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they essentially had an underground money laundering machine doing their work for them all based on human greed

💨 tl;dr

In January 2018, hackers stole over $500 million from Coincheck by exploiting malware and a poorly secured hot wallet. They laundered the stolen NEM tokens through various wallets and dark web exchanges, making tracking difficult. Despite ongoing efforts, no arrests have been made, and a significant amount of stolen Bitcoin remains active.

💡 Key Ideas

• In January 2018, hackers stole over $500 million from the Japanese cryptocurrency exchange Coincheck by exploiting malware on a terminal and accessing a poorly secured hot wallet.
• The hack led to a rapid distribution of stolen NEM tokens across multiple wallets to complicate tracking and facilitate laundering.
• Hackers used tactics like sending small amounts to random addresses and setting up dark web exchanges to convert stolen funds into clean money, taking a cut from transactions.
• Despite tracking efforts, no arrests have been made since the hack, and significant amounts of stolen Bitcoin remain active and moving through various exchanges.
• The total stolen included about 14,000 Bitcoin, valued at roughly $980 million, with over $400 million still unaccounted for and the hackers continuing their operations.
• The involvement of centralized exchanges complicates recovery efforts, as they can obscure the trail of stolen funds, making it difficult for authorities to track down the criminals.

🎓 Lessons Learnt

• Keep large sums off hot wallets. Hot wallets are vulnerable to hacks; store significant funds in cold wallets for better security.

• Implement strong operational security. The hack occurred due to malware on a terminal, underscoring the need for robust security practices.

• Stay alert to communication from exchanges. Quick and effective communication during a crisis can help users respond to potential security issues promptly.

• Understand money laundering techniques. Once hacked funds are obtained, they are often mixed with clean money; tracking transactions is crucial to prevent this.

• Act quickly to freeze hacked funds. Fast collaboration with authorities can help stop the movement of stolen assets and minimize losses.

• Greed can lead to unexpected success for hackers. By creating exchanges for trading stolen funds, hackers exploit human desire for easy profits.

• Blockchain transparency has its drawbacks. While it offers traceability, it also reveals criminals’ activities, linking them to illicit transactions.

• Real cash conversion is a vulnerability. Stolen cryptocurrency must eventually be converted to cash, which can be monitored by centralized exchanges.

• Tracking Bitcoin transactions is labor-intensive. Keeping tabs on transactions requires effort, and avoiding exchanges can help evade detection.

• Persistence of hackers shouldn't be underestimated. Hackers can remain undetected for years, continuing to profit from their exploits if the public and authorities forget.

🌚 Conclusion

To prevent such hacks, keep large sums in cold wallets, implement strong security measures, and act quickly to freeze stolen funds. Understanding money laundering techniques and the persistence of hackers is crucial for effective recovery and prevention.

In-Depth

All Key Ideas

Coincheck Hack Overview

• A hacker broke into a Japanese cryptocurrency exchange, Coincheck, and stole over $500 million in January 2018.
• The hack occurred due to malware infecting one of Coincheck's terminals, allowing access to a hot wallet.
• Coincheck held a massive amount of funds in hot wallets, which are connected to the internet and more vulnerable to attacks.
• The hack was confirmed by Coincheck after users noticed large sums of money moving, leading to a significant drop in the price of the affected cryptocurrency, NEM.
• The stolen funds were quickly distributed to multiple wallets to obscure tracking and facilitate money laundering.
• The NEM Foundation and Japanese police worked to alert exchanges about the hacked funds in hopes of freezing them.

Cryptocurrency Money Laundering Tactics

• Hackers sent small amounts of stolen cryptocurrency to random addresses, which was ineffective for hiding the funds.
• They exploited human greed by creating a dark web exchange offering stolen funds in exchange for clean funds, taking a 15% cut.
• Initially, few accounts engaged with this offer, but interest surged as users realized it wasn't a police trap.
• The money laundering operation successfully sold out the NM tokens in 43 days.
• Funds from the exchange consolidated into a few wallets, mainly rcdn and F4 WK, with significant Bitcoin amounts moved through them.
• The blockchain allows tracking of transactions, making it easy to see where the money goes, which complicates efforts to break the traceability link.
• Without using a tumbler to obscure the source of funds, the stolen cryptocurrency remains traceable until it is converted to cash through centralized exchanges.

Bitcoin Tracking and Stolen Funds

• Despite tracking the Bitcoin, no one has been arrested or investigated since the hack occurred in 2018, leading to confusion about the stolen funds' whereabouts.
• The process of tracking transactions between wallets is complex and labor-intensive, often involving thousands of wallets interacting with each other.
• Significant amounts of stolen Bitcoin have been deposited into various exchanges, with examples showing transactions worth millions over the years.
• Some wallets holding the stolen Bitcoin are still active, with funds being moved around, indicating ongoing activity related to the stolen money.
• Hacked Bitcoin typically doesn't end up in exchanges due to law enforcement tracking, yet in this case, it has, raising questions about the process used to hide the funds.

Bitcoin Hack Overview

• The hack involved around 14,000 Bitcoin, valued at approximately $980 million today, highlighting that it was one of the biggest thefts in history.
• The initial $500 million hack was reduced due to a 15% haircut and the decline in cryptocurrency value since then.
• Many of the stolen Bitcoins were deposited into centralized exchanges from 2018 onward, with some large wallets still holding substantial amounts.
• 30 individuals were arrested in Japan in 2021 for laundering around $100 million of the stolen cryptocurrency, but only a fraction of the total amount was recovered.
• Over $400 million remains laundered and unaccounted for, with the hackers still free and actively moving funds.
• Cryptocurrency exchanges may obscure the trail of stolen funds, acting like a black hole for transactions, complicating recovery efforts.
• There’s a possibility that much of the stolen Bitcoin still exists on exchanges, waiting for the right moment to cash out, making it an ongoing heist.

All Lessons Learnt

Cryptocurrency Security Tips

• Don't keep large amounts in hot wallets. Hot wallets are more vulnerable to hacks since they're connected to the internet. Keeping a significant amount of funds in them invites risk.
• Always maintain strong operational security. The hack was possible due to a terminal being infected with malware, highlighting the importance of robust security measures.
• Monitor your exchange’s communication. Quick responses on social media can alert users to potential issues, so it's critical for exchanges to communicate effectively during crises.
• Be aware of money laundering techniques. Once funds are hacked, they need to be mixed with clean money to obscure their origins, which emphasizes the importance of tracking and monitoring transactions.
• Act fast to freeze hacked funds. It's essential for cryptocurrency platforms to work quickly with authorities to freeze suspected hacked funds, preventing further movement and potential laundering.

Insights on Cryptocurrency and Money Laundering

• Exploiting human greed can lead to unexpected success. The hackers created a cryptocurrency exchange offering stolen funds for clean funds, capitalizing on people's desire for easy money.
• Blockchain transparency is a double-edged sword. While it can trace transactions, it also means that those involved in money laundering become criminals by association, as all transactions are visible.
• Money laundering requires breaking the traceability link. Without using methods like tumblers to obscure the source of funds, criminals remain exposed on the blockchain, making it easier to track their activities.
• Real cash conversion is a critical point of vulnerability. Eventually, stolen cryptocurrency must be converted to real cash through centralized exchanges, which are monitored and can lead to capture.

Lessons on Bitcoin Transactions

• Tracking Bitcoin transactions is complex and labor-intensive.
• Hacked Bitcoin often should avoid exchanges to evade detection.
• Crypto tumblers are used to obscure the origin of stolen funds.
• The value of Bitcoin can significantly increase over time.

Key Points on Cryptocurrency Tracking and Security

• The importance of tracking cryptocurrency transactions: Keeping an eye on on-chain transactions can help authorities trace stolen funds, even if they are filtered through exchanges.
• Cryptocurrency exchanges can obscure money trails: Exchanges may act like black holes, making it difficult to follow the flow of money once it enters, which can complicate recovery efforts for stolen assets.
• Don't underestimate the persistence of hackers: Hackers can remain free for years and may continue to profit from stolen funds, especially if the public and authorities forget about the incident.
• Awareness can lead to action: Recalling significant hacks might motivate someone to monitor or investigate the movement of stolen cryptocurrencies, increasing the chances of recovering assets.