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KuCoin Faces $150 Million Hack, then Freezes Funds on Blockchain
A major exchange called KuCoin was hacked late last Friday (September 25, 2020). More than $150 million dollars worth of various cryptocurrencies were stolen from the exchange. The list of stolen assets include Bitcoin, Ether, Tron, and USDT to name a few. The hackers immediately started moving the funds to various platforms in an effort to avoid detection. KuCoin was forced to act quickly after detecting the hack. Some of the associated projects decided to pause their smart contracts, or even freeze the hackers funds. Much of the funds have been recovered, and KuCoin is planning on giving a full reimbursement to the affected users. There is plenty of controversy surrounding this hack, so let’s dive in.
Ethereum Smart Contracts are Centralized
One of the primary use cases of cryptocurrencies in general is censorship resistance. Or is it. While most cryptocurrencies claim to be resistant to censorship, the reality is that very few truly are. The controversy surrounding this hack is not limited to the security of the cryptocurrency exchange. It also has sparked debate and conversation around the way that some Ethereum based projects handled the hacked funds. Ethereum actually has a history of trying to reverse hacks. Ethereum Classic is a project that forked off of Ethereum as a result of the 2016 DAO hack.
Now it seems that Ethereum based projects are comfortable freezing the hackers funds. Ethics aside, reversing transactions or freezing funds tends to be seen as anti-blockchain. One of the core tenets of cryptocurrencies is the irreversibility of it all. If there was ever a good reason to freeze funds, stopping the stolen funds from crashing markets is one of them. Many believe that this is a slippery slope that will lead the eventual freezing and censorship at the discretion of the project founders.
This leads us to explore another uncomfortable aspect of this hack. It has exposed the fact that many of the most popular DeFi tokens and smart contracts on Ethereum have back doors built into them. This allows the founders or original coders to pause or freeze the operations of the contract. For some, the reason why they’ve joined the world of cryptocurrency is to get away from systems that allow for this sort of activity in the first place.
KuCoin Reports Most Funds Are Safe or Insured
All arguments against the actions of KuCoin and associated projects aside, most of the stolen funds are safe. KuCoin reports that as much as $125 million of the dollars are safe. The rest of the money will be able to be reimbursed to the users of KuCoin through an established insurance fund. Insurance for cryptocurrency exchanges is becoming more of a mainstream trend as exchange hacks remain a threat. Notable exchanges such Crypto.com, Gemini, and Coinbase all have insurance to protect against this sort of occurrence. From a purely reputation standpoint, it appears that KuCoin will remain in tact, due to their swift action, and ability to recover funds.
So what can be learned from the crypto industry’s most recent hack?
- Just because a smart contract is deployed on top of a decentralized blockchain like Ethereum, doesn’t mean it’s decentralized
- Pick an exchange that has top security, and insurance as a backup measure
