The theft of $41m in Bitcoin from Binance, one of the largest cryptocurrency exchanges in the world, could have a significant damaging impact on the future growth of cryptocurrencies, according to experts.
The Binance hack, which is the latest in a long line of digital heists on cryptocurrency exchanges, saw hackers make off with 7,000 Bitcoin using a string of different techniques, including phishing and viruses, according to Binance.
While users will see their losses covered by Binance, it is undoubtedly a devastating blow for the cryptocurrency exchange, but the high-profile nature of the attack could have far more wide-reaching impacts.
Timing is everything: Why the Binance hack could harm cryptocurrency
The cryptocurrency industry is currently at a critical juncture, as it recovers from a fraught 2018.
At the end of 2017 Bitcoin hit record highs of just below $20,000 a coin, but faced a significant slump in the following months, crashing to around $3,400 at the end of 2018.
Other cryptocurrencies have generally followed a similar pattern, with total market capitalisation excluding Bitcoin reaching $542.8bn in January 2018 but dropping to a low of $46.8bn in December 2018.
However, while cryptocurrency has spent considerable time in ‘bear’ market territory, with ongoing pessimism driving prices down, it has begun to pick up over the last few months, with Bitcoin climbing from around $3,400 a coin at the beginning of 2019 to $5,770 as of 4 May.
This has led some experts to suggest Bitcoin, and wider cryptocurrency investment, has now moved from a bear market to a ‘bull’ market, with optimism pushing prices up.
“It’s still too early to accurately say that Bitcoin is now in bull market territory – but the evidence for this trend is increasing day by day,” said Nigel Green, CEO of deVere Group, at the end of April.
“It seems the broader sentiment is definitely turning decidedly more bullish amongst crypto traders. Many of even the most strident bears appear to be flipping.”
The Binance hack, however, could significantly jeopardise this growth, particularly given that it is so hesitant and that much of the new investment is by businesses and traditional investors who are more likely to be put off by a high-profile hack.
“This announcement could have a damaging effect on cryptocurrencies,” said Jake Moore, cyber security specialist at ESET.
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“After the rise and fall of crypto in 2017, people have exercised caution when it comes to digital currencies, so this could dramatically affect the volatility of the currency if people question the security of their finances.”
Increasing the security of cryptocurrency exchanges
If mainstream investors are to have continued faith in cryptocurrency, it is essential that exchanges – particularly major names such as Binance – demonstrate that they are taking security extremely seriously.
Not only is cryptocurrency a high-value target, but exchanges are a target of choice for some nation states, including North Korea, meaning such organisations need to defend against highly sophisticated attackers.
Binance appears to be a strong example of this – the exchange does have good levels of security, but it was not a match for the attackers.
“It seems to be a very well thought out and targeted attack with a damming outcome for all involved, so it goes without saying that everyone with a Binance account should change their API keys and two-factor authentication methods,” said Moore.
“Fortunately, those who have been affected will be reimbursed, but who knows how long they will remain customers.”
However, it is clear that more needs to be done to protect the security – and future – of cryptocurrency.
“Today, all cryptocurrency-related businesses should be well prepared to defend against constant and sophisticated cyberattacks,” said Ilia Kolochenko, founder and CEO of ImmuniWeb.
“In reality, however, virtually all of them underestimate or ignore digital risks and allocate scant resources for cybersecurity.”