Bitcoin exchange platforms have been a target of hacks for years. Hackers know how much digital money is kept on crypto exchanges and therefore incessantly target them and they have been quite successful at it. In the raging war of bitcoin exchanges against hackers, the hackers won the first half of the duel but they are quickly losing in the most important part of the match.
BTC Exchanges Vs Hackers (Half 1)
At its peak, when it was retailing for almost $20,000, BTC garnered a lot of public interest worldwide. Everyone wanted a piece of the cake. Some legitimately while others not so legally. Instead of engaging in mining or trading to earn BTC legitimately, hackers found a way to steal coins off exchanges and this marked the start of a raging war which has seen billions lost.
Crypto exchanges are platforms where users can exchange one digital coin for another. As cryptocurrencies grew in popularity, so did these exchanges. This is how they became a target for hackers who saw loopholes in their architecture and exploited them severely.
Ever since the first crypto exchange has started operating, a total amount of cryptocurrency, equal to $11 Billion has been stolen by hackers. During that period, there have been some high profile heists which have left millions across the globe crying foul.
All these notable BTC exchange hacks are proving that hackers won the first half of the duel with exchanges. Hackers succeeded in finding vulnerabilities in even the most reputable platforms sending the security experts of these platforms back to the drawing board.
But how exactly do hackers manage to get into crypto exchanges? What are some of the methods of attacks used by modern-day hackers?
Methods Used By Hackers to Infiltrate Exchanges
1. DDoS Attacks
A Distributed Denial of Service is a form of attack where hackers simply overwhelm the server with traffic to make it crash. Once the server is down, the hackers have an easy time introducing their virus which compromises the system.
To jam up traffic, hackers use virtual machines and bots. These make it look like millions of people are accessing the server at the same time. If the number exceeds the server’s capability to handle all the requests, the server crashes giving the hackers the ample time they need to attack the exchange.
2. Data Phishing
Data phishing is a method used to get hold of users’ data and use it to access exchange platforms. There are very many ways through which hackers phish for user’s data.
The most common phishing used by crypto exchange hackers is where they lure users using fake links to buy coins at very low prices. Unknowingly, individuals submit their user data including their private keys, giving hackers the possibility to access their coins.
3. Scam Smart Phone Apps
Yes, hackers make phone apps related to cryptocurrencies and provide them to users for free on the Playstore. Unsuspecting users download these apps and end up providing personal information that hackers use to access their accounts.
This method has been used to target Poloniex. Users lost a lot of money as hackers transferred funds to unknown accounts.
4. Scam Browser Extensions and Add Ons
We all use browser extensions or add ons. They make our work easier. Or so we think?
While some browser extensions are genuine, others are malicious and help hackers to get our personal information to get into our user accounts.
Security Threats Vs Exchanges (Half 2)
Now that we have seen how hackers make their way into exchange platforms, what technologies are used by exchanges to combat the hackers?
In the second half of this duel, the exchanges seem to be getting wiser and are coming up with ways to prevent attacks. Although scams and hacks are getting more sophisticated by the day, exchanges are getting wiser, and further, we will discuss some of the means of BTC exchanges’ protection.
How BTC Exchanges Are Protecting Themselves From Hacks
1. Multilevel Data Protection
Reputable exchanges are implementing the multilevel data protection model which is very secure. Here, user data is divided into different levels. Each level holds different user information and is stored in a separate server.
To get access to a user account, a hacker has to infiltrate all levels of protection and this is very difficult to achieve.
2. Many User Authentication Methods
Thanks to the sophistication of hackers’ methods, even 2 Factor Authentication is no longer sufficient. Exchanges are looking for creating 3 Factor Authentication to solve their security issues. Exchanges are introducing the use of biometric data to make it harder for hackers to access users’ accounts.
3. Cold Storage
Nowadays, crypto exchanges don’t keep all their coins in the hot wallets which are the most susceptible to attacks. Exchanges are only keeping a small % of their total assets in the hot wallet for transactional purposes. The majority of coins are kept in cold storage which is safe and harder to hack.
Exchanges go further and subdivide the cold storage accounts into many accounts to mitigate loss in the event of a breach. This means that only a small portion of the coins will be lost in the event of a successful hack.
4. Physical Security of Servers
Exchanges are also fortifying the security of their physical servers to ensure that only authorized people have access to them. This reducing the risk of an unauthorized person accessing the servers and planting malware which can be used to compromise the data.
Although the war is not completely won by exchanges, they are making giant steps towards locking out hackers. In a few years, it will only take the most sophisticated hacks for exchanges to lose funds and this comes as good news to users.
Before then, it is imperative for exchanges to invest in the most modern security technologies to safeguard their platforms. Otherwise, they will go out of business due to the lack of customers’ trust.