Hackers stole more than $500 million from the networks of cryptocurrency network Ronin late last month, in what is estimated to be the second-largest cryptocurrency theft on record.
For a hacker, Ronin was a tempting target. The Axie Infinity video game, which has an estimated 8 million players and has attracted analogies to action-driven gathering games like Pokémon Go, is supported by the blockchain initiative.
Axie Infinity is a big topic with a lot of money at stake. NFTs, or non-fungible tokens, are used by players to purchase Axies, which are unique digital assets. The creatures may reproduce, fight, and even be traded for real money.
As users recognize the opportunity to earn real money, the game has grown in popularity. One 22-year-old player from the Philippines is said to have used his money from the game to purchase two apartments in Manila in 2020. Another player claimed last year that he made more money from Axie Infinity and other online games than he did from his full-time work at Goldman Sachs.
However, the game’s foundations confront serious security issues. To play, players must use a blockchain “bridge” mechanism to transfer funds from Ethereum to Ronin. Ronin is an Ethereum “sidechain” – a scaling solution that allows transactions to happen faster than on Ethereum, which is clogged with activity. Because the game is hosted on this sidechain, it can expand without losing functionality. Because bridges may contain a lot of money at once, hackers grabbed control of the assets and fled with the money by hacking the Ronin Bridge, which transported participants’ funds across blockchains.
The US government announced this week that it believes the crime was carried out by North Korean hackers. However, this is just the latest in a long line of high-profile crypto thefts. The crypto exchange Coincheck was robbed of more than $530 million in 2018. Hackers stole $320 million from the decentralized money network Wormhole in February (though that loot was eventually returned). In the same month, prosecutors charged strange couple Ilya “Dutch” Lichtenstein and his wife, Heather Morgan – widely known for her cringeworthy raps on TikTok under the moniker Razzlekhan – with conspiring to launder billions of dollars in bitcoin stolen from the crypto exchange Bitfinex in 2016.
There’s a pattern here. According to Chainalysis, a company that provides blockchain data and analysis to banks, governments, and other companies, $3.2 billion in bitcoin was stolen from individuals and services in 2021. (According to Reuters, Ronin is also working with Chainalysis to track down the funds taken in the incident.) This sum is about six times what was taken in 2020. According to specialists at Chainalysis and other security businesses, more than $1 billion has been stolen so far this year.
Smart contract vulnerabilities
The high-profile hacking and large sums of money involved have sparked concerns about how vulnerable the blockchain, which has long been seen to be a secure location to hold assets, is to such attacks.
According to several experts, the increase in cases of cryptotheft is due to the fact that bitcoin is now more extensively used and understood than ever before.
“You’re effectively putting a lot of money on the table, and it’s a very public table,” said Nicholas Christin, an associate professor of computer and network security at Carnegie Mellon University. It can be tempting for a hacker to pounce when significant sums of money are publicly moving around on these transparent networks.
Experts say it’s crucial to distinguish between the blockchain and other programs that run on top of it in order to comprehend how these heists are possible. The blockchain is a distributed public ledger that facilitates peer-to-peer transactions. Bitcoin, Ethereum, and Solana are all constructed on top of this underlying layer.
Smart contracts, which run on top of blockchains, form the second layer, which is commonly exploited. Smart contracts are code-based agreements that automatically execute when the contract’s terms are met. The most typical comparison is to a digital vending machine: choose a product, enter the appropriate amount of money, and your item will be immediately dispensed. These agreements are non-cancelable.
According to Christin, hackers gain access to the money through these second-layer systems by exploiting defects in the code or obtaining the secret keys that allow them to access the systems. Some hackers even manipulate smart contracts to divert payments to their own accounts.
The hacker gained enough secret keys to control the bridge and drain the cash in the Axie Infinity attack on the Ronin Bridge. The payoff was significant because so many people had their assets in the bridge.
“The blockchain system that underpins it is secure,” said Ronghui Gu, founder and CEO of Certik, a blockchain security startup. “However, the programs that operate on top of them — the smart contracts – are still like any other program, with software defects and vulnerabilities.”
Hackers frequently attempt to exploit the coding of one of their targets. It also helps that much of the code for blockchain systems is open source, making it easy for hackers to examine the code and uncover any problems.
“People say ‘in code we believe,’ yet the code itself is not really trustworthy,” Gu explained. Gu noted that when he first established his blockchain security firm in 2018, just a few organizations employed third-party security services like his to audit and review their code – a vital security backup – but that number has gradually increased.
Hackers frequently target cryptocurrency exchanges. Exchanges are similar to banks in that they are central institutions that retain large sums of money for their users and that their transactions are irreversible. They’re an intermediary software, similar to bridges, that tends to be targeted. “Those big exchanges are carrying a huge target on their back,” Christin explained.
Victims are left with a significant security responsibility.
It can be difficult for burglars to pay out crypto assets once they have been taken, especially if the crime is in the nine-figure area. As a result, money are frequently left in limbo for years, if not eternally. Due to the unpredictable nature of the crypto market, the value of the stolen assets may fluctuate during that period.
According to the Chainalysis crypto crime study, criminals currently have at least $10 billion in cryptocurrencies, the great bulk of which was obtained through theft. Although these transactions and holdings can be traced because to blockchain openness, determining the identity of the perpetrator is difficult until the assets are paid out.
The Bitfinex controversy can be used as a case study in attempted money laundering. “It took a long time for the monies to move. Then, when they tried to start the laundering process, it was an opportunity for law enforcement to become involved again, since people are paying attention to these hacks,” said Kim Grauer, Chainalysis’ director of research.
There are few options for victims of the schemes to retrieve their assets. “It’s not that horrible for a bank if their security fails,” said Ethan Heilman, a cybersecurity specialist and co-founder of cloud provider BastionZero. “However, if you’re a bitcoin exchange and someone drains all of your cryptocurrency, that’s terrible.” The blockchain lacks the safeguards that banks have in place to protect their customers. If one’s credit card is stolen, insurance coverage normally assure that the money is returned. Transactions on the blockchain, on the other hand, are irrevocable – there is no undo button.
As a result, individual users bear a significant security responsibility in order to protect their assets. “End users may not be aware of the security hazards they are exposing themselves to,” Christin stated. “To be honest, even people in the field don’t have time to look through the source code of a smart contract.”
It’s easy to be a victim of a robbery if one entrusts their keys to the improper second-layer intermediary. Most people aren’t used to this kind of responsibility.
Crypto firms are beginning to take security more seriously, according to Heilman, but a future without attacks is unrealistic. He explained, “You never become secure, you just become more secure.” “Given how easy it is to profit from a flaw in one of these systems, I believe we will continue to see things hacked, and the question will no longer be, ‘Is there a new hack this month?’ “How frequent are the hacks this month?” it will be.
“There are significant obstacles that the business must overcome in order to truly scale and flourish,” Grauer explained, “because you can’t have a healthy expanding industry if everyone is frightened of being hacked.”
We are the biggest NFT marketing agency with the reach over 30 million people.
This article is just for educational purposes.
Make your own exploration before making any form of investment, as always.
Possessors, holders, suckers, members of the community, jumbos. Want to give your composition a boost by putting it at the top of the homepage? == > Get in touch with us!