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Pundits and commentators have long worried about the security of decentralized cryptocurrencies. In fact, detractors often complain that investing in cryptocurrencies carries far too much downside for the average investor—even if the price goes up, you can still lose it all to hackers. We wanted to take a step back and analyze the history of cryptocurrency hacks. Please note that all USD estimated value is based on average market value at the time of the event.
We created our new graph by taking data from CryptoAware.org, which recently published a list of highly significant crypto hacks and scams. There’s no central record keeper for this sort of thing, so CryptoAware undoubtedly missed some. We combined a cluster graph representing the size of the hack on a timeline with the logo of the exchange or wallet provider that fell prey. This approach lets you easily see how often and to what extent the crypto-market has sustained attacks over the last several years.
A general trend is immediately obvious about our visualization: cryptocurrency hacks have generally become more common and more valuable over time. $10M+ hacks started happening with some regularity after the summer of 2016, right when the crypto-market started taking off. Prior to that time, there was exactly one hack over $10M, the infamous Mt. Gox hack in 2014. More on that in a minute. The second-most devastating hack happened very recently in a Tokyo exchange called Coincheck, for the somewhat obscure NEM coins. The only other two cryptocurrency hacks worth more than $100M were Parity’s Ether wallet hack ($160M) and BitGrail’a Nano hack from early this year ($170M). The latter is still causing lots of consternation within the cryptocurrency community. All things being equal, the average crypto-hack comes out to about $37M.
The critical thing to remember about our graph is that it represents the value of the cryptocurrency theft at the time it occurred. This creates a fair comparison because the value of cryptocurrencies changes literally every second of every day. But keep in mind what this really means: the Mt. Gox hack represented $450M in crypto-wealth as of early 2014, back when Bitcoin cost about $560. As of this writing on May 1, 2018, those same Bitcoins are worth just over $9,000, or a total of about $7,252,000,000. Think that’s incredible? Back in December of 2017, the stash would have been worth $15B+. That’s 10% of the entire Bitcoin market cap today and several times bigger than the biggest bank robberies ever.
This raises two important questions. First, what would somebody do with so much cryptocurrency? Obviously, the value of the currency would plunge as news broke of such a massive heist. Since there is no central governing authority, it is relatively easy to launder cryptocurrencies through different exchanges, which makes it possible to convert the coins into a country’s accepted currency. Second, can cryptocurrency exchanges and wallet providers come up with some sort of system to prevent hacks without government regulations? The Wild West nature of cryptocurrencies—price manipulations, flash crashes, hacks—all indicate that these platforms have to do a better job securing value. Suppose 10% of the entire Bitcoin market were to disappear tomorrow. What are the chances that central governments will outlaw exchanges then?
Cryptocurrencies have had some struggles, but what does that mean for the future? We think of these hacks as growing pains: any new industry will have companies that cut corners on security and pay a price. The free market usually takes care of these organizations—they go out of business. Additionally, even though the size of these hacks is certainly eye-popping, keep in mind that the entire cryptocurrency market is worth about $423B right now. Yes, losing tens of millions to hackers is significant, but these problems won’t cause most people to panic about the security of the crypto-movement writ large.
See any hacks or scams we missed? Email us at press@howmuch.net and we’ll get researching!
Data: Table 1.1