Hacked crypto exchanges: the role of analytics firms in damage control

[Mercury]

In 2019, at least eight exchanges were hacked including Binance, Bithumb, and Cryptopia. Just two months in 2020, Decentralized Lending Protocol bZx was hacked twice in a matter of a few days; the industry took note of the need for upgraded security measures. However, despite the public announcement of these hacks, the recovery of the stolen funds has been a point that has not been addressed yet.

Crypto analytics firms are generally the ones to track such hacks if they have been revealed to the public. But the firm’s role can be limited by the exchanges. According to Chainalysis’ Chief Economist, Philip Gradwell, the analytic firms helped exchanges track its hacked funds. However, the involvement of such firms has been limited by the exchanges.

In an exclusive interview with AMBCrypto, Gradwell stated:

    “…it does depend on the extent to which an exchange wants to cooperate in this way. But certainly we do get exchanges that will reach out to us when they’ve been hacked.”

Chainalysis tagged and traced stolen funds but it could not confirm whether the funds have been successfully retrieved by the said hacked exchange.

Gradwell emphasized on the need for exchanges’ cooperation and stated that an analytics firm’s involvement will require the exchange to either reach out to them or make the hack public, in order to track the funds.

However, in the case of big public hacks like the one carried out by North Korea’s Lazarus Group, Chianlysis has carried an in-depth investigation, without the need for compliance from an authoritative body defining its boundaries. In a report released by Chainalysis earlier this year, it tracked Lazarus’ movements and noted that it had employed sophisticated phishing ploys, increased use of mixers and CoinJoin wallets, along with creating fake, but realistic trading bot website.

The Chief Economist added:

    “… the crypto crime report this year, we named Lazarus, which is a North Korean associated hacking group. When it’s a hack of that nature wherein that sophisticated operator who’s got ties to a nation-state, then often we will kind of come in and help and do more detailed blockchain analytics that gives a more complete picture.”

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