Whether you’re an active cryptocurrency investor, considering getting into the market, or simply a casual observer, the cryptocurrency environment is an extremely interesting phenomenon. While cryptocurrency can be extremely lucrative and has made thousands of instant millionaires, it’s also extremely risk in some regards, especially when security is concerned.
Cryptocurrency, if not held securely, is extremely easy to abscond with. Cryptocurrency is stored in wallets, which are controlled by a “private key” that should be known only to the owner of the currency. There are many different types of wallets, the most secure of which is “cold wallet”, which is stored offline without an internet connection.
Many exchanges and “hosted wallets”, however, offer cryptocurrency holders the ability to use managed wallet solutions that make holding cryptocurrency extremely simple. The issue with these solutions, however, is that they typically hold the private keys of wallet holders in a centralized database, which in many cases can be susceptible to attacks from hackers.
As a result, over the course of cryptocurrency history there have been a number of high profile hacks in which malicious parties have accessed these databases of private keys and made off with millions of dollars worth of Bitcoin, never to be seen again.
In this article, we’ll take a look at the five most epic Bitcoin hacks of all time and find out how they happened to help you understand why controlling your own private keys and storing the majority of your cryptocurrency in a cold wallet is critical.
The Five Most Epic Bitcoin Hack in History
Learning from historical events is critical. In the words of Winston Churchill:
The further you look into the past, the further you can see into the future.
With this in mind, we’ll proceed to break down the top five largest Bitcoin hacks of all time:
1. The Mt. Gox Hack
- Hack Date: 19th June 2011
- Amount Hacked: 2609 BTC, with another 750,000 BTC mysteriously missing
The Mt. Gox exchange hack is the most notorious Bitcoin hack of all time, and was the first cryptocurrency hack to gather attention from the mainstream media. Japan-based Bitcoin exchange Mt. Gox had been operating since 2010 for just over a year at the time of the hack, and was the biggest Bitcoin exchange in the world at the time.
Most crypto enthusiasts are aware of the Mt. Gox hack, but few are aware that the hack actually occurred twice. The first Mt. Gox hack occurred in June 2011, when a hacker was able to access the credentials of the Mt. Gox author and transfer 2609 Bitcoins to an address that was not controlled by Mt. Gox. This hack led to the Mt. Gox platform being suspended for a number of days, but due to a strong effort to re-establish themselves, Mt. Gox were able to regain the trust of the market.
The Second Mt. Gox hack occurred in 2014, at a point in time where the platform was handling more than 70% of the worldwide Bitcoin trade. This hack resulted in the loss of an absurdly large amount of Bitcoin, resulting in the doom of the platform and its ultimate collapse.
The specifics of the Mt. Gox hack are not known, but a bankruptcy filing submitted in the same year as the hack stated that more than 750,000 Bitcoin were missing from the exchange. Whether this missing amount of Bitcoin was due to the hack or missing from far earlier on in the lifespan of the platform is a matter of contention.
Ultimately, Mt. Gox investors lost all of their funds and no refunds were made.
- Hack Date: September 2012
- Amount Hacked: 24,000 Bitcoin
I am sorry to announce that due to circumstances outside of our control BitFloor must cease all trading operations indefinitely. Unfortunately, our US bank account is scheduled to be closed and we can no longer provide the same level of USD deposits and withdrawals as we have in the past. As such, I have made the decision to halt operations and return all funds. Over the next days we will be working with all clients to ensure that everyone receives their funds. Please be patient as we process your request.
The Bitfloor hack is one of the lesser known Bitcoin hacks, but is one of the largest in history. Bitfloor was one of the largest competitors to Mt. Gox in 2012, and was hacked in the same year when hackers were able to access the private keys of users.
These private keys were stored in an extremely irresponsible manner. Bitfloor was storing user private keys in an unencrypted state, online, for backups. This made the hack incredibly easy, and resulted in the loss of 24,000 BTC. At the time, the loss was considered small, but in today’s terms this hack would be worth more than $141 million USD.
At the time, Bitfloor was able to refund users that suffered from the hack, but was ultimately closed due to bank regulatory measures. Roman Shtlyman, the founder of the platform, commented on the closure in 2013:
- Hack Date: 4th March 2014
- Amount Hacked: 12.3% of all Bitcoin held by Poloniex
Poloniex is one of the busiest cryptocurrency exchanges and is still going strong today. The platform, however, suffered a hack in March 2014 that resulted in the loss of more than 12% of the total Bitcoin it held. The exact number of BTC lost was not disclosed by Poloniex.
The hack occurred when hackers were able to leverage and exploit faulty code in the Poloniex withdrawal system. After the hack, Poloniex completely halted trading for some time, and publicly declared that all funds held by Poloniex users would be reduced by 12.3%, a move that was intended to prevent more than one tenth of their userbase losing all of their funds completely.
The Poloniex platform has dramatically upgraded its security, and all users that lost money in the 2014 hack have been refunded over the interim period. The Poloniex platform has been a constant target of hacking attempts over the last few years, however, and there have been unsubstantiated rumors of further hacks in 2017.
- Hack Date: 4th January 2015
- Amount Hacked: 19,000 BTC
Bitstamp is a Romanian cryptocurrency exchange that was founded in 2011 as a direct competitor to Mt. Gox. While Bitstamp has managed to remain afloat in the cryptocurrency market and is still active today, it too was the subject of a hacking attack in 2015.
On the fourth of January 2015, the operational hot wallet of Bitstamp announced the loss of 19,000 BTC, worth $5 million USD at the time, at the hands of an anonymous hacker. Soon after the hack, Bitstamp suspended operations.
To date, Bitstamp continues to operate successfully, and has integrated a range of advanced security measures such as multisignature wallets for operational purposes that have helped it to win back the trust of cryptocurrency investors and traders.
- Hack Date: August 2016
- Amount Hacked: 120,000 BTC
The Bitfinex hack is the largest substantiated hack of all time. The hack occurred in August 2016, and resulted in the loss of 120,000 BTC, which was worth roughly 5 million USD at the time. At today’s value, this hack would have been worth more than $711 million USD.
The hack occurred when attackers were able to exploit a vulnerability in the multisig architecture used by Bitfinex and BitGo to secure their wallets. Bitfinex’s response to the hack was swift, however, and resulted in all affected individuals being issued with BFX tokens that were redeemable for USD, resulting the total refund of the loss over time.
As a result, Bitfiniex is one of the most widely trusted and popular cryptocurrency trading platforms in the world today.
Final Thoughts On Staying Secure
While there may be an element of schadenfreude or vicarious glee in observing the history of these hacks, they should be observed as a cautionary tale- always be sure to store your crypto in a cold offline wallet, and load them onto an exchange only when trading.
The easiest way to store your cryptocurrency securely is with a hardware wallet with a solution such as the Ledger Nano S. Always be sure to keep you private key secure, and don’t trust exchanges to hold large amounts of cryptocurrency for extended periods of time