In a well-coordinated cyber heist, hackers have successfully laundered an incredible 499,000 ETH, valued at around $1.39 billion, taken from the cryptocurrency exchange Bybit.
The laundering process, which lasted 10 days, used several advanced methods and made ample use of mixers to obscure the heist’s trail. Despite serving as a massive wake-up call about the security of digital assets, the hack has managed to impact the cryptocurrency market in a big way. While the price of Ethereum (ETH) is down around 23% during the same period as the hack, the price of many other cryptocurrencies is down, too.
The Complex Money Laundering Operation
The scheme to steal from Bybit, one of the top crypto exchanges, was large and messy. Almost 500,000 ETH got taken. And as you can imagine, moving that much cryptocurrency into the real world is hard to do without getting caught, and also hard to do in a way that uses no electronic breadcrumbs. So the hackers behind the Bybit scheme didn’t just use some smart methods of moving the ETH into the real world—they also used some very dumb methods to make a lot of the ETH into a usable form without getting detected first.
The laundering of the stolen money was primarily done by the hackers using THORChain, a decentralized protocol for liquidity. On this platform, the criminals performed an eye-popping series of high-volume transactions that enabled them to convert huge amounts of ETH into other digital assets, making their trail even harder to follow. The very decentralized network that was being used by the hackers to launder their ETH saw a gigantic upsurge in activity at that very time, recording a transaction volume of $5.9 billion in that quarter. That same network also earned a cool $5.5 million in fees for handling the transactions, a good portion of which might have been the direct result of the hackers’ activities.
The operation to wash the stolen ETH was engineered with a clear design to leave as few traces as possible. After lifting the ether, hackers first ran the crypto through mixers—services that twist and turn the funds so that the origin and destination of the assets can’t be seen. The mixers used by the hackers blended the stolen funds with a whole lot of other funds. A tiny drop from the stolen batch went into a Bitcoin (BTC) mixer, and then into a coin join—another mixing service for BTC. This plan made it super difficult for law enforcement and other cybersecurity firms to untangle the washes.
The hackers also used cross-chain bridges, which facilitate the transfer of digital assets between different blockchain networks. This added a new dimension of complexity, as the funds were dispersed across multiple blockchains, muddying the trail for investigators.
The laundering operations caused ETH’s price to drop significantly, from $2,780 when they began to $2,130 when they ended. In 10 days, ETH’s price had been pushed down 23%, and while other factors would have contributed to this price drop, such a large movement of illicit funds into and out of the cryptocurrency marketplace couldn’t have been helpful for traders’ and investors’ ETH holdings or their confidence in the marketplace.
A Growing Threat to Crypto Security
The Bybit hack and the laundering that followed shine a spotlight on the cryptocurrency ecosystem’s weak spots. Most of these are in relation to how safe our decentralized platforms are. That said, I consider decentralized finance, or DeFi, to be an enormous step forward in terms of providing services that are not only safe and secure but also private, reliable, and respectful of the user’s freedom. THORChain has been much praised for its innovative approach. But what I want to explore in this post is the worst-case scenario using THORChain for illicit finance and how the attack on Bybit demonstrates that.
Services such as mixers and cross-chain bridges also involve regulators and law enforcement agencies and add to the questions that already exist about their ability to effectively combat cryptocurrency-related crimes. As the blockchain ecosystem continues to grow and evolve, it is apparent that both centralized exchanges and decentralized platforms will need to enhance their security measures to prevent the occurrence of similar incidents in the future.
Targeting the cryptocurrency industry, cybercriminals are an ever-growing threat. The recent Bybit hack, which some believe was the work of North Korean hackers, is just one major example. The more money that flows into the digital asset space, the harder hackers try to find—and exploit—its many vulnerabilities. When the dust settles, the industry is left to ponder two major issues: how to ensure the unfailing security of our not-so-safely stored assets and how to maintain the overall integrity of a landscape that seems, to some, ever-expanding.
Disclosure: This is not trading or investment advice. Always do your research before buying any Metaverse crypto coins.