- When FTX was hacked shortly after entering bankruptcy last year, many people didn’t think it was genuine
- Wired revealed yesterday that a lack of security protocols allowed hackers to walk off with over $415 million worth of FTX’s cryptocurrency
- Only quick thinking by some individuals prevented losses topping $1 billion
Wired yesterday revealed the carnage that took place inside the FTX offices on November 11 last year when hackers tried to take advantage of the turmoil of FTX’s bankruptcy to steal $1 billion in crypto. The hackers eventually took over $415 million worth of coins from the exchange as they were being moved from FTX to the supposed safety of cold storage, but, as Wired revealed, the losses could have been much worse.
Over $415 Million Stolen
When FTX insiders discovered that the company’s wallets were being drained, an emergency response was initiated via a Google Meet call, with participants witnessing FTX watching the theft in real-time. FTX execs were unable to immediately identify the location of its crypto assets and the private keys controlling them because this information was known only to a small group of FTX elite members, notably excluding CEO Sam Bankman-Fried.
Amid the chaos, a decision was made to move funds to Ledger Nano hardware wallets for safety, with around $500 million worth of crypto assets being temporarily held by Kumanan Ramanathan, an adviser to FTX. In the end, over $415 million worth of FTX’s assets were stolen by the hacker, with the situation summing up the chaos that was spreading through the company at that point.
Wired pointed out multiple failures on the part of FTX which both allowed the theft to happen in the first place and then allowed it to continue to the extent that it did. One glaring issue was the absence of proper security measures; FTX lacked an independent chief information security officer and dedicated security teams, leaving the exchange susceptible to evolving threats. The absence of robust security oversight allowed malicious actors to target the exchange without encountering substantial resistance.
Compounding these problems was the inadequate management of private keys. Many of these keys, critical for securing digital assets, remained unencrypted, and the exchange lacked adequate key security systems. This lack of protection for private keys exposed FTX to potential breaches, with hackers able to compromise the very heart of its assets.
Hot Wallet Storage Allowed for Theft
Adding to FTX’s vulnerability was the utilization of hot wallets, which are connected to the internet. Hot wallets are known to be more susceptible to breaches compared to cold wallets, yet the majority of FTX’s digital assets were stored in these online wallets. This glaring oversight became an entry point for hackers to access and drain the exchange’s holdings.
Furthermore, the exchange’s logging systems were incomplete, making it challenging to monitor the movements of digital assets and identify suspicious activities. The lack of a comprehensive system to track asset transfers further exacerbated FTX’s security woes.
When the crisis finally unfolded, FTX lacked a clear emergency response plan or established guidance for managing such a critical incident. This lack of preparation contributed to a chaotic response that further hindered the exchange’s ability to mitigate the ongoing breach.
Perhaps one of the most striking revelations was the absence of documentation – a “map” – detailing the network and asset locations. FTX was ill-prepared to identify the whereabouts of its digital assets during the crisis, adding to the confusion.
Decisive Action Saved Funds
Amidst the turmoil, quick thinking and decisive action on the part of some individuals saved the situation from spiraling into an even more significant loss. Some within the organization made a pivotal decision to transfer assets to cold storage, providing a much-needed layer of protection, which helped mitigate the losses and protect what remained.
The FTX security breach serves as a stark reminder of the critical importance of robust security measures, clear emergency response plans, and comprehensive asset management in the world of cryptocurrency. It’s a cautionary tale for the industry, highlighting the need for constant vigilance and readiness to defend against an ever-present threat.
