Hacks, Scams and Attacks: Blockchain's 2017 Disasters (2024)

Hard forks? Soft forks? ICOs?

Bombarded by no shortage of unfamiliar technical terms in 2017, consumers in the blockchain sector once again proved a ripe target for hackers and criminals. But, not all hacks and scams were created equal.Some rose above the froth – either due to their size or impact – as well as what they said about the state of blockchain technology and the industry itself.

Still, the impacts of these incidents were far from academic. Whether it was a simple wallet hack, fraudulent ICO or a bug in a piece of software code, investors lost millions, with nearly$490 million taken in the incidents below.

So far, none of the perpetrators of these crimes has been caught or even identified, and it's questionable whether most of these funds can be found or returned.

1. CoinDash ICO Hack

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Payment and shipment startup CoinDash launched an initial coin offering (ICO) campaign early this summer, but it quickly had to pump the brakesafter its ethereum address was compromised.

The startup raised $7.3 million before a hacker changed the address, causing donations to go to an unknown party. The company shut down the ICO, but promised to send its native token award, CDT, to those who attempted to donate.

While the company stated that donations sent after it had released its statement would not be honored, some investors continued to show support by donating to the hacked address, inadvertently raising the amount of stolen funds from $7 million to $10 million at the time.

All in all, the incident showcases the growing pains experienced by ICOs, which despite raising massive amounts of funds, still had to navigate the complexities of an early-stage technology.

2. Parity Wallet Breach

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It was a tough year for cryptocurrency wallet provider Parity, which has the rare distinction of being cited twice on our year-end list.

Issues began in July when the U.K.-based startupdiscovered a vulnerability in version 1.5 of its wallet software, resulting in at least 150,000 ethers being stolen from user accounts.

The bug was found in its multi-signature wallets, compromising several companies’ ICO fundraisers. At the time, the ethers were worth roughly $30 million, but they're worth closer to $105 million as of mid-December.

The issue was deemed "critical," with the company's CTO, Gavin Wood, announcing at least three compromised addresses and saying efforts were being made to prevent further loss of funds.

It was later found that more than 70,000 ethers were already cashed out or otherwise redeemed in some way, ensuring that their loss was permanent.

3. Enigma Project Scam

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Back in ICO-land, issues weren't limited to compromised addresses.

Blockchain startup Enigma saw its website, mailing lists and an administrator account on its Slack channel compromisedwhen fraudsters launched a fake token pre-sale in August, defrauding potential investors of more than 1,500 ethers.

The hijacked accounts promised a large return on investment, and masquerading as the genuine operators of the project, those behind the effort were able to convince unsuspecting consumers to donate to the compromised website.

While the team behind Enigma was able to recover control of the company’s accounts, the ether wallet used by the hacker was emptied, and the funds were not recovered.

4. Parity Wallet Freeze

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Perhaps the year's biggest security incident, this entry on the list is also distinguished by being one the few to take place without the apparent aid of a malicious party.

Occurring suddenly this November, aParity user accidentally found a bug in the software code, freezing more than $275 million in ether in the wallet’s second major incident of 2017.

One of two widely used clients for ethereum, the miscue effectively called into question what was and is a central infrastructure component of the network, prompting some to doubt the company's offerings and renewing criticisms of ethereum itself.

In subsequent updates, developers have pushed to restore the funds, though it's now believed that doing so would require all ethereum users to upgrade their software.

5. Tether Token Hack

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In another incident notable for its unresolved controversies, more than $30 million was stolen from the U.S. dollar-pegged cryptocurrency Tether in late November.

At the time, Tether claimed that roughly $31 million’ worth of tokens were taken from their virtual treasury and sent to an unknown bitcoin address.

Not a significant number in the cryptocurrency economy, the hack was more relevant as it effectively renewed long-standing criticisms of Tether the company, prompting scrutiny in the form of blog posts and mainstream news exposes.

The company later moved to blacklist the tokens stolen through an update to the Omni protocol, the blockchain on which it is based. Still, Tether continues to be dogged by allegations the incident played no small part in stirring up.

6. Bitcoin Gold Scam

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Think forks were confusing? So did scammers, and those seeking to cash out new tokens awarded in blockchain splits often proved all too easy to target.

Shortly after the launch of a bitcoin fork called bitcoin gold, for example, some bitcoin users had theircryptocurrency wallets drained after using a service seemingly endorsed by the project's development team.

Marketed as a way to authenticate whether a user was eligible for bitcoin gold funds (effectively free money for bitcoin owners), the website’s operators instead stole more than $3 million in bitcoin, bitcoin gold, ethereum and litecoin.

Bitcoin gold’s development team claimed no formal relationship with the website’s developer, arguing he reached out offering to build a wallet checking service and offering to make his code open-source. The site’s developer initially claimed the site was hacked, but later wiped his GitHub and ceased responding to users on the fork’s Slack channel.

Overall, though, it was another case of consumers falling into traps over promises of free funds.

7. NiceHash Market Breach

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That's not to say that long-standing companies were spared by the year's attacks.

This was the case when cryptocurrency mining marketplace NiceHash, a well-known marketplace for mining power,reported being hacked early in December, later confirming that about 4,700 in bitcoin was stolen. At the time, that was worth approximately $78 million.

It was later revealed an employee’s computer was compromised, allowing the perpetrator to gain access to the marketplace’s systems and remove bitcoin from the company’s accounts.

NiceHash CEO Marko Kobal later announced that his team was trying to determine how the hack occurred, but that it would take time to establish what happened.

Disclosure:CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Enigma.

Various images courtesy Shutterstock

Hacks, Scams and Attacks: Blockchain's 2017 Disasters (2024)


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