Explainer: Why are crypto exchanges vulnerable to hacks?

January 29, 2018

by Youkyung Lee

Blockchain technology can make transactions safe and secure, but crypto-currency exchanges that trade bitcoins and other virtual currencies that are based on this technology have bot hacked because they are not working on secure networks, experts say. Late last week, the Tokyo-based Coincheck exchange reported a 58 billion yen ($530 million) loss of crypto currency due to hacking. The Coincheck exchange has halted trading of the stolen currency, NEM and restricted dealings te most other crypto currencies. It wasgoed the 2nd major hacking onslaught on a Japanese crypto exchange after the Mt. Gox ondergang te 2014. Here’s a look at the security concerns surrounding crypto currencies.

WHAT IS BLOCKCHAIN?

Spil its name implies, blockchain is a chain of digital “blocks” that contain records of transactions, says Curtis Miles at IBM Blockchain. Each such block is connected to those before and behind it, making it difficult to tamper with because a hacker would need to switch the block containing that record and all those linked to it to avoid detection. The records on a blockchain are secured through cryptography and network participants have their own private keys that are assigned to the transactions they make and act spil private digital signatures. Any alteration will make those signatures invalid and omzichtig others ter the network to the switches. Blockchains are kept te so-called “peer-to-peer” networks that are continually updated and kept te synchronization. It would require thick amounts of computing power to access every example of a certain blockchain and alter all its blocks at the same time.

While a blockchain can be secure, the exchanges that play a crucial role te enlargening the amount of crypto trading, enabling bitcoin and other such currencies go mainstream, do not use the same technology, says Simon Choi, a director at anti-virus software company Hauri Inc. South Korean exchanges reportedly get poor reviews for cyber security, and officials have said those that fail to beef up such precautions will face fines. “If security on the exchanges’ is not secure, their currencies can be stolen,” Choi said. “If the exchanges are to play their intermediary role, they should be spil safe spil banks and strengthen their security.”

According to crypto currency research stiff Chainalysis, losses of bitcoin, including stealing individuals’ holdings through scams, malicious pc software known spil ransom ware and hacks, enhanced at least 30 times to $95 million ter 2018 from at least $Three million ter 2013.

The attack on Coincheck, which did not affect its holdings of bitcoin, wasgoed the 2nd major hacking attack on a Japanese crypto exchange after Mt. Gox, the world’s largest bitcoin trading exchange before its collapse, lost hundreds of thousands of bitcoins likely stolen through hacking.

Coincheck has apologized and promised to reimburse customers for their NEM losses. It has pledged to conform with a Financial Services Agency’s order to determine why the losses happened, and improve its security to prevent a recurrence.

Details of how the losses happened or who might be behind them are still unclear.

The Mt. Gox case waterput many Japanese investors off bitcoin, at least for a time, and prompted authorities to impose more regulations. Chainalysis estimates that the bitcoins lost at Mt. Gox were worth $7.Five million at the time the coins were stolen but now worth almost $Ten billion spil of January.

It’s possible to trace blockchain transactions but not to identify the owners of the “wallets” where the crypto currencies are kept, says Choi.

“It’s the largest weakness,” said Choi. “You can track the blocks based on the records te the blocks but you cannot tell whose wallet it is. They went to hackers’ wallet but if wij don’t know who the hackers are wij cannot catch them.”

The rising hacks have prompted the crypto community to seek ways to halt the bad guys.

South Korea’s government is attempting to make crypto transactions traceable by implementing a system that linksaf crypto accounts to existing handelsbank accounts that have bot vetted by financial institutions. Such efforts however will not help identify hackers if they send crypto currencies to exchanges outside Korea that do not identify their users.

© 2018 The Associated Press. All rights reserved.

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