Crypto Hacking: The Threat to Digital Assets

Hacking is the use of a computer to manipulate another computer or computer system without authorization.

What is hacking?

Hacking is the act of compromising or manipulating a computing device or system by finding weaknesses to test or exploit. Hacking attacks are perpetrated for a variety of purposes and ideological reasons, such as terrorist financing, money laundering, and sanctions evasion. For example, the infamous Lazarus Group, which stole billions in cryptocurrency, is believed to be a North Korean hacking unit.

Hacking comes in many forms, some of it aimed at good goals and some at more nefarious, criminal goals: white hat tries to improve security by finding and fixing vulnerabilities in systems, while black hat aims to attack systems for illicit purposes. Gray Hat also attacks systems in unconventional or unethical ways, but does not pursue malicious purposes.

A recent example of "white hat" hacking is the $612 million hack of Poly Network, an interchain protocol. A few days after the heist, the white hat hacker announced the return of the funds and called himself an "eternal legend".

A recent "black-hat" hack was the $90 million hack of Japan’s Liquid exchange in which funds were stolen from warm wallets, the bridge between Internet-connected hot wallets and cold wallets offline. Hacking takes on particular importance in the study, development and exploitation of cryptocurrencies because the basic premise of blockchain is to help users abandon the traditional system and its assets.

Hackers have long ravaged the crypto industry, stealing billions of dollars annually from exchanges, custodial services and wallet software users who store their assets on hot wallets connected to the Internet.

Some of the most notable hacks in cryptocurrency history are Mt. Gox (2014), Coincheck (2018) and Bitfinex (2019). Hackers often use malware and viruses through phishing techniques to compromise security systems or force users to unwittingly expose their personal crypto credentials.

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