FTX Hack Presents Reputational Problem for Crypto

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  • The FTX hack is looking like a PR disaster for crypto
  • If the $477 million hacker can walks away with the funds while the world is watching, crypto will be in real trouble
  • Its reputation will be even more in the gutter if mixing services are used

Unless you’ve been living under several rocks in the past three weeks, you’ll know that the $30 billion rated FTX imploded, losing the funds of some million users. Part of the fallout was the hacking of $477 million worth of tokens from the exchange, which has been the subject of fierce debate ever since it took place on November 11-12. With the world’s media watching on, and crypto already being a laughing stock on the back of the hack, it’s vital that the crypto world finds a way to get these funds back or risk further embarrassment.

Confusion Over $477 Million Hack

The case of the missing $477 million has been a subplot to the main action so far, but with the dust now settling on the actual event, attention is starting to be focused on the various elements branching off from it. One of these is the hack, which took place when FTX liquidators were moving $650 million worth of coins from the exchange into cold storage.

This led many to believe it was an inside job, backed up by Kraken saying last weekend that it had frozen accounts of FTX/Alameda executives it suspected of receiving the stolen funds. However, the waters were muddied on Friday when the Securities Commission of The Bahamas said that the transfer had been part of a total asset seizure in the battle between New York and the Bahamas for custody of the funds, given that FTX has filed for bankruptcy in both locations.

This, however, has been thrown into doubt due to on-chain investigation of the wallets involved, which suggests that what Kraken had identified wasn’t the hacker at all but was in fact the FTX recovery team and that the hacker was preparing to move the coins into a mixer:

Crypto’s Reputation on the Rocks

What this all means is that, following the embarrassment of the FTX scandal itself, the crypto world is again facing examination over its connection to crime and money laundering. If the hacker is able to escape with the funds under the gaze of not just the crypto world but a mainstream audience too, then the argument that crypto crime is dropping, however true it might be in principle, will be dealt a huge blow.

This is particularly so if the hacker does indeed use a variety of mixing services to obscure the source of the funds, the very mixing services that influential people in the space are working hard to protect. If, however, the funds can be frozen or recovered, this will garner very positive headlines indeed, right at a time when crypto could do with a bit of good PR, regardless of the ideological arguments from the crypto space.

The image of crypto has taken several batterings this year already, and if it allows the FTX hacker to walk away with hundreds of millions of dollars while everyone is watching, then it only has itself to blame for what happens next.