You’ve probably heard many good things about cryptocurrency; how people reaped good returns after Bitcoin’s unit price skyrocketed. You want in on the virtual currency gravy train and have some extra cash to spare for this venture. But maybe you’re a bit hesitant.
Unlike traditional investment instruments backed by tangible commodities and regulated by the government, crypto seems a bit up in the air. These currencies are tokens or bits of data stored on different computer systems. What if cybercriminals attack those systems? Viruses, malware, ransomware, and other kinds of common threats can affect systems hosting cryptocurrency.
Phishing and Malware
We all know what a phishing attack looks like, an unsolicited email from a legit-looking source asking for your personal information. Innocuous as it seems, this is how one of the biggest cryptocurrency hacks began. Such emails are not entirely random shots in the dark. Attackers do plenty of digging around to see what things pique their targets’ interests to increase the chances of them clicking the email open.
Attackers may use phishing emails to send malicious files as attachments. These files are bits of code that can damage the host computer system or send information back to the attacker surreptitiously, also known as malware. The files would work without the computer user’s knowledge, even if the user’s irresponsible actions triggered them.
The Binance attack is an excellent example of how attackers combined phishing and malware for devastating effects. Binance is a leading cryptocurrency exchange broker that reported an attack on one of their digital wallets in May 2019. With more than $40 million worth of Bitcoin stolen from their hot wallet, it’s understandable why many people still don’t trust crypto.
According to Binance, the starting point of the breach was a phishing attack. After gaining access to the system, the attackers were able to steal several API keys and 2FA (two-factor authentication) codes. With these, they attempted several Bitcoin withdrawal transactions, only one of which was successful. But in this one successful attempt, 7,000 BTC were swept away, leaving the crypto exchange counting its losses.
Studying such attacks in detail and understanding the exploited loopholes is key to stopping future attacks. Security software patches usually seal such loopholes, hence the importance of having your antivirus up to date.
51 Percent Attacks
In this attack, malicious individuals exploited one of the general rules implemented to distinguish legitimate Bitcoin transactions from dubious ones. This rule states that there are two versions of a blockchain in the event; the one that will be considered valid is longer. If a forger uses more than 50 percent of their mining power, this rule is open for exploitation. They can create a longer version of a blockchain before the legitimate one, causing a reversal of transactions in the original blockchain. That’s what happened to Gate.io, another cryptocurrency exchange, early in 2019.
A malicious blockchain user made a transaction to send a certain amount of crypto to their wallet with Gate.io. They then created another version of the blockchain containing that transaction, meaning they were credited again. As soon as this happened, the user withdrew the cryptocurrency.
Simple as this sounds, 51 percent attacks are neither cheap nor easy to execute. Taking control of the Ethereum blockchain to affect their transaction costs the 51 percent attacker thousands of dollars in the Gate.io case.
Seeing as the ability to rewrite a blockchain to perpetrate a 51 percent attack is an innate flaw in blockchain technology, such attacks are sure to recur in the future. The best prevention mechanism against them is delaying the update of transactions to a blockchain as much as possible to make it more expensive for potential attackers.
When hit with ransomware, computer users are denied access to their files until they pay a prescribed ransom. Now, cybercriminals have developed ransomware that enslaves your computer. It turns it into a crypto mining robot until you pay up the ransom. So far, that’s but one variation of the use of ransomware in crypto theft. Another happened a couple of years back when cryptocurrencies were still in their infancy.
The Massachusetts police barely knew what Bitcoins were when they were held ransom by the Cryptolocker malware. After opening a seemingly genuine email claiming to share details of a suspicious transaction in an attachment, the police found their hard drive encrypted. To decrypt it, they had to pay a ransom in cryptocurrency. They did pay the ransom and, after that, claimed their systems and data were restored unharmed.
Not opening attachments on suspicious emails is the best defense against this form of attack. When a computer in your organization has fallen victim, promptly take it off your network.
What to Do if You’re a Victim
What if the unthinkable happens and you find yourself the victim of a cryptocurrency hack; what steps should you take?
First, as fast as you can, contact your crypto exchange and request them to freeze the funds wherever they are. Be warned that this may not happen with your local bank account’s enthusiasm when you call them about a stolen ATM card.
Next, you need to try to identify the perpetrators and pursue legal action against them. Before this, ensure you have reported the matter to the police. You also need to keep clear records of your crypto transactions, including those used by hackers to spirit away your tokens. Victims of such incidents usually qualify for benefits on their cryptocurrency taxes.
Keep Crypto Hackers at Bay
Prevention is better than cure. There are ways you can reduce your chances of becoming a cryptocurrency hack victim. Before you register with any exchange, make sure you set up a separate email address with a strong password. Another important measure is to disable two-factor authentication that sends an SMS to your phone during login or email recovery. That’s because hackers are increasingly using phone numbers to break into crypto holders’ exchange accounts.
Go a step further and activate every security feature—passcodes, fingerprint authentication, etc.—on your phone. Storing your crypto tokens in a cold wallet or an offline wallet is another shrewd prevention measure.