Binance, which had 7,000 bitcoins stolen, was blackmailed for another 300 bitcoins

Binance was blackmailed again, this time for 300 bitcoins.

On August 7, Binance said on Weibo that it had received threats from an unidentified person who demanded 300 bitcoins in exchange for 10,000 KYC information about Binance that he claimed to have. Because he did not receive the ransom immediately, the unidentified person leaked the information he had on the Internet.

However, Binance believes that it cannot yet prove that the information comes from their platform.

The reporter of Daily Economic News noted that this is not the first time Binance has had problems this year. In May this year, Binance was hacked and 7,000 bitcoins, about 40 million US dollars, were stolen. In March last year, Binance also had a withdrawal lock incident.

Several cryptocurrency exchanges have been hacked, causing losses of at least RMB 780 million. What causes the repeated thefts of exchanges?

Binance offers a 25 Bitcoin reward for blackmailer information

On August 7, Binance announced the whole story of the 300 bitcoin extortion incident on Weibo. Binance said that it had recently received threats from an unidentified person and was asked to exchange 300 bitcoins for 10,000 KYC information about Binance that he claimed to have.

Binance said it has set up a security team to investigate the case, and the exact source of the case and the information is still under investigation.

Because the extortion money was not paid immediately, the unidentified person immediately began to spread relevant information to the public and the media. However, Binance said that the data spread in the Telegram group was different from the data in the Binance backend. Because all of Binance's internal information was electronically watermarked, the pictures spread online did not have Binance's specific electronic watermark.

After a preliminary review of the images circulated online, Binance said that all the images were dated February 2018. During this period, due to the huge workload, Binance outsourced part of the KYC review to a third-party service company for one week.

Currently, Binance is verifying all information with a third-party service company and stated that it will continue to investigate and keep the information synchronized.

Binance believes that these data are the same as those involved in the KYC phishing incident reported by the media. Binance said that at the time, the hacker claimed to have KYC information of multiple exchanges at the same time. When asked to prove the source of the data, the unknown person who extorted 300 bitcoins from Binance refused to provide relevant evidence and directly provided information to the media under the false identity of a "white hat hacker." Binance has contacted relevant law enforcement agencies and will work closely to track this person's whereabouts.

At the same time, Binance offered 25 bitcoins as a reward in the hope of obtaining information related to the unidentified person.

7,000 Bitcoins worth about $40 million were stolen

On May 8 this year, Binance said that 7,000 bitcoins were stolen, and Binance CEO Zhao Changpeng communicated with users about the hacker incident.

Zhao Changpeng said that he encountered very smart and long-term lurking hackers. The hacker group used a complex attack technique to bypass Binance's risk control system and withdrew 7,000 bitcoins (about 2% of Binance's total BTC holdings), about 40 million US dollars. He also said that Binance has set up a security fund SAFU to bear this loss, and no user will suffer any loss.

By accessing the block records, we can see that this transfer is the only transfer record of this incident. The cold wallet was not affected, only the Bitcoin hot wallet was affected, and other wallets and assets were safe.

After that, Binance announced that it would suspend deposits and withdrawals to ensure that the attack risks were completely eliminated from all data, and the system was rebuilt and restored. As the database and system architecture are very large, it is expected to take about a week to complete.

It is worth mentioning that in March last year, Binance also had a withdrawal lock incident.

On March 8 last year, Binance announced that it had rolled back all abnormal transactions and the withdrawal function had been restored. Previously, Binance's risk control system detected a large-scale attack, locked withdrawal requests, prevented theft of coins, and reversely locked 31 accounts. The attacker had a large amount of assets frozen by Binance in this attempt.

Why are cryptocurrency exchanges repeatedly hacked?

According to incomplete statistics from a reporter from the "Daily Economic News", in 2019, the New Zealand cryptocurrency exchange, Coinmama exchange, DragonEX exchange, South Korea's Bithumb exchange, Binance exchange, and Japan's licensed cryptocurrency exchange BITPoint Japan suffered a total loss of approximately RMB 780 million due to hacker attacks.

Cryptocurrency exchanges have been repeatedly hacked. Did the creation of such exchanges use blockchain technology? What are the reasons for the repeated thefts of cryptocurrency exchanges?

Lei Kai, associate professor at the Shenzhen Graduate School of Peking University, told the reporter of "Daily Economic News" that there are three aspects of computer systems here, namely cryptocurrencies, exchanges and exchange-related programs.

Standard cryptocurrencies generally utilize blockchain technology. Their transaction settlement is decentralized and does not require human involvement. They can ensure the authenticity and validity of transactions and are distributed through consensus algorithms.

Cryptocurrency exchanges are like Tmall and Taobao, which are responsible for matching buyers and sellers. Some exchanges claim to be distributed blockchain exchanges, but they do not guarantee a trustworthy relationship for transaction settlement, but only match buyers and sellers. It is difficult to determine whether cryptocurrency exchanges use blockchain technology without public code, third-party supervision and verification.

Cryptocurrency uses blockchain technology to maintain its value. After the cryptocurrency is generated, there will be a set of automatically executed programs (such programs are called smart contracts) to automatically process transactions. It is generally difficult to avoid bugs in the program.

What are the reasons for the repeated thefts of cryptocurrency exchanges? Lei Kai analyzed three situations.

The first is that the process of mining to generate digital currencies such as Bitcoin is open, and both good and bad people can participate. If someone has more than 51% of the computing power, they can have greater say. This is equivalent to more than half of the people in the world saying that the money is not yours. Even if the money originally belongs to you, the minority may obey the majority and say that your money belongs to someone else.

The second is that the security of cryptocurrency exchanges is problematic. The trading platform is written in a program. When the program is attacked, your money will be allocated to others. A common situation is that when the blockchain forks (expanding from a low version to a high version), some people will use the gap between forks to attack, such as computing power attacks, identity attacks, etc. Because forking is a decentralized process, once the fork program is not written well, it is possible that B impersonates A's identity and steals the coins that should have been allocated to A. This cannot be directly said to be related to the blockchain, but a program of a cryptocurrency exchange. This is similar to upgrading the bank system, but the bank upgrades within the central protection and stops external services, so the bank can discover various errors and will not be exploited.

The third type is that the digital currency is in the user's wallet, but the wallet key is stolen, which will also result in the theft of digital currency. It is equivalent to the thief stealing the gold in the house when the key is stolen. The scope of impact of each situation is different.

Lei Kai said that blockchain technology is a double-edged sword, with both advantages and disadvantages. For example, anonymity makes it difficult to determine a person's true identity, and he may have multiple identities. Therefore, cryptocurrency exchanges actually follow rules and consensus, and over-emphasizing rules can also lead to some unreasonable errors. In addition, the cost of blockchain is very high, and once confirmed, it is difficult to correct. If a confirmation is wrong, everyone will treat this error as true.

Source: Daily Economic News

Reporter Pan Ting of Meijing.com Editor Yi Qijiang of Meijing.com