otpyrLast couplec weeks, the hottest crypto market topic was the KuCoin Hack. Hacken Group, the major cryptocurrency exchanges auditor, highly values the need for user awareness of the threats. The issue of preventing such situations is of greater importance at the moment. Therefore, we present the research that was carried out by Hacken specialists. Read the recommendations on what to pay attention to and what to do to avoid such attacks.
On September 25, 2020, the cryptocurrency exchange KuCoin was hacked. The estimated stolen cryptocurrency amount is more than $275 million in various cryptocurrencies.
On the official website, the KuCoin team explained that the hack was made because of a leakage of the private keys of KuCoin hot wallets. As a result, 1,008 BTC was stolen, along with 14,713 BSV, 26,733 LTC, 9,588,383 XLM, Omni, and EOS-based tether (USDT) worth $14 million, $153 million in ether and ERC20s, and over 18 million XRP.
All stolen USDT tokens have been blocked by the Tether team. Blocking is good for such hack cases. Thanks to these procedures, the exchange has already been able to return funds equivalent to $64 million. Nevertheless, it contradicts the main idea of cryptocurrencies, namely decentralization. For example, your bitcoins cannot be blocked in any way.
The hacker made withdrawals from the KuCoin hot wallets to the following addresses:
As we found out from the transactions, the hacker sold the stolen cryptocurrency from the above addresses on decentralized exchanges like Uniswap and anonymized the stolen cryptocurrencies through the mixing services. A key advantage of Uniswap, a decentralized exchange, is that it enables users to retain full custody of their digital assets when exchanging them. However, hackers took advantage of its pros and misused the service platform.
The fact that a hacker uses decentralized exchanges negatively affects their reputation but at the same time confirms their reliability. Uniswap is completely decentralized and is a reliable service for exchanging cryptocurrencies. Everyone can exchange cryptocurrency without fear of blocking.
According to the twitter of Johny Lyu, the Kucoin team has found the suspects of the security incident. However, no specific reason was given.
Despite the exchange claiming to reimburse all losses to users, we can see that there are not enough funds on the identified KuCoin wallets to pay off the losses caused by the hack. In addition, the exchange did not have a secure asset fund from which to recover losses. Perhaps these funds are kept in bank accounts of the exchange or in “secret” wallets, but we do not have such information.
Talking about other exchanges, we can note that some of them really do have insurance funds, like Bittrex Digital Asset Insurance.
First of all, in the risk group we include exchanges with huge amounts of funds stored in the hot wallets. Some of them:
The KuCoin exchange hack showed us that some exchanges have to pay more attention to common security standards. Some respectable exchanges have already passed SOC-2 audits. SOC 2 examination on an annual basis demonstrates that an exchange cares about the safeguarding of its clients’ data and deposits.
Regardless of the reason for the hack, we recommend that exchanges adhere to generally accepted rules for storing client funds and perform regular audits.
Also, we can see that a hacker decided to exchange stolen cryptocurrencies on DEX services such as Uniswap. Unlike centralized exchanges, DEXs can’t block their users’ funds — only specific projects can block their tokens (for example Tether). We feel that this increases user confidence in the reliability of decentralized services.
Disclaimer: This material is not sponsored by any organization mentioned in the article.
Also published on: https://hacken.io/research/researches-and-investigations/kucoin-september-2020-hack-hacken-research/