Cryptocurrency Exploits Explained: What is an Exploit?

What is an exploit?

An exploit is a method or technique used to take advantage of a flaw or vulnerability in order to gain unauthorized access, execute malicious code, or cause other undesirable effects.

In the cryptocurrency world, an exploit is often used to refer to a method of taking advantage of a flaw in the system in order to steal coins or tokens which will result in a loss of funds of the victim.

How does an exploit happen?

Exploits can happen in many ways, for example, a software bug, an attack on the network, or even a human error can lead to an exploit.

There are a few common types of exploits such as:

• Flash loan attack: This is where a malicious actor takes out a loan of cryptocurrency and then uses it to manipulate the markets. For example, they could use the loan to buy up a large amount of a certain currency and then sell it all at once, causing the price to crash due to liquidity imbalance.
• 51% attack: This is when a single entity or group controls more than 50% of the mining power of a Proof-of-Work network. This gives them the ability to double-spend coins and prevent other transactions from being confirmed.
• Wash trading: This is when a trader buys and sells a large number of tokens for the purpose of artificially inflating the price. This can be used to pump up the price of a currency so that they can sell it at a higher price and make a profit.

These are just a few examples of how an exploit can happen in cryptocurrency. While some exploits may be small and only result in a loss of a few coins, others can have much more devastating effects and result in the loss of millions of dollars worth of cryptocurrency.

Who is behind an exploit?

There is no one answer to this question as there are many individuals and groups who may be responsible for an exploit in cryptocurrency. However, some of the most likely suspects include hackers or scammers.

Each of these groups has its own motives for attacking cryptocurrency exchanges or wallets and its own methods of doing so. However, understanding the motives and methods of each group can help to narrow down the list of possible suspects.

Hackers are often motivated by a desire to steal money or data from their targets. They may also be motivated by a challenge or a desire to cause damage to a system. Hackers typically use sophisticated methods to gain access to their target's systems and may target multiple victims in order to maximize their chances of success.

Scammers, on the other hand, are typically motivated by the desire to make money by tricking people into sending them cryptocurrency. Scammers will often create fake websites or social media accounts that mimic those of legitimate exchanges or wallets in order to prey on unsuspecting users. They may also send phishing emails or messages in an attempt to trick people into revealing their private keys or other sensitive information.

While it can be difficult to determine who is behind an exploit, understanding the motives and methods of each group can help to narrow down the list of possible suspects.

For example, a hacker may gain access to an exchange's systems and then sell that information to a scammer who uses it to defraud users. Therefore, it is important to consider all of the evidence when trying to determine who is behind an exploit.

Top crypto exploits

Some popular cryptocurrency exploits include the Poly Network exploit in August 2021 and Ronin Bridge in 2022. These exploits resulted in the loss of millions of dollars worth of cryptocurrency.

$610m - Poly Network

On August 2021,  an exploit was used to steal $610 million worth of cryptocurrency from the Poly Network. The hackers launched an attack on the smart contract of the  Poly Network, then transferred it to unknown addresses.

Eventually, the assets were returned to the Poly Network after 15 days. However, this was one of the largest cryptocurrency exploits in the history of DeFi.

$540m - Ronin Bridge

In March 2022,  an exploit was used to steal $540 million worth of cryptocurrency from the Ronin Bridge. The hackers discovered a backdoor through the gas-free RPC node and gained access to five private keys which allowed them to transfer funds from the Ronin Bridge to their own wallets.

The exploit wasn't noticed after 6 days, only after a user reported that he couldn't withdraw 5,000 ETHs from the bridge. This is considered one of the top exploits in the cryptocurrency space.

$532m - Coincheck

In January 2018, one of the largest digital currency exchanges in Japan, Coincheck, lost $532 million to hackers.

The hack occurred when the attackers used phishing emails to gain access to Coincheck's NEM (XEM) hot wallets, which held customer funds. The exchange then halted all withdrawals and deposits in an attempt to contain the damage. This hack resulted in one of the largest losses of cryptocurrency in history.

These are just some popular cryptocurrency exploits that have resulted in the loss of millions of dollars worth of cryptocurrency. As the industry grows, we can expect to see more and more exploits. So, it's important to be aware of the risks and take steps to protect your funds.

How to avoid losing money from exploits

When it comes to investing in cryptocurrency, there is always the risk of losing money due to exploits. There are a few tips to  help you avoid losing money due to exploits in cryptocurrency:

• Be aware of the risks: This may seem like an obvious tip, but it is important to remember that there are always risks involved when investing in any type of asset, including cryptocurrency. Make sure you are fully aware of the potential risks before investing any money.
• Diversify your investments: Don’t put all your eggs in one basket. When it comes to cryptocurrency, this means investing in a variety of different coins and tokens. This will help to spread the risk and hopefully minimize any losses if an exploit does occur.
• Stay up to date with the latest news: Another important tip is to stay up to date with the latest news and developments in the cryptocurrency world. This way, you can be aware of any potential exploits that may occur and take steps to protect your investments.
• Use a reputable exchange: When it comes to buying and selling cryptocurrency, make sure you use a reputable exchange. There have been many cases of people losing money due to exploits on less-than-reputable exchanges. So, it is important to do your research and only use exchanges that you trust.
• Keep your private keys safe: One of the most important things to remember when investing in cryptocurrency is to keep your private keys safe. If you lose your private keys, you could lose access to your coins and tokens. So, it is important to store them in a safe place and never share them with anyone.
• Diversify what you’re holdings: Another way to protect yourself against potential exploits is to diversify your holdings. By investing in a variety of different assets, you can spread the risk and hopefully minimize any losses if an exploit does occur.

By following these tips, you can help to minimize the risk of losing money due to exploits in cryptocurrency. However, it is important to remember that there is always some risks involved when investing in any asset, so you should never invest more than you are willing to lose.

FAQs about cryptocurrency exploit

How do we inform projects about potential exploits?

First, check to see if the project has a security policy listed on its website. If they do, follow the instructions there. If not, you can try contacting the project team directly. You can find them via Telegram, Twitter, or their website.

How to get money back from an exploit?

If you have been the victim of an exploit in cryptocurrency, there are a few options available to you in terms of getting your money back. One option is to file a report with the exchange or platform on which the exploit took place.

Another option is to contact relevant departments and file a report with them to get your money back. However, it's not guaranteed that you will be able to get your money back through these methods.

Should we manipulate an exploit?

We should never manipulate an exploit. By manipulating an exploit, we run the risk of making the exploit worse or even getting into legal issues. Additionally, we could damage people's life savings or even the reputation of the market.