How the World's Most Notorious Hacks Made Bitcoin Safer
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While devastating to be sure, here’s how the biggest hacks in bitcoin history changed the network for the better.
It’s a well-known fact that most cryptocurrencies will actually hire hackers to try and breach their defenses. Usually these “hackers” are top level scientists from some of the most influential universities the world round- sometimes, they’re a 17-year-old with a Twitter account and they aren’t on the payroll.
When hacks happen- and they do definitely happen- the bitcoin network gets a bad rep. Sometimes it can even cause a loss of confidence in the market, but as any savvy investor knows- hacks are also a part of the solution. Once a hack hits, developers race to find a way to patch the breech, often creating better security and a better network. If you’re not a developer, it’s important that you use a trustworthy and investor friendly exchange. Smaller exchanges, like Bitvavo, are often the ideal place for investors to hold their bitcoin. Not only because they are less likely to be hacked, but also because they are less likely to pose security risks. Instead, improving their own security systems after watching others break.
How Hacks Boost Security of Bitcoin
First and foremost, hacks expose unforeseen weaknesses in any given network. Despite constant upgrades and near continued vigilance, there will always be something that no one thought of. These gaps in security are only truly found when a system is hacked. But as more hacks happen, better protocols for dealing with future hacks, and better security systems are created. Because of this, there are essentially two types of hackers- ethical hackers, or “white hat” hacking, and the bad guys, “black hat” hacking.
Ethical hacking is the process of purposefully hacking systems while simultaneously working for these organizations. These white hat hackers don’t hack for their own personal gains or motives, but instead do so to earn a paycheck and help digital business improve their security systems. Many white hats also work side by side with the organizations they work for to create the patches necessary to fix the system.
Black hat hacking is done solely for personal gain, whether that means money or power. This type of hacking is incredibly illegal, and often shunts into other illegal activities like identity theft. However, despite the devastation that black hats bring, there is always a way to learn from these failures.
One of the earliest, and most notorious hacks in bitcoin history was Mt. Gox. The hack on this exchange has become something of a bitcoin ghost story, becoming more legendary- and conspiratorial - every time it gets told. In 2014, Mt. Gox, the massive bitcoin exchange platform had been experiencing a number of problems in earlier years. In fact, prior to the infamous 2014 hack, had already undergone several small hacks. To which the company did not appropriately respond. Perhaps because of this, they eventually reported losses of nearly $65 million in liabilities, and billions in assets. Following the final loss, the company filed for bankruptcy and still to this day has yet to replace what was lost by their customers. For exchanges, Mt. Gox is the perfect example of what not to do, and has convinced many to keep a close eye on security and transparent relationships with their customers.
The Twitter Hack
The twitter hack was probably the most famous “hacks” bitcoin has suffered in recent years. And perhaps because it wasn’t actually a bitcoin hack at all- instead it was a twitter attack. Three young individuals were indicted on charges of wire fraud, money laundering, identity theft, and unauthorized computer access. More of a scam than an actual hack- the perpetrators gained control of 130 high profile twitter accounts, then they used the accounts to post a tweet asking for individuals to send bitcoin to an electronic wallet, where in return the coins they sent would be returned and doubled. In the late aftermath of this hack, twitter, Google, and the bitcoin network all took sufficient steps to ensure a similar attack could never happen, which eventually resulted in the recently unveiled two-factor identification process using both twitter and the bitcoin network in conjunction with one another- creating a more secure environment for both.
Bitfinex, another high profile cryptocurrency exchange like Mt.Gox, has also been repeatedly in the spotlight for being the subject of multiple historic attacks. Including hacks in 2015, 2016, and 2018. The company has also undergone a number of litigious issues- particularly in connection with its affiliate cryptocurrency, Tether. Despite the shady history of the exchange, it is still a widely used platform. So, while the companies’ tepid response to previous hacks can indeed serve as a warning for other exchanges and their protocols for responding to hacks; perhaps what the company is best served for is showing investors just how important it is to pay close attention to the exchange platform they choose to use.