Security Challenges and Lessons Faced by Centralized Exchanges

In recent years, several well-known Centralized Exchanges have experienced serious security incidents, resulting in significant financial losses. These events have not only exposed the vulnerabilities of centralized platforms but also sounded the alarm for the entire industry. This article will review the 10 most severe security incidents involving Centralized Exchanges in history and discuss the lessons learned.

1. Bithumb: The South Korean exchange that has suffered multiple attacks

Bithumb, as one of the largest cryptocurrency exchanges in South Korea, has suffered multiple hacker attacks since 2017:

• February 2017: Loss of $7 million
• June 2018: Lost 32 million USD, hackers exploited employee personal information to carry out the attack.
• March 2019: Lost 20 million USD in EOS and XRP
• June 2019: Attacked again, resulting in a loss of 30 million USD

The South Korean Ministry of Science and Technology found multiple security flaws in Bithumb, including insufficient network isolation and weak monitoring systems. This highlights the importance for exchanges to continuously strengthen their security measures.

2. WazirX: Major Vulnerability Encountered by Indian Exchange

In July 2024, the Indian exchange WazirX suffered a severe wallet vulnerability attack, resulting in over $230 million worth of cryptocurrency assets being stolen. The stolen assets included various tokens such as Shiba Inu (SHIB), MATIC, PEPE, USDT, and others.

Despite WazirX's adoption of security measures such as hardware wallets, it was still unable to prevent this complex attack. This incident once again highlights the risks of centralized management of private keys.

3. A Certain Exchange: Even Global Leading Platforms Can't Escape the Clutches of Hackers

In May 2019, a global leading cryptocurrency exchange suffered a hacker attack, resulting in a loss of over 40 million USD. The hackers used phishing and other methods to obtain users' two-factor authentication codes and API keys, stealing 7,074 Bitcoins from the hot wallet.

The platform subsequently established the user security asset fund (SAFU) to protect user funds. However, in October 2022, the platform experienced another major security incident involving $570 million, where hackers exploited a cross-chain bridge vulnerability to illegally generate and steal a large number of tokens.

4. KuCoin: Hollywood-style Precision Theft

In September 2020, KuCoin experienced a sophisticated theft case comparable to a Hollywood blockbuster. Hackers successfully stole approximately $281 million worth of various cryptocurrencies by stealing the private keys of hot wallets.

The KuCoin team quickly took action to close the hacked wallets, freeze transactions, and recover approximately $204 million in stolen funds within weeks. The case is suspected to be related to a national-level hacker organization.

5. BitGrail: The Inside Job of an Italian Exchange

The Italian cryptocurrency exchange BitGrail suffered a theft of $146.55 million, and the police have accused the exchange's founder of possible involvement. Approximately 230,000 users suffered losses, making it one of the largest financial misconduct events in Italy's history.

The court subsequently announced the bankruptcy of BitGrail and demanded that the founder return as much of the stolen assets as possible. This case highlights the potential threats posed by insiders within centralized exchanges.

6. Poloniex: Lessons from Two Major Security Incidents

Poloniex has experienced two serious security incidents in succession:

• March 2014: Hackers exploited a software vulnerability to steal 97 bitcoins.
• November 2023: A suspected national-level hacker organization stole private keys from hot wallets, resulting in a theft of approximately $126 million.

The latest attack used complex techniques such as social engineering and malware, and utilized a decentralized exchange for money laundering, increasing the difficulty of tracking.

7. Bitstamp: System Administrators Become Attack Vectors

In 2015, Bitstamp suffered a hacking attack, losing approximately $5 million. The hackers induced the system administrator to download malicious files, obtaining critical wallet files and passwords.

Afterwards, Bitstamp underwent a comprehensive overhaul of the platform, including migration to more secure cloud servers and the implementation of multi-signature wallets.

8. A certain exchange: Vulnerabilities of the multi-signature system

In August 2016, a well-known exchange suffered a cyber attack, resulting in the loss of 120,000 bitcoins. Hackers exploited a vulnerability in the platform's multi-signature security system.

To mitigate losses, the platform has implemented measures such as loss sharing and token issuance. This incident highlights that even advanced security systems may have vulnerabilities.

9. Coincheck: The Most Severe Single Hack in History

In January 2018, the Japanese exchange Coincheck suffered the most severe single hacking attack at the time, losing approximately $534 million worth of NEM tokens.

This incident exposed Coincheck's serious shortcomings in asset management and multi-signature protection. The cryptocurrency community subsequently took collective action to attempt to prevent the liquidation of the stolen assets.

10. A Well-Known Exchange: A Far-Reaching Security Incident

In 2014, the world's largest Bitcoin exchange suffered a catastrophic theft, with approximately 850,000 Bitcoins stolen. This incident had a significant impact on Bitcoin prices and the trust in the entire cryptocurrency industry.

Exchange Security Precautions

To enhance security, the exchange can take multiple measures:

1. Separation of hot and cold wallets: Store the majority of assets in an offline cold wallet to reduce the risk of hacker attacks.

2. Multi-signature mechanism: Requires multiple key holders to jointly sign transactions to prevent losses caused by the leakage of a single key.

3. Regular security audits: Hire third-party professional organizations to conduct comprehensive security assessments and vulnerability detection.

4. Employee Security Training: Strengthen employees' security awareness to prevent social engineering and other attack methods.

5. Real-time monitoring system: Establish an efficient abnormal transaction monitoring mechanism to promptly detect and prevent suspicious activities.

6. Insurance Coverage: Purchase insurance for user assets to provide additional protection in the event of a security incident.

7. Improved Transparency: Regularly announce security measures and asset reserve status to increase user trust.

These security incidents have sounded the alarm for the entire industry, reminding us that while pursuing innovation, security is always the cornerstone of the cryptocurrency ecosystem.