As the Bitfinex hack makes headlines again due to the arrest of two individuals involved, it seems appropriate to go over the situation and remember what it all means.
There are many ways to store your cryptocurrency; some are more secure than others.
However, one piece of advice you’ll often hear is to avoid holding your crypto assets on an exchange.
While Bitfinex plans to reimburse customers and implement new security measures, the incident highlights the need for improved security in the cryptocurrency space.
Let’s take a look at what happened in the Bitfinex hack and what steps you can take to avoid falling prey to similar attacks in the future.
Table of Contents
- What was the Bitfinex hack, and how did it happen?
- How did Bitfinex address the crypto hack?
- How were Ilya Lichtenstein and Heather Morgan caught?
- What’s next in the case of the Bitfinex hack seizure?
- Could practical crypto wallet security practices have prevented this?
- SecuX cold storage options
- Our conclusion on the Bitfinex hack
What was the Bitfinex hack, and how did it happen?
In August 2016, Bitcoin exchange Bitfinex was the victim of a major hack, with 119,756 BTC being stolen from user accounts.
This totaled nearly $70 million at the time but it is worth $3.6 billion today!
The hackers managed to breach Bitfinex’s security and make off with the funds by compromising user accounts. It is one of the largest cryptocurrency hacks to date.
Cryptocurrency platforms are only protected by the level of security they have in place. Bitfinex had implemented two-factor authentication, but this was not enough to stop the hackers.
They sent funds from various wallets to a single address and left it untouched for years. Immediately after the hack, Bitcoins’ price plunged by 20% as the news spread.
How did Bitfinex address the crypto hack?
Shortly after the hack, Bitfinex stopped all trading on their platform and announced that they would be reimbursing all users who had lost funds. To do this, they would need to issue a new token, which, after a few updates, became the popular $LEO crypto token.
This measure was taken to allow users to exchange their tokens for dollars at a rate of $0.10. The token has grown in value as the company made progress in reimbursing customers.
Bitfinex also announced that they would be taking steps to improve their security and prevent a similar attack from happening again. They implemented two-factor authentication and increased their security measures. However, it is impossible to stop hacking attempts completely.
They fully cooperated with law enforcement and, in February 2022, two individuals linked to the hack were arrested. Ilya Lichtenstein and Heather Morgan face money laundering charges for funneling the stolen funds through their wallets.
How were Ilya Lichtenstein and Heather Morgan caught?
The funds from the Bitfinex hack were sent to a single address and left untouched for years, making it easy for law enforcement to track the movement of the funds. The authorities monitored the blockchain over time, and began their investigation when they finally came upon new movements in the crypto wallet.
At the time of writing, 94,643.29 bitcoins have been moved from a wallet tied to the hack!
Since every transaction on the blockchain is public, law enforcement could track the movement of the stolen funds and eventually make the arrests. Let’s remember that both individuals are not accused of actually hacking the exchange, but rather are facing charges related to attempting to launder the stolen assets.
Ilya Lichtenstein and Heather Morgan reportedly used Alphabay (a dark web exchange) and Russian marketplace Hydra to convert bitcoin into other cryptocurrencies using thousands of automated bots.
The laundered digital currency was eventually transitioned into more traditional financial assets when the couple bought gold, NFTs and even a Walmart gift card.
They also converted hundreds of millions of dollars in cash, although they were far from completing their job. All in all, they only managed to cash out 20% of the total funds.
It’s most likely that they were caught because law enforcement seized Alphabay, leading to records of the couple’s transactions.
What’s next in the case of the Bitfinex hack seizure?
Bitfinex has been working hard to reimburse all of its customers affected by the hack. However, they also claim that they have a right to some of the stolen funds.
This is mostly complicated because of Bitcoin’s price appreciation–it has trended up in value to the tune of nearly 7,000% since the hack!
That being said, while Bitfinex customers may have a right to some of the funds, the exchange may not be ordered to reimburse all of the recovered Bitcoin.
Now that the money-laundering couple has been arrested, law enforcement might find a trail that leads to the hackers. However, this was a difficult task as the hackers were skilled at covering their tracks.
This case is still ongoing, and it will be interesting to see how it plays out.
Could practical crypto wallet security practices have prevented this?
It’s important to remember that Bitfinex is still a functioning platform and has made significant progress in reimbursing its customers. And while the company continues to improve its security measures, it shouldn’t be considered a safe place to store your cryptocurrency.
A cold wallet is a storage device that is not connected to the internet. This makes it impossible for hackers to steal your cryptocurrency online.
The only thing you need to remember is to keep your cold wallet and your recovery phrase in a safe place. If you lose your recovery phase, it will be impossible for you to access your assets.
SecuX cold storage options
Our cold wallets are the most secure way to store your digital assets! With vault-grade security features, you’ll enjoy peace of mind while navigating the digital assets landscape.
The sleek designs are made from military-grade material and have tamper-proof seals, ensuring that your assets are safe and secure.
We support over 1000 coins and tokens, so you can rest assured that your funds are in good hands.
Our conclusion on the Bitfinex hack
The Bitfinex hack serves as a cautionary tale for cryptocurrency investors. Storing your digital assets on a centralized exchange can leave you vulnerable to hacks and theft. Instead, it’s recommended to use a secure method like a hardware wallet, also known as a cold wallet, to manage your crypto. These devices store your private keys offline, making it nearly impossible for hackers to gain access. With a hardware wallet, you have full control over your crypto assets and don’t have to rely on a third-party service. Don’t take unnecessary risks with your investments, choose the safe and secure option of a crypto wallet.
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