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Binance Hack - What Happened and How? Explained in Simple Words
Last night, the world's largest crypto exchange, Binance, was hacked and hackers withdrew $6.3 billion worth of assets. I had no intention of writing about it, as my focus is on other topics these days, but after seeing "crypto experts" everywhere and on the request of some teachers, I thought it better to explain it in simple words.
1. Hot Wallets vs Cold Wallets
Every good exchange has two types of wallets:
Cold Wallets: Like a bank vault. Not connected to the internet. Almost impossible to hack. Even with AI, it would need Quantum Computing.
Hot Wallets: Like a bank's cash van. It must be connected to the internet for daily transactions. If a cold wallet is gold in a vault, a hot wallet is the van carrying cash - it can be stopped and looted, though it's difficult.
Binance holds over $130 Billion in user assets, out of which $6.3 Billion (about 5%) was in hot wallets. That 5% was stolen.
2. How Did The Hack Happen?
No blockchain or cryptocurrency was hacked.
According to the investigation so far, a laptop of a Binance engineer was hacked. Since the laptop was connected to the internal system, it had access to the transaction approval system.
The hacker used that laptop to create a system that needed minimum permission and started working from inside the approval system. Since the automatic transaction system was running from there, money could be sent. The hacker started transferring funds.
3. USDT and USDC - How Were They Frozen?
The stolen funds included USDT and USDC, both stablecoins. We know these stablecoins are not decentralized, they are like a receipt for the money held behind them. So as soon as the news reached Tether and Circle, they froze them.
Before that, the hacker had already converted 730 Million USDT.
About 71% of the hacked stablecoin amount was frozen, while 29% the hacker managed to convert. This was possible because both are centralized.
4. Assets and Compensation
$6.3 Billion was hacked from Binance. Binance announced:
- $3 Billion immediately frozen with the help of those institutions
- $1 Billion from Binance's reserve funds (SAFU fund) kept for such cases
- Remaining $2.3 Billion will be paid by Binance from its own pocket
According to rough trading volume estimates, Binance's gross income from spot trading alone is more than $600 Million per month. So a $2.3 Billion loss will be covered in a few months.
5. Is This a Failure of Crypto?
The answer is NO.
Hacking attacks on internet-connected systems happen all over the world, whether they are financial systems or something else. For example, in October 2021, National Bank of Pakistan faced a cyber attack where inter-bank systems, ATMs and mobile services were affected.
In 2022 and after, many ATM card skimming cases came up. Phishing cases are so many that they come every other day. Even banks have put ads on their sites not to share OTP passwords.
Did any flaw in any cryptocurrency appear in this? No. This was a hacking of an institution's internal system. No blockchain or crypto was affected. Yes, due to being decentralized, a large amount could not be frozen. Think of it like if robbers snatch cash from someone, it cannot be frozen.
6. Bitcoin Crash
Bitcoin's price went down about 5.5% from 1 AM till morning, which recovered by about 3%. As a crypto expert, this is surprising for me. Such a small reaction on such an incident is very rare. This movement is so small that we cannot even count it as a big crash.
A bigger drop than this happened on September 2, 2026 without any crash. This shows the trust and strength of users in Bitcoin and Binance. Much bigger crashes have come in stock exchanges of Indonesia and many other countries in the last one month. Jakarta Composite Index fell up to 11.6% in a single day.
Summary:
Although this hacking is being called the biggest hacking in crypto in terms of dollar value, in terms of actual lost assets, it is much less than such incidents in the past. This incident showed the importance of the fact that internal systems of an important institution should be connected to the internet only to a limited extent, and at the same time, it also showed the power of different institutions working together and immediate response.
If Tether and Circle had not frozen USDT and USDC within just 35 minutes, the loss could have been much bigger. Similarly, if there were not $1 Billion funds, that too would have been part of the loss.
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