like a person’s money at a bank account – with owners typically storing their tokens in “digital wallets.”
The exchanges are where hackers have concentrated their efforts and have been successful to the tune of billions of dollars.
In June, the blockchain analytics firm CipherTrace reported that $1.36 billion in cryptocurrency had been stolen through the first five months of 2020. That puts 2020 on track to become the second-costliest year in the history of crypto, behind 2019’s record $4.5 billion ahead of 2018’s $1.7 billion, the firm estimates.
In the bank analogy, the robbers aren’t bothering with individual accounts – digital wallets in the crypto world – they’re going after the bank itself (the exchanges).
Although blockchain makes it hard to steal individual tokens, hackers figured it would be much easier for hackers to steal from the exchange itself – a digital bank robbery so to say – and that’s exactly what they did.
Here’s a list of the biggest exchange heists in history including the name of the exchange, when the heist occurred, and how much was stolen:
- Coincheck (Jan 2018) – $532 Million USD
- MT Gox (Feb 2014) – $470 million USD
- BitGrail (Feb 2018) – $170 million USD
- Bitfinex (Aug 2016) – $72 million USD
- NiceHash (Dec 2017) – $64 million USD
- Zaif (Sep 2018) – $62 Million USD
- DAO (June 2016) – $55 Million USD
- Upbit (November 2019) – $50.7 Million USD
Even as exchanges strengthen their defenses, hackers keep getting more sophisticated – continuing to innovate and outpace even the current state of the art in cybersecurity.
Most breaches these days involve a variety of techniques – including SIM swapping, phishing, URL hijacking, etc. – against multiple targets to take over user and administrator accounts – sometimes with insider help.
An exchange heist isn’t the only way you can lose your Bitcoins. Here are some other common scams:
- Fraudulent ICO’s (Initial Coin Offerings)
- Fake Bitcoin Exchanges
- Phishing Schemes
- Ponzi Schemes
- Fake Crypto-Currencies
- Old School Phone Scams
Crypto heists and scams highlight the central problems of cryptocurrency – anonymity.
Because anonymity is one of the central features of cryptocurrency, you’ll never find out who stole your tokens.
And if you’re scammed or defrauded out of your money, there’s no customer service number you can call to have your credit card company or bank reverse the charge. In other words, you can kiss your tokens goodbye.
Despite crypto’s obvious hazards, this hasn’t stopped investors from speculating on crypto just like other currencies on forex exchanges. As an investment, cryptocurrency is no better than gambling. It’s pure speculation.
With no underlying value like the dollar that’s backed by the full faith and credit of a government, crypto price is purely determined by speculation – based purely on public perception and peaking and dipping with the news cycle. One minute it’s up because some big-time investor announces he’s all in, the next minute it’s down from another heist.
The mega-wealthy aren’t interested in fancy new investments vulnerable to hackers like crypto.
They have one recurring theme in assets they target for investment – it’s that the asset has some underlying or intrinsic value. They understand the market can cause the price to go up and down but at the end of the day, what they’re interested in is if there’s any sort of underlying value once the smoke clears in a disaster.
Crypto doesn’t fit this mold. It has no intrinsic or underlying value. In a disaster, when the smoke clears there will be nothing left of crypto investment.
Investors interested in building real wealth don’t speculate.
They look to income-producing assets and businesses that have value beyond their prices:
- A dairy farm has value in its cows and underlying land.
- A beach resort derives value from its rents and underlying real estate.
- A natural gas storage facility has value in its infrastructure, land, and service fees derived from its operations.
When was the last time you heard of a hacker stealing a dairy farm, beach resort, or natural gas storage facility?
Take a look at your investment portfolio.
Is it vulnerable to online attacks or exploits?
Maybe it’s time to consider alternative investments that are truly hacker-proof – ones you’ll never have to worry about being scammed out of and ones designed to truly build wealth through tried and true fundamentals.