Main
Throughout their existence, cryptocurrency exchanges have been periodically hacked, causing users to lose funds. The ability to recover assets depends on the specific case and circumstances.
Reliable cryptocurrency exchanges are able to protect their clients' assets by implementing measures such as cold storage and effective security systems. Some of them use additional funds, such as insurance funds, and other mechanisms in case of emergency situations.
Binance has a SAFU fund worth $1 billion in cryptocurrency to protect user funds in the event of an incident such as unauthorized access.
Since blockchain is still a relatively new technology, there are many myths and misconceptions surrounding cryptocurrencies. Today we'll talk about what happens when a cryptocurrency exchange gets hacked and why it doesn't necessarily mean you'll lose your funds forever.
It is generally accepted that if a cryptocurrency exchange is attacked by hackers, then all user assets are lost forever. This is perhaps the most persistent myth that we have encountered, because millions of people regularly use the services of centralized exchanges. If you think this is true, it's time to change your mind!
In the Cryptocurrency Myths Debunked series, we look at the most common misconceptions and show how things really are. This is an important element of our work to improve cryptocurrency literacy: this is how we improve the image of one of the greatest innovations of our time. So, it's time to dispel the myths about cryptocurrencies!
Myth: If the exchange is hacked, you will lose all your cryptocurrency.
What happens if a cryptocurrency exchange is hacked?
A cryptocurrency exchange is an online platform for trading digital assets. Both centralized and decentralized exchanges provide users with quick and convenient access to digital finance, but they are subject to the risk of hacker attacks. Large exchanges rarely get hacked, but if they do, users may feel the consequences first-hand. Some will suffer only slightly, while others may lose huge amounts of money.
In serious cases, cybercriminals can gain access to users' wallets and steal large amounts of cryptocurrency. Given the specifics of the blockchain, these actions will be irreversible.
In addition, hackers can gain access to sensitive user information such as email addresses, passwords and identification documents. This information can later be used for attacks such as phishing or identity theft.
It’s not just cryptocurrency platforms that have the risk of unauthorized access. Banks and other financial institutions can also become victims of fraudsters who want to gain unauthorized access to their internal systems and steal funds.
Responsible crypto exchanges have the necessary security measures at different levels and appropriate policies to eliminate the possibility of hacking. And although the likelihood that attackers will be able to steal money is extremely low, it still exists.
Sometimes hackers try to break into an entire system, but most often unauthorized access occurs through deception. Using sophisticated social engineering techniques, they induce users to reveal their credentials and try to bypass two-factor authentication.
Stolen Funds Tracking
The consequences of a hack largely depend on the actions of law enforcement agencies. If the attack is large, the investigation will use the maximum amount of resources to find the criminals.
Thanks to the transparency of data in public blockchains, it is quite easy to track stolen funds. Fraudsters have little chance of going unnoticed. If law enforcement agencies can establish a connection between the wallets through which money was withdrawn and specific individuals, criminals will not escape. Once they are arrested, investigators will likely be able to recover at least some of the stolen assets to compensate the affected users.
Thus, in 2016, the Bitcoin exchange Bitfinex was hacked, and as a result of the attack, losses amounted to about 72 million US dollars. US authorities seized most of the stolen funds from the criminals and returned them to users.
Victims of the attack on the Mt. Gox, which happened in 2014, was less fortunate. Bitcoin losses amounted to $460 million. The exchange was never able to return the bulk of the stolen funds, and users suffered significant losses. In 2023, compensation began to be paid from the few funds that were recovered.
As you can see, even assets stolen as a result of major attacks can be recovered. However, this is a complex and lengthy process, the success of which is not guaranteed. Fortunately, there are mechanisms and measures that exchanges can use to protect users from unauthorized access.
What can exchanges do?
Cryptocurrency exchanges are often targeted by hackers and scammers who want to take over users' assets. To protect the funds entrusted to them, such platforms use various measures. These include cold storage of cryptocurrency. This is a way of storing digital coins in a hardware wallet, i.e. offline. To ensure a sufficient level of liquidity in exchange transactions and uninterrupted operation with minimal threat to financial assets, it is necessary to carefully assess the risks and benefits of each method.
Other common methods for protecting accounts from unauthorized access include multi-factor authentication and password policies. Many exchanges impose a limit on the withdrawal amount, if exceeded, additional verification is required. It is also important to educate users so that they do not fall victim to scammers.
In addition, to further protect users, some exchanges create insurance funds. One well-known example is the Secure Asset Fund for Users (SAFU), created by Binance, into which a portion of trading commissions is transferred. It allows you to compensate users for losses in case of emergency situations, such as hacking. Other exchanges use similar funds or insurance policies to provide their clients with an additional layer of protection.
Case in point: SAFU Foundation
In the event of unauthorized access or hacking, Binance will use funds from the SAFU fund to compensate affected users. The amount of compensation for each will depend on the scale of the attack and the amount of funds lost.
Binance created the fund in 2018 and has since transferred 10% of its total trading commissions into the fund. There are plans to increase the contingency fund to $1 billion. Binance will continue to control the size of SAFU, maintaining the balance at a level necessary to protect the interests of our customers.
Information about the SAFU Foundation is freely available. Anyone can check the safety of their funds through wallet addresses.
BTC: 1BAuq7Vho2CEkVkUxbfU26LhwQjbCmWQkD
BNB и USDT (BEP20): 0x4B16c5dE96EB2117bBE5fd171E4d203624B014aa
TUSD (ERC20): 0x4B16c5dE96EB2117bBE5fd171E4d203624B014aa
The SAFU Fund was created at the initiative of Binance as an insurance that can mitigate possible damage. This is proof that Binance cares about the safety and well-being of its users, and is an important step in building trust in the cryptocurrency market.
Conclusion
Cryptocurrency exchanges use a variety of policies and security measures to protect user funds and data from unauthorized access. Insurance funds give clients additional peace of mind and confidence. But even the most advanced systems are not flawless, and there is always the possibility of hacking.
We have already said that all centralized exchanges should implement similar measures. Creating our own insurance fund serves the benefit of the entire ecosystem and confirms our commitment to high standards of trust, honesty and openness in the crypto industry.
Fact: Responsible exchanges are constantly improving their security systems and creating reserves that can ensure that users' assets are reliably protected in the face of threats.
Additional Information
The Myth That Cryptocurrency Companies Can't Be Trusted
The myth that cryptocurrencies are mainly used by criminals
The Myth That Cryptocurrencies Are Inherently Unsafe
The myth that cryptocurrencies are used for tax evasion
