The History of the Mt Gox Hack: Bitcoin's Biggest Heist

Bob The Magic Custodian



Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses.
Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes.

First, some background. Here is a summary of how custodians make us more secure:

Previously, we might give Alice our crypto assets to hold. There were risks:

But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
See - all problems are solved! All we have to worry about now is:
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are!

"On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid".
"Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since."

"As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!"
"Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?"

"Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party."
"Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!"

"What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven."
"Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!"

"We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies.
And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often".

How many holes have to exist for your funds to get stolen?
Just one.

Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so?
If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security.

The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle.

And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet?

Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds.
So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever.

Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see.
It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation.
A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.

History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance.
Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.)
Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive.

Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today.
Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well.
Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do.

Facts/background/sources (skip if you like):



Thoughts?
submitted by azoundria2 to QuadrigaInitiative [link] [comments]

How To End The Cryptocurrency Exchange "Wild West" Without Crippling Innovation


In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.



Many of you have limited time to read the full proposal, so here are the highlights:

Offline Multi-Signature

Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.

Regular Transparent Audits

Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.

Insurance Requirements

Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.


Background and Justifications


Cold Storage Custody/Management
After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems:
• Funds stored online or in a smart contract,
• Access controlled by one person or one system,
• 51% attacks (rare),
• Funds sent to the wrong address (also rare), or
• Some combination of the above.
For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program.
The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms.
• 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective.
• The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated.
The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II.

On The Subject of Third Party Custodians
Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems.
However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies.
There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both.

On The Subject Of Insurance
ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC.
However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline[] to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance.
In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework.
A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians.

On The Subject of Fractional Reserve
There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds.
There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past.

Proof of Reserves/Transparency/Accountability
Canadians need to have visibility into the backing on an ongoing basis.
The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users.
Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit.
The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided.
Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense.

Hot Wallet Management
The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets.
However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process.
A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage.
Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.

Current Draft Proposal

(1) Proper multi-signature cold wallet storage.
(a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet.
(b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time).
(c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.
(d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds.
(e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers.
(2) Regular and transparent solvency audits.
(a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row.
(b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored.
(c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process.
(d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify.
(e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible.
(3) Protections for hot wallets and transactions.
(a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets.
(b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy.
(c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage.
(d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange.
(e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.

Steps Forward

Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized.
The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges.
The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.
submitted by azoundria2 to QuadrigaInitiative [link] [comments]

We are sending a clear message of integrity and justice, louder than the slander our oppressors can push into the news.

We are almost there.
In less than thirty days I will be drafting an unprecedented announcement that your resilience made possible: the announcement that Silk Road has repaid all victims of our February hack.
As of today, May 27th 2014, 82.09% of all victims of the Feburary hack have been fully repaid.
In June the world will be reminded that when faced with adversity, Silk Road's community doesn't run. We unite.
Our enemies may seize our servers, impound our coins, and arrest our friends, but they cannot stop you: our people.
You write history with every coin transacted here.
It is unprecedented for any entity, darknet or clearnet, to completely repay the victims of a Bitcoin hack.
We are sending a clear message of integrity and justice, louder than the slander our oppressors can push into the news. History will prove that we are not criminals, we are revolutionaries.
We are slaving to transform a notoriously-violent industry into a safe online marketplace, removing the risk of face-to-face transactions.
We do not steal the People's money like Goldman Sachs, Citigroup, and Morgan Stanley. We bail each other out with our own sweat. We are not puppets of fear or greed. We do not run like the cowards at MtGox, TorMarket, or Sheep. Silk Road is not here to scam, we are here to end economic oppression. Silk Road is not here to promote violence, we are here to end the unjust War on Drugs. Silk Road is not here to submit to authority, we are here to defend a foundational human right: freedom of choice. Silk Road is not a marketplace, Silk Road is a global revolt.
When the news hits that everyone has been repaid, do your part to help tear down the world's misimpressions about what our movement stands for.
Four months of everyone's hard work has almost generated one spark. Throw it into the petrol. Be prepared with your throwaway accounts. Tweet. Upvote. Blog. Email editors.
It is an honor to serve you. Defcon
From the front page of the Silk Road six years ago....
submitted by MemoryDealers to btc [link] [comments]

The biggest cryptocurrency thefts in the last 10 years

In this article, we will try to remember all the major theft of cryptocurrencies over the past 10 years.
1. Bitstamp $5.3 mln (BTC), January 4th, 2015
On January 4, 2015, the operational hot wallet of Bitstamp announced that it was hacked by an anonymous hacker and 19,000 Bitcoins (worth of $5 million) were lost.
The initiation of the attack fell on November 4, 2014. Then Damian Merlak, the CTO of the exchange, was offered free tickets to punk rock festival Punk Rock Holiday 2015 via Skype, knowing that Merlak is interested in such music and he plays in the band. To receive the tickets, he was asked to fill out a participant questionnaire by sending a file named “Punk Rock Holiday 2015 TICKET Form1.doc”. This file contained the VBA script. By opening the file, he downloaded the malware on his computer. Although Merlak did not suspect wrong and has opened the "application form", to any critical consequences, this did not open access to the funds of exchange.
The attackers, however, did not give up. The attack continued for five weeks, during which hackers presented themselves as journalists, then headhunters.
Finally, the attackers were lucky. On December 11, 2014, the infected word document was opened on his machine by Bitstamp system administrator Luka Kodric, who had access to the exchange wallet. The file came to the victim by email, allegedly on behalf of an employee of the Association for computer science, although in fact, as the investigation showed, the traces of the file lead deep into Tor. Hackers were not limited to just one letter. Skype attacker pretending to be an employee of the Association for computing machinery, convinced that his Frame though to make international honor society, which required some paperwork. Kodric believed.
By installing a Trojan on Kodriс's computer hackers were able to obtain direct access to the hot wallet of the exchange. The logs show that the attacker, under the account of Kodric, gained access to the server LNXSRVBTC, where he kept the wallet file.dat, and the DORNATA server where the password was stored. Then the servers were redirected to a certain IP address that belongs to one of the providers of Germany.
There are still no official reports of arrests in this case. Obviously, the case is complicated by the fact that the hackers are outside the UK, and the investigation has to cooperate with law enforcement agencies in other countries.
2. GateHub $9.5 mln (XRP), June 1th, 2019
Hackers have compromised nearly 100 XRP Ledger wallets on cryptocurrency wallet service GateHub. The incident was reported by GateHub in a preliminary statement on June 6.
XRP enthusiast Thomas Silkjær, who first noticed the suspicious activity, estimates that the hackers have stolen nearly $10 million worth of cryptocurrency (23,200,000 XRP), $5.5 million (13,100,000 XRP) of which has already been laundered through exchanges and mixer services.
GateHub notes that it is still conducting an investigation and therefore cannot publish any official findings. Also, GateHub advises victims to make complaints to the relevant authorities of their jurisdiction.
3. Tether, $30.9 mln (USDT), November 19th, 2017
Tether created a digital currency called "US tokens" (USDT) — they could be used to trade real goods using Bitcoin, Litecoin and Ether. By depositing $1 in Tether, the user received 1 USD, which can be converted back into fiat. On November 19, 2017, the attacker gained access to the main Tether wallet and withdrew $ 30.9 million in tokens. For the transaction, he used a Bitcoin address, which means that it was irreversible.
To fix the situation, Tether took action by which the hacker was unable to withdraw the stolen money to fiat or Bitcoin, but the panic led to a decrease in the value of Bitcoin.
4. Ethereum, $31 mln (ETH), July 20th, 2017
On July 20, 2017, the hacker transferred 153,037 Ethers to $31 million from three very large wallets owned by SwarmCity, Edgeless Casino and Eternity. Unknown fraudster managed to change the ownership of wallets, taking advantage of the vulnerability with multiple signatures.
First, the theft was noticed by the developers of SwarmCity.
Further events deserve a place in history: "white hackers" returned the stolen funds, and then protected other compromised accounts. They acted in the same way as criminals, who stole funds from vulnerable wallets — just not for themselves. And it all happened in less than a day.
5. Dao (Decentralized Autonomous Organization) $70 mln (ETH), June 18th, 2016
On June 18, 2016, members of the Ethereum community noticed that funds were being drained from the DAO and the overall ETH balance of the smart contract was going down. A total of 3.6 million Ether (worth around $70 million at the time) was drained by the hacker in the first few hours. The attack was possible because of an exploit found in the splitting function. The attackes withdrew Ether from the DAO smart contract multiple times using the same DAO Tokens. This was possible due to what is known as a recursive call exploit.
In this exploit, the attacker was able to "ask" the smart contract (DAO) to give the Ether back multiple times before the smart contract could update its own balance. There were two main faults that made this possible: the fact that when the DAO smart contract was created the coders did not take into account the possibility of a recursive call, and the fact that the smart contract first sent the ETH funds and then updated the internal token balance.
It's important to understand that this bug did not come from Ethereum itself, but from this one application that was built on Ethereum. The code written for the DAO had multiple bugs, and the recursive call exploit was one of them. Another way to look at this situation is to compare Ethereum to the Internet and any application based on Ethereum to a website: if a website is not working, it doesn't mean that the Internet is not working, it simply means that one website has a problem.
The hacker stopped draining the DAO for unknown reasons, even though they could have continued to do so.
The Ethereum community and team quickly took control of the situation and presented multiple proposals to deal with the exploit. In order to prevent the hacker from cashing in the Ether from his child DAO after the standard 28 days, a soft-fork was voted on and came very close to being introduced. A few hours before it was set to be released, a few members of the community found a bug with the implementation that opened a denial-of-service attack vector. This soft fork was designed to blacklist all the transactions made from the DAO.
6. NiceHash, 4736.42 (BTC), December 6th, 2017
NiceHash is a Slovenian cryptocurrency hash power broker with integrated marketplace that connects sellers of hashing power (miners) with buyers of hashing power using the sharing economy approach.
On December 6, 2017, the company's servers became the target of attack. At first, Reddit users reported that they could not access their funds and make transactions — when they tried to log in, they were shown a message about a service interruption. In the end, it became known that the service had undergone a major cyberattack and 4736,42 Bitcoins disappeared without a trace.
Despite heavy losses, NiceHash was able to continue working, but CEO and founder Marco Koval resigned, giving way to a new team. The company managed to maintain the trust of investors and began to strengthen the protection of its systems.
7. Mt.Gox, 850000 (BTC), June 19th, 2011
The Hacking Of Mt.Gox was one of the biggest Bitcoin thefts in history. It was the work of highly professional hackers using complex vulnerabilities.
A hacker (or a group of hackers) allegedly gained access to a computer owned by one of the auditors and used a security vulnerability to access Mt.Gox servers, then changed the nominal value of Bitcoin to 1 cent per coin.
Then they brought out about 2000 BTC. Some customers, without knowing it, conducted transactions at this low price, a total of 650 BTC, and despite the fact that the hacking hit the headlines around the world, no Bitcoin could be returned.
To increase investor confidence, the company has compensated all of the stolen coins, placed most of the remaining funds in offline storage, and the next couple of years was considered the most reliable Bitcoin exchanger in the world.
However, it was only an illusion of reliability.
The problems of the organization were much more serious, and the management probably did not even know about them.
CEO of Mt.Gox, Mark Karpeles, was originally a developer, but over time he stopped delving into technical details, basking in the rays of glory — because he created the world's largest platform for cryptocurrency exchange. At that time Mt.Gox handled over 70% of all Bitcoin transactions.
And, of course, there were those who wanted to take advantage of the technological weakness of the service. At some point, hackers made it so that Bitcoins could be bought at any price, and within minutes millions of dollars worth of coins were sold — mostly for pennies. World prices for Bitcoin stabilized in a few minutes, but it was too late.
As a result, Mt.Gox lost about 850,000 Bitcoins. The exchange had to declare bankruptcy, hundreds of thousands of people lost money, and the Japanese authorities arrested CEO Mark Karpeles for fraud. He pleaded not guilty and was subsequently released. In 2014, the authorities restored some of the Bitcoins remaining at the old addresses, but did not transfer them to the exchange, and created a trust to compensate for the losses of creditors.
8. Coincheck, $530 mln, January 26th, 2018
The sum was astonishing, and even surpassed the infamous Mt.Gox hack.
While Mt.Gox shortly filed for bankruptcy following the hack, Coincheck has surprisingly remained in business and was even recently approved as a licensed exchange by Japan’s Financial Services (FSA).
Coincheck was founded in 2014 in Japan and was one of the most popular cryptocurrency exchanges in the country. Offering a wide variety of digital assets including Bitcoin, Ether, LISK, and NEM, Coincheck was an emerging exchange that joined the Japan Blockchain Association.
Since Coincheck was founded it 2014, it was incidentally not subject to new exchange registration requirements with Japan’s FSA — who rolled out a framework after Mt. Gox –, and eventually was a contributing factor to its poor security standards that led to the hack.
On January 26th, 2018, Coincheck posted on their blog detailing that they were restricting NEM deposits and withdrawals, along with most other methods for buying or selling cryptocurrencies on the platform. Speculation arose that the exchange had been hacked, and the NEM developers issued a statement saying they were unaware of any technical glitches in the NEM protocol and any issues were a result of the exchange’s security.
Coincheck subsequently held a high-profile conference where they confirmed that hackers had absconded with 500 million NEM tokens that were then distributed to 19 different addresses on the network. Totaling roughly $530 million at the time — NEM was hovering around $1 then — the Coincheck hack was considered the largest theft in the industry’s history.
Coincheck was compelled to reveal some embarrassing details about their exchange’s security, mentioning how they stored all of the NEM in a single hot wallet and did not use the NEM multisignature contract security recommended by the developers.
Simultaneously, the NEM developers team had tagged all of the NEM stolen in the hack with a message identifying the funds as stolen so that other exchanges would not accept them. However, NEM announced they were ending their hunt for the stolen NEM for unspecified reasons several months later, and speculation persisted that hackers were close to cashing out the stolen funds on the dark web.
Mainstream media covered the hack extensively and compared it to similar failures by cryptocurrency exchanges in the past to meet adequate security standards. At the time, most media coverage of cryptocurrencies was centered on their obscure nature, dramatic volatility, and lack of security. Coincheck’s hack fueled that narrative considerably as the stolen sum was eye-popping and the cryptocurrency used — NEM — was unknown to most in the mainstream.
NEM depreciated rapidly following the hack, and the price fell even more throughout 2018, in line with the extended bear market in the broader industry. Currently, NEM is trading at approximately $0.07, a precipitous fall from ATH over $1.60 in early January.
The extent of the Coincheck hack was rivaled by only a few other hacks, notably the Mt.Gox hack. While nominally Coincheck is the largest hack in the industry’s history, the effects of Mt.Gox were significantly more impactful since the stolen funds consisted only of Bitcoin and caused a sustained market correction as well as an ongoing controversy with the stolen funds and founder. Moreover, Mt.Gox squandered 6% of the overall Bitcoin circulation at the time in a market that was much less mature than it is today.
Despite the fallout, Coincheck is now fully operational and registered with Japan’s FSA.
As practice shows, people make mistakes and these mistakes can cost a lot. Especially, when we talk about mad cryptoworld. Be careful and keep your private keys in a safe place.
submitted by SwapSpace_co to BitcoinMarkets [link] [comments]

Email from Gox saying I logged in from China?

Which I didn't?
I actually forgot I even had a Gox account, and I don't even remember what my password was, so I'm not even sure which of my accounts I'd have to change.
Is there any chance that my password was not compromised?
EDIT: I don't have a Kickstarter account, so that wasn't the vector.
submitted by mustyoshi to Bitcoin [link] [comments]

Plan To Recover Our Losses


Background on the Initiative

My name is Matt. I’ve lived in Calgary my whole life, and been running businesses and programming since I was 10 years old. I’m a recent graduate of the University of Calgary in a business and computer science double major, and I currently manage the software team (6 students) at a small Calgary IoT startup. My past business experiences include running a window cleaning franchise across 6 communities, a popular concession stand, and a free web hosting service with over 10,000 clients.
I first got involved with cryptocurrency in 2017, when we had the big run up. Prior to that, I’d done a ton of research but never actually invested. While my losses in Quadriga are significant, they’re nowhere near some of the losses I’ve been hearing about. I’m fortunate to be in a “walk away” position if I so choose and I more or less did for the first week. But I couldn’t stay away. It isn’t right. Especially not now when the solution is so close and the potential impact is so significant.
Quadriga Initiative is the result of 6-7 months of on and off brainstorming, collaboration, and iteration around the central goal of recovering what's been lost.
The money is almost certainly not accessible. (I'm pretty sure it would have been found already.) We'll all get something from the bankruptcy, and I appreciate the legal team and official committee working hard on our behalf, but I fear it won't even come close to making up for what was lost. For many people - their whole life savings. It's not a very satisfying recovery. It doesn't leave anyone whole. It leaves a lot of people behind.
Without funds to pull from, any full recovery solution has to center around creating new value. Entrepreneurs and business leaders are creating value every day, and this is where the idea comes from.
We take advantage of the fact we have a large affected user community, tons of economic bargaining power, and a vast network. Many in the business community were affected, know someone who was affected, or feel horrible about what happened. My discussions with business leaders have shown that they generally desire to make this right, and businesses regularly do "goodwill" donations or gestures for marketing. The Quadriga Initiative provides a way businesses can help easily and in a "win win" way by running token-accepting promotions. We then provide a competitive framework that helps to promote businesses which make the biggest impact, highly incentivizing a faster recovery.
At this stage, everything is more or less ready. We have a primary exchange partner, a growing team of affected users, and multiple business connections. What remains is the incredibly tough challenge of creating trust and understanding among a community that's been completely devastated in the worst way. This is no easy task.
We need your help! If things don't make sense, or you still have questions, or you don't understand something, please take the time to ask and reach out! In addition to commenting here, please feel free to chat with us on Telegram: https://t.me/QuadrigaInitiative



Where Does the Money Come From?

The money (value) comes out of the profit margin of businesses. Businesses normally sell a product or service at a profit over the cost of production. Instead, a business would sell the product or service at a discount (less profit), accepting tokens in place of the difference.
While this may seem generous, like the business is giving something away, it also benefits the business as well:
Once a successful marketplace is established, affected users will have a multitude of businesses where they can spend tokens and get good deals. As well, other consumers can buy the tokens at a discount (supporting affected users), then use them to save money.
The leaderboard and large affected user community give a strong advantage to businesses to participate and offer the best deals. Businesses that have recovered the most are rewarded with more people seeing their promotion (free advertising).



The Various Uses For Tokens

Our Partner Exchange: Tokens will be tradable and accepted at face value towards the trading fees on the partner exchange. A trader who wants to save money on trades can stock up on the tokens to gain a discount over other customers who don't bother. The tokens can be used towards 50%-100% of the trading fees depending on the calendar date. This means a heavy discount for affected users and is essentially a price segment for the exchange.
In addition, the primary exchange partner we have is looking into giving back a small portion (15%) of gross trading revenue towards cashing tokens. This is done to incentivize the affected user community to spread the word about the exchange.
Participating Businesses: Businesses in the community accept the tokens towards purchases to promote to Quadriga victims, supporters, and deal seekers. It functions similar to a discount, where the tokens are applied as a portion of the sale price, with a few additional advantages for the business:
Businesses sell promotions for tokens, and send the tokens to a burn address that encodes the business website URL. To further encourage business participation, a leaderboard is set up to promote those businesses which have burned the most tokens. The leaderboard is a useful place to go shopping if you have tokens. You can find businesses who take them and get the best deals. All information is on the blockchain, enabling anyone to set up a leaderboard or start accepting tokens.



Token Flow Diagram

The linked diagram is a handy visualization of the initiative and how the various parties interact:
https://www.quadrigainitiative.com/Quadriga%20Initiative%20Diagram.pdf
The complete initiative is a full marketplace, enabling the beneficial (win win) interaction of all parties and the gradual recovery of losses over time. The token supply is finite, limited by the amount of losses we can verify, and all tokens eventually get cashed for $1 worth of products/services (or primary exchange gross trading revenue) as the program runs.


Our Primary Exchange Partner

Since the primary exchange is handling validation and distributing the tokens, it's important they be trustworthy. Given the history with Quadriga, most affected users (including every member of our team) are legitimately concerned about anyone losing their funds again. This is the primary reason we've selected to work with TxQuick.


Proof of Reserves and Why It Matters

In case you missed them, so far this year we've seen 3 large scale exchange collapses:
Each one represents massive losses for those involved - hundreds and thousands of affected lives. These are real people and families at the other ends, with hopes and dreams, who worked hard for their money.
In the case of QuadrigaCX, it took the freezing of the bank accounts, the death/disappearance of the CEO, and concerted legal action to even realize it was insolvent.
Exchanges can easily continue to operate for years with whatever level of reserves they like. Third party audits are riddled with holes like:
On top of that - most exchange platforms still don't even bother to audit. Despite the warnings about storing funds on exchanges, people still do. And remember that many affected users weren't storing funds on Quadriga - they simply got stuck with no way to withdraw.
Proof of Reserves asks exchanges to:
What it doesn't prevent:
What it does prevent:
Check this link for more details on Proof of Reserves, including the full hash tree algorithm.
Despite the relative simplicity of publishing wallet keys, the vast selection of exchanges we have in Canada, and the many millions of dollars stored, not a single exchange has done so. The hash tree algorithm has existed since 2014. It's presently on one exchange (last audited in 2014).
We feel that Proof of Reserves is key to preventing future exchange collapses, which is why we are so pleased to have a primary exchange partner which will be implementing the full algorithm. While we can't control other exchanges, traders now have an option to use an exchange which proves full backing of all deposits and we hope this will encourage wider adoption and greater industry transparency.


Timeline for the Initiative

The initiative process breaks down into roughly 3 stages:
Pre-Claim Stage - We are working to save affected user balances for later validation, as well as determine if there is sufficient interest in the project. This is ongoing.
Exchange Stage - We bring the primary exchange online, and process claims. Recovery starts through exchange trading fee discounts and eventually gross trading revenue. The exchange platform is expected to launch within a few months.
Marketplace Stage - Once we have enough individuals with tokens, we bring in the first businesses from the wider community. After we have several initial businesses, the marketplace grows organically as more businesses sign up over time. This is approximately a year after launching the exchange.
Full recovery (all losses) is likely to take multiple years, anywhere from 2 to 25 years. There are a lot of factors to consider.


Verification of Claims

Accurately capturing losses is key. Businesses are interested in helping honest victims of a crime who had their money stolen from them, and not too interested in supporting any fraud. We've been working hard to make our process as easy as possible for affected users, while being as hard as possible for false claims (claiming wrong amounts, losses of others, or fake claims).


How To Sign Up

If you wish to participate, please sign up at https://www.quadrigainitiative.com/.
You can do a pre-claim to save your balance, or an email only sign up just to show interest and get the launch email.



How You Can Help

We are stronger together!


Thanks so much!
submitted by azoundria2 to QuadrigaCX [link] [comments]

I Got Scammed by the Cryptocurrency Exchange EZBTC.CA

I wanted to make this post of my experience as a warning to others, especially Canadians as they have limited buying options when investing (speculating) into cryptocurrencies. I understand the subject of cryptocurrencies are polarizing to many, but nonetheless, it's an emerging asset class that deserves discussion because there are many ways to lose your funds. This isn't the fault of cryptocurrencies themselves, but the result of user error, outright scams, social engineering, hacks, or in my case not being up-to-date on current events.

There are many scams in cryptocurrencies, but shady exchanges are a classic dating back to the legendary Mt. Gox hack where 850,000 Bitcoins were stolen (worth approximately $4.6 billion at the time of this writing). Or the most recent Canadian QuadrigaCX exchange hack where the CEO allegedly died in India carrying the only private key to 200 million worth of customer funds.

It seems that exchange hacks keep propping up in the news, so why then do they keep happening even in 2019? Because users are left with limited choices if they want to acquire cryptocurrency in the safest (ironic) and most convenient manner. In order to buy cryptocurrency, you first have to exchange it for fiat currency (USD, CAD, EUR). You could buy cryptocurrency from one of those Bitcoin ATMs you see at the mall but the fees are exorbitant and quite a few require ID as it is, so why not just sign up for an exchange instead? The next option is to buy them peer-to-peer in person for cash, but people feel unsafe dealing with strangers and large amounts of money. Further, liquidity would be an issue. This led to a boom of many cryptocurrency exchanges offering customers a place to buy and sell with the exchanges acting as the middle-man between users.

I've been away from cryptocurrency for a while and only came back recently. I've used the EZBTC exchange in the past without issues and decided I would use them again. What I didn't do upon my return was my homework on any updates/news regarding this exchange which resulted in my ordeal now. I noticed the website had an overhaul that now includes an express option for you to receive faster withdrawals if you deposited larger amounts (first red flag). I opted for the regular option I always used in the past and sent a small amount via eTransfer that was deposited in my account almost immediately (second red flag). In the past, my eTransfers regardless of amount took some time and up to many hours. Nonetheless, I made a purchase and initiated a withdrawal request that still hasn't been sent out to this day, and I am not the only one.

A condensed version of my story is that I got worried about my pending withdrawal with EZBTC and my emails/calls went unanswered. The live chat on their website was also disabled. I decided to tweet my situation to @ezBtcCanada and immediately got an email from the owner David Smillie himself urgently telling me to call him on a personal number. He deverified and suspended my account as a result of my tweets @tokenflair for "security reasons". After some talk (me saying I'll delete the tweets) he immediately reactivated and reverified my account again and said that my withdrawal will be taken care of the next day.

Fast forward to the next day and my withdrawal is still pending. Calls/texts/email go unanswered again. Live chat is still disabled. I proceed to send another tweet instead. Like clockwork, I get a response from David shortly after and he was livid. He threatened to sue me for defamation if I continued posting about my situation on public forums. I told him I'll be waiting for his letter. He stated that my account would be receiving a lifetime ban and I will not be receiving my withdrawal but I would get an eTransfer refund in 30 days, and all this information would be included in an email I was supposed to receive on Monday April 22, 2019. I still have not received any such email, and my emails/call/texts to him are again being ignored. The saga continues.

The most important piece of advice I can give when it comes to cryptocurrency is that what's true today, is not true tomorrow. You must stay up-to-date on current events in cryptocurrency because your investment could be at stake. In my case, EZBTC was exhibiting red flags and had many user complaints that I would have seen had I just done some research prior to sending my money. I was not up-to-date regarding the status of this "exchange".

David Smillie (owner of ezbtc.ca) operating under business # 1081627 B.C LTD. currently has 5 ongoing lawsuits against his company for unpaid funds:

  1. File number: 1812420 - GOLDLUST, Joseph v 1081627 B.C. LTD. - Supreme Civil (General)
  2. File number: 1963965 - ROBERTS, John v 1081627 B.C. LTD. - Provincial Small Claims
  3. File number: 172818 - GODWIN, Richard v 1081627 BC LTD - Supreme Civil (General)
  4. File number: 18104 - MCCALLUM, Evan v 1081627 BC LTD - Provincial Small Claims
  5. File number: 1862507 - WONG, Gary v 1081627 BC LTD. - Provincial Small Claims

You can get the latest information on all pending lawsuits against EZBTC here:
https://justice.gov.bc.ca/cso/esearch/civil/partySearch.do

List of numerous complaints against David Smillie and EZBTC:

https://files.fm/f/23ej52ff (David Smillie sued by Richard Godwin)

https://np.reddit.com/BitcoinCA/comments/bahzsm/another_bc_lawsuit_filed_against_ezbtc_1081627_bc/ (David Smillie sued by John Roberts)

https://np.reddit.com/BitcoinCA/comments/99fs6i/2_new_court_filings_against_ezbtc_in_the_past_week/ (More lawsuits)

https://np.reddit.com/BitcoinCA/comments/8mjtjb/amaa_exowner_of_ezbtc_resigned_when_i_realized_it/ (Ex-CTO of EZBTC blows whistle)

https://np.reddit.com/BitcoinCA/comments/b53zq3/please_sticky_this_post_im_a_developer_who_worked/ (EZBTC developer blows whistle)

https://np.reddit.com/BitcoinCA/comments/939ce2/40_days_and_counting_fiat_withdrawal_ezbtcca/

https://np.reddit.com/BitcoinCA/comments/926adi/ezbtcca_may_have_gone_bust_toronto_offices_have/

https://np.reddit.com/BitcoinCA/comments/973yrz/ezbtcca_is_likely_insolvent/

https://np.reddit.com/BitcoinCA/comments/98njea/worth_visiting_ezbtc_offices/

https://np.reddit.com/BitcoinCA/comments/901847/concern_regarding_ezbtc/

https://np.reddit.com/BitcoinCA/comments/9181nx/banned_from_ezbtcca_chatroomhave_not_rcvd/

https://np.reddit.com/BitcoinCA/comments/arnboh/ezbtc_will_my_girlfriend_ever_see_her_money/

https://coiniq.com/ezbtc-review/

https://np.reddit.com/BitcoinCA/comments/ao680q/what_are_customers_latest_experiences_with_ezbtc/

https://warosu.org/biz/thread/10773849

https://np.reddit.com/BitcoinCA/comments/bfqrv1/fortune_jack_here_regarding_david_smillie_and/

https://np.reddit.com/BitcoinCA/comments/b57fq9/ezbtc_terms_of_service_wayback_machine/

https://np.reddit.com/BitcoinCA/comments/arfa5x/ezbtc_is_so_fake_check_this_out/

https://np.reddit.com/BitcoinCA/comments/95rpl5/to_those_staying_silent_for_ezbtc_defamation/
submitted by TokenFlair to PersonalFinanceCanada [link] [comments]

Quadriga Initiative - Additional Information and Clarifications

Quadriga Initiative - Additional Information and Clarifications

Introduction / Summary

The Quadriga Initiative is an independent process where affected users and businesses in the community work together to recover losses from QuadrigaCX. An exchange (the primary exchange) will verify claims and distribute free tokens representing losses. Tokens will be accepted at the primary exchange and by participating businesses at face value. There is a white paper here with more detail:
https://quadrigainitiative.com/Quadriga%20Initiative.pdf
If you wish to participate in the Quadriga Initiative and receive free tokens representing your loss, there is a pre-claim process now open. A pre-claim uses your QCX client ID, first name as registered on the QCX platform, and a valid email address to copy your balance information and associate it with your email address.
https://quadrigainitiative.com/
Although a personal email will work, it is recommended for privacy and security to set up a new "forwarder" email account that doesn't personally identify you, with a unique password. Make sure that whatever email process you set up is one which still works to reach you in a few months time.
  • We are a community initiative which is not connected with the bankruptcy process. Participation does not impact your bankruptcy claim. You can find the official bankruptcy information on the Miller Thompson website.
  • We have taken all reasonable measures to protect our website and stored data against SQL injection. The website back-end is simple, all input is sanitized, and all access passwords are 16+ character full random. (I have a background in web hosting.)
  • There is no cost to participate and the pre-claim process takes approximately 3 minutes.
  • Please be sure to keep a copy of your bankruptcy claim paperwork for later validation!


Background on the Initiative

My name is Matt. I’ve lived in Calgary my whole life, and been running businesses and programming since I was 10 years old. I’m a recent graduate of the University of Calgary in a business and computer science double major, and I currently manage the software team (6 students) at a small Calgary IoT startup. My past business experiences include running a window cleaning franchise across 6 communities, a popular concession stand, and a free web hosting service with over 10,000 clients.
I first got involved with cryptocurrency in 2017, when we had the big run up. Prior to that, I’d done a ton of research but never actually invested. While my losses in Quadriga are significant, they’re nowhere near some of the losses I’ve been hearing about. I’m fortunate to be in a “walk away” position if I so choose and I more or less did for the first week. But I couldn’t stay away. It isn’t right. Especially not now when the solution is so close and the potential impact is so significant.
Quadriga Initiative is the result of 6-7 months of intense brainstorming, collaboration, and perpetual iteration around the central problem of how to recover what's been lost.
The money is almost certainly not accessible. (I'm pretty sure it would have been found already.) We'll all get something from the bankruptcy, but for most of us I fear it won't really make up for what was lost. For many people - their whole life savings. It's not a very satisfying recovery. It doesn't leave anyone whole. It leaves a lot of people behind.
Without funds to pull from, any full recovery solution has to center around creating new value. Entrepreneurs and business leaders are creating value every day, and this is where the idea comes from.
We take advantage of the fact we have a large affected user community, tons of economic bargaining power, and a vast network. Many in the business community were affected, know someone who was affected, or feel horrible about what happened. My discussions with business leaders have shown that they generally desire to make this right, and businesses regularly do "goodwill" donations or gestures for marketing. The Quadriga Initiative provides a way businesses can help easily and in a "win win" way by running token-accepting promotions. We then provide a competitive framework that helps to promote businesses which make the biggest impact, highly incentivizing a faster recovery.
At this stage, everything is more or less ready to launch. We have a primary exchange partner, a small team of affected users, and multiple business connections. What remains is the incredibly tough challenge of creating trust and understanding among a community that's been completely devastated in the worst way. This is no easy task.
We need your help! If things don't make sense, or you still have questions, or you don't understand something, please take the time to ask and reach out! In addition to commenting here, please feel free to chat with us on Telegram: https://t.me/QuadrigaInitiative



Where Does the Money Come From?

The money (value) comes out of the profit margin of businesses. Businesses normally sell a product or service at a profit over the cost of production. Instead, a business would sell the product or service at a discount (less profit), accepting tokens in place of the difference.
While this may seem generous, like the business is giving something away, it also benefits the business as well:
  • The business can get additional sales. Even though the profit per sale is less, the business still makes profit on those additional sales.
  • The business can find new customers. Even if a business sells a product or service "at cost" (meaning zero profit), they've established a relationship. The customer may buy other products or services in the future, or it could be part of a subscription.
  • The business is seen positively as "giving back", creating a better future, helping fraud victims, etc...
Once a successful marketplace is established, affected users will have a multitude of businesses where they can spend tokens and get good deals. As well, other consumers can buy the tokens at a discount (supporting affected users), then use them to save money.
The leaderboard and large affected user community give a strong advantage to businesses to participate and offer the best deals. Businesses that have recovered the most are rewarded with more people seeing their promotion (free advertising).



The Various Uses For Tokens

The Primary Exchange: Tokens will be tradable and accepted at face value towards the trading fees on the primary exchange. A trader who wants to save money on trades can stock up on the tokens to gain a discount over other customers who don't bother. The tokens can be used towards 50%-100% of the trading fees depending on the calendar date. This means a heavy discount for affected users and is more or less a price segment for the exchange.
In addition, the primary exchange partner we have at the moment is looking into giving back a small portion (15%) of gross trading revenue towards cashing tokens. This is done to incentivize the affected user community to spread the word about the exchange.
Participating Businesses: Businesses in the community accept the tokens towards purchases to promote to Quadriga victims, supporters, and deal seekers. It functions similar to a discount, where the tokens are applied as a portion of the sale price, with a few additional advantages for the business:
  • It price segments. The business doesn't lose revenue on customers who would have paid full price. With a 20% discount, the business loses revenue on some customers who would have bought anyway. Nobody likes to throw away free money.
  • It can run continuously. A 20% discount running continuously would mean the perceived value of the product would just be 20% less. A promotion accepting tokens can run long-term, enabling the business to attract more customers with less effort.
  • It's a give-back play, showing the business is caring about the wider community, and maybe has a larger agenda than pure profits. (ie Trying to create a better future.)
Businesses sell promotions for tokens, and send the tokens to a burn address that encodes the business website URL. To further encourage business participation, a leaderboard is set up to promote those businesses which have burned the most tokens. The leaderboard is a useful place to go shopping if you have tokens. You can find businesses who take them and get the best deals. All information is on the blockchain, enabling anyone to set up a leaderboard or start accepting tokens.



Token Flow Diagram

The following diagram is a handy visualization of the initiative and how the various parties interact:
Quadriga Initiative Diagram
The complete initiative is a full marketplace, enabling the beneficial (win win) interaction of all parties and the gradual recovery of losses over time. The token supply is finite, limited by the amount of losses we can verify, and all tokens eventually get cashed for $1 worth of products/services (or primary exchange gross trading revenue) as the program runs.


Our Primary Exchange Partner

Since the primary exchange is handling validation and distributing the tokens, it's important they be trustworthy. Given the history with Quadriga, most affected users (including every member of our team) are legitimately concerned about anyone losing their funds again. This is the primary reason we've selected to work with TxQuick.
  • TxQuick is being developed by Ethan Burnside, who has demonstrated his integrity in 2012-2013 when he ran BTC Trading Corp. When it was shut down, he spent significant personal funds to keep it running so everyone could get their money out - likely the only time in history that an exchange shut down and everyone got their funds. You can learn more about him from his post here.
  • We've had extensive discussions on Telegram about security. Ethan is open, transparent, and extremely knowledgeable. He has invested heavily in developing a system of secure multi-sig wallets. His previous exchange was never successfully hacked. If you have any questions, Ethan is happy to answer them!
  • Ethan is strongly in favour of publishing wallet public keys. The exchange will feature a full transparency page to allow anyone to see that all funds are fully backed. In the future, a full proof of reserves will be deployed to assure all customers that their balances are represented.
  • In addition to the token validation/verification function:
    • TxQuick will be the first platform to allow buying and selling of the tokens.
    • TxQuick proposes to accept the tokens at face value towards trading fees on the exchange. Affected users can use tokens to get free or discounted trading (50%+ off).
    • TxQuick will also handle a slow token payback, enabling tokens to be exchanged 1:1 for cash over time using 15% of gross trading revenue.
  • This proposal is subject to approval by the TxQuick board. It could be changed. There is a necessary interest level from the affected user community of at least 1,000 sign-ups.
  • While it might seem like Ethan is being super generous and giving a lot away for free, again this is mutually beneficial (win win). Here are some of the benefits to the primary exchange:
    • Lots of sign-ups from affected users and, later, interested consumers, many of whom will stay to use the platform. Ethan desires to achieve a dominant position in the Canadian marketplace.
    • The token program provides an effective price segment, increasing revenue over time. (Low prices = lost profit, high prices = less customers, price segment = more profit and customers.)
    • Customers with recovered funds are likely to be more loyal and prefer the platform, and the profit share incentivizes spreading the word about the platform. (Interests are aligned.)
  • It is not required to use the primary exchange platform for trading or deposit any money. You are free to sign up, receive your free tokens, and continue trading on any other platform or just use the marketplace.


Proof of Reserves and Why It Matters

In case you missed them, so far this year we've seen 3 large scale exchange collapses:
  • QuadrigaCX
  • EZ-BTC
  • Cryptopia
Each one represents massive losses for those involved - hundreds and thousands of affected lives. These are real people and families at the other ends, with hopes and dreams, who worked hard for their money.
In the case of QuadrigaCX, it took the freezing of the bank accounts, the death/disappearance of the CEO, and concerted legal action to even realize it was insolvent.
Exchanges can easily continue to operate for years with whatever level of reserves they like. Third party audits are riddled with holes like:
  • How can they possibly know the client list they're given is legitimate and fully inclusive?
  • How can you know the funds weren't borrowed for the audit purposes?
  • How old is the report? How can you trust the auditor?
On top of that - most exchange platforms still don't even bother to audit. Despite the warnings about storing funds on exchanges, people still do. And remember that many affected users weren't storing funds on Quadriga - they simply got stuck with no way to withdraw.
Proof of Reserves asks exchanges to:
  • Publish the wallet public keys so people can see that funds are fully backed. (A satoshi test can prove ownership of those wallets.)
  • Publish a hash tree to let each customer validate that their balance is included in the total.
What it doesn't prevent:
  • Same as presently, if funds are not secured in proper multi-sig wallets or multiple exchange operators are corrupt, the funds could still be taken, up to what's stored. However, this would be immediately known to everyone instead of revealed whenever admins felt like it (or never).
  • The balances of customers who never check the hash tree could be excluded by a dishonest exchange, which wouldn't be noticed until one of those customers decided to check.
  • A dishonest exchange could still dispute the balance of a customer or arbitrarily prevent withdrawals. In this case, the customer and exchange would have to sort that out.
  • A dishonest exchange could pretend to own wallets it doesn't. A satoshi test would help with this, where the exchange operators send a small amount at a specified time.
  • While it makes things safer, it's still not a good idea to store funds on the exchange.
What it does prevent:
  • The exchange owner can't spend funds of active customers, and still claim to hold them.
    • ie QuadrigaCX, EZ-BTC
  • The exchange owner can't conceal if funds are hacked or stolen. It becomes known immediately.
    • ie Mt. Gox, Cryptopia
  • Anyone can see if the exchange is solvent before trading.
    • ie Anyone with "bad timing" using an insolvent exchange.
Check this link for more details on Proof of Reserves, including the full hash tree algorithm.
Despite the relative simplicity of publishing wallet keys, the vast selection of exchanges we have in Canada, and the many millions of dollars stored, not a single exchange has done so. The hash tree algorithm has existed since 2014. It's presently on one exchange (last audited in 2014).
We feel that Proof of Reserves is the key to preventing future exchange collapses, which is why we are so pleased to have a primary exchange partner which will be implementing the full algorithm. While we can't control other exchanges, traders now have an option to use an exchange which proves full backing of all deposits and we hope this will encourage wider adoption and greater industry transparency.


Timeline for the Initiative

The initiative process breaks down into roughly 3 stages:
Pre-Claim Stage - We are working to save affected user balances for later validation, as well as determine if there is sufficient interest in the project. This is ongoing.
Exchange Stage - We bring the primary exchange online, and process claims. Recovery starts through exchange trading fee discounts and eventually gross trading revenue. The exchange platform is expected to launch within a few months.
Marketplace Stage - Once we have enough individuals with tokens, we bring in the first businesses from the wider community. After we have several initial businesses, the marketplace grows organically as more businesses sign up over time. This is approximately a year after launching the exchange.
Full recovery (all losses) is likely to take multiple years, anywhere from 3 to 25 years. My best estimate would be 10 years, although there are a lot of factors to consider.


Verification of Claims

Accurately capturing losses is key. Businesses are interested in helping honest victims of a crime who had their money stolen from them, and not that interested in supporting any fraud. We've been working hard to make our process as easy as possible for affected users, while being as hard as possible for false claims (claiming wrong amounts, losses of others, or fake claims).
  • Our ideal verification is based on:
  • If we don't have all the information, or there are problems, claims may be limited or rejected. This is at our full discretion, along with our primary exchange partner.
  • The user balance website is available to confirm balances for a limited time. It could go offline as early as August 31st. Once it goes offline, pre-claims will no longer be possible. As no list of claimants is being published through the bankruptcy, and paperwork can easily be manipulated, larger balances will then have to be validated through the courts.
  • Anyone with a balance on Quadriga can create a pre-claim by providing:
    • Client ID and first name for the purposes of saving the total which you had.
    • An email address for a future launch announcement (which can be a forwarder).


How To Sign Up

If you wish to participate, please sign up at https://www.quadrigainitiative.com/.
You can do a pre-claim to save your balance, or an email only sign up just to show interest and get the launch email.

  • We are a community initiative which is not connected with the bankruptcy process. Participation does not impact your bankruptcy claim. You can find the official bankruptcy information on the Miller Thompson website.
  • We have taken all reasonable measures to protect our website and stored data against SQL injection. The website back-end is simple, all input is sanitized, and all access passwords are 16+ character full random. (I have a background in web hosting.)
  • There is no cost to participate and the pre-claim process takes approximately 3 minutes.
  • Please be sure to keep a copy of your bankruptcy claim paperwork for later validation!


How You Can Help

We are stronger together!
  • Get yourself to a solid level of understanding of what we are doing by asking any questions or giving any feedback if anything doesn't make sense. This is the biggest thing!
  • Send in your pre-claim or do an email-only signup. (Every sign-up helps show interest.)
  • Upvote.
  • Share on social media.
  • Let us know your ideas/thoughts!
  • Join our Telegram group. Come meet our team!
  • Help us get the word out. Tell your friends.


Thanks so much!
submitted by azoundria2 to BitcoinCA [link] [comments]

The biggest cryptocurrency thefts in the last 10 years

In this article, we will try to remember all the major theft of cryptocurrencies over the past 10 years.
1. Bitstamp $5.3 mln (BTC), January 4th, 2015
On January 4, 2015, the operational hot wallet of Bitstamp announced that it was hacked by an anonymous hacker and 19,000 Bitcoins (worth of $5 million) were lost.
The initiation of the attack fell on November 4, 2014. Then Damian Merlak, the CTO of the exchange, was offered free tickets to punk rock festival Punk Rock Holiday 2015 via Skype, knowing that Merlak is interested in such music and he plays in the band. To receive the tickets, he was asked to fill out a participant questionnaire by sending a file named “Punk Rock Holiday 2015 TICKET Form1.doc”. This file contained the VBA script. By opening the file, he downloaded the malware on his computer. Although Merlak did not suspect wrong and has opened the "application form", to any critical consequences, this did not open access to the funds of exchange.
The attackers, however, did not give up. The attack continued for five weeks, during which hackers presented themselves as journalists, then headhunters.
Finally, the attackers were lucky. On December 11, 2014, the infected word document was opened on his machine by Bitstamp system administrator Luka Kodric, who had access to the exchange wallet. The file came to the victim by email, allegedly on behalf of an employee of the Association for computer science, although in fact, as the investigation showed, the traces of the file lead deep into Tor. Hackers were not limited to just one letter. Skype attacker pretending to be an employee of the Association for computing machinery, convinced that his Frame though to make international honor society, which required some paperwork. Kodric believed.
By installing a Trojan on Kodriс's computer hackers were able to obtain direct access to the hot wallet of the exchange. The logs show that the attacker, under the account of Kodric, gained access to the server LNXSRVBTC, where he kept the wallet file.dat, and the DORNATA server where the password was stored. Then the servers were redirected to a certain IP address that belongs to one of the providers of Germany.
There are still no official reports of arrests in this case. Obviously, the case is complicated by the fact that the hackers are outside the UK, and the investigation has to cooperate with law enforcement agencies in other countries.
2. GateHub $9.5 mln (XRP), June 1th, 2019
Hackers have compromised nearly 100 XRP Ledger wallets on cryptocurrency wallet service GateHub. The incident was reported by GateHub in a preliminary statement on June 6.
XRP enthusiast Thomas Silkjær, who first noticed the suspicious activity, estimates that the hackers have stolen nearly $10 million worth of cryptocurrency (23,200,000 XRP), $5.5 million (13,100,000 XRP) of which has already been laundered through exchanges and mixer services.
GateHub notes that it is still conducting an investigation and therefore cannot publish any official findings. Also, GateHub advises victims to make complaints to the relevant authorities of their jurisdiction.
3. Tether, $30.9 mln (USDT), November 19th, 2017
Tether created a digital currency called "US tokens" (USDT) — they could be used to trade real goods using Bitcoin, Litecoin and Ether. By depositing $1 in Tether, the user received 1 USD, which can be converted back into fiat. On November 19, 2017, the attacker gained access to the main Tether wallet and withdrew $ 30.9 million in tokens. For the transaction, he used a Bitcoin address, which means that it was irreversible.
To fix the situation, Tether took action by which the hacker was unable to withdraw the stolen money to fiat or Bitcoin, but the panic led to a decrease in the value of Bitcoin.
4. Ethereum, $31 mln (ETH), July 20th, 2017
On July 20, 2017, the hacker transferred 153,037 Ethers to $31 million from three very large wallets owned by SwarmCity, Edgeless Casino and Eternity. Unknown fraudster managed to change the ownership of wallets, taking advantage of the vulnerability with multiple signatures.
First, the theft was noticed by the developers of SwarmCity.
Further events deserve a place in history: "white hackers" returned the stolen funds, and then protected other compromised accounts. They acted in the same way as criminals, who stole funds from vulnerable wallets — just not for themselves. And it all happened in less than a day.
5. Dao (Decentralized Autonomous Organization) $70 mln (ETH), June 18th, 2016
On June 18, 2016, members of the Ethereum community noticed that funds were being drained from the DAO and the overall ETH balance of the smart contract was going down. A total of 3.6 million Ether (worth around $70 million at the time) was drained by the hacker in the first few hours. The attack was possible because of an exploit found in the splitting function. The attackes withdrew Ether from the DAO smart contract multiple times using the same DAO Tokens. This was possible due to what is known as a recursive call exploit.
In this exploit, the attacker was able to "ask" the smart contract (DAO) to give the Ether back multiple times before the smart contract could update its own balance. There were two main faults that made this possible: the fact that when the DAO smart contract was created the coders did not take into account the possibility of a recursive call, and the fact that the smart contract first sent the ETH funds and then updated the internal token balance.
It's important to understand that this bug did not come from Ethereum itself, but from this one application that was built on Ethereum. The code written for the DAO had multiple bugs, and the recursive call exploit was one of them. Another way to look at this situation is to compare Ethereum to the Internet and any application based on Ethereum to a website: if a website is not working, it doesn't mean that the Internet is not working, it simply means that one website has a problem.
The hacker stopped draining the DAO for unknown reasons, even though they could have continued to do so.
The Ethereum community and team quickly took control of the situation and presented multiple proposals to deal with the exploit. In order to prevent the hacker from cashing in the Ether from his child DAO after the standard 28 days, a soft-fork was voted on and came very close to being introduced. A few hours before it was set to be released, a few members of the community found a bug with the implementation that opened a denial-of-service attack vector. This soft fork was designed to blacklist all the transactions made from the DAO.
6. NiceHash, 4736.42 (BTC), December 6th, 2017
NiceHash is a Slovenian cryptocurrency hash power broker with integrated marketplace that connects sellers of hashing power (miners) with buyers of hashing power using the sharing economy approach.
On December 6, 2017, the company's servers became the target of attack. At first, Reddit users reported that they could not access their funds and make transactions — when they tried to log in, they were shown a message about a service interruption. In the end, it became known that the service had undergone a major cyberattack and 4736,42 Bitcoins disappeared without a trace.
Despite heavy losses, NiceHash was able to continue working, but CEO and founder Marco Koval resigned, giving way to a new team. The company managed to maintain the trust of investors and began to strengthen the protection of its systems.
7. Mt.Gox, 850000 (BTC), June 19th, 2011
The Hacking Of Mt.Gox was one of the biggest Bitcoin thefts in history. It was the work of highly professional hackers using complex vulnerabilities.
A hacker (or a group of hackers) allegedly gained access to a computer owned by one of the auditors and used a security vulnerability to access Mt.Gox servers, then changed the nominal value of Bitcoin to 1 cent per coin.
Then they brought out about 2000 BTC. Some customers, without knowing it, conducted transactions at this low price, a total of 650 BTC, and despite the fact that the hacking hit the headlines around the world, no Bitcoin could be returned.
To increase investor confidence, the company has compensated all of the stolen coins, placed most of the remaining funds in offline storage, and the next couple of years was considered the most reliable Bitcoin exchanger in the world.
However, it was only an illusion of reliability.
The problems of the organization were much more serious, and the management probably did not even know about them.
CEO of Mt.Gox, Mark Karpeles, was originally a developer, but over time he stopped delving into technical details, basking in the rays of glory — because he created the world's largest platform for cryptocurrency exchange. At that time Mt.Gox handled over 70% of all Bitcoin transactions.
And, of course, there were those who wanted to take advantage of the technological weakness of the service. At some point, hackers made it so that Bitcoins could be bought at any price, and within minutes millions of dollars worth of coins were sold — mostly for pennies. World prices for Bitcoin stabilized in a few minutes, but it was too late.
As a result, Mt.Gox lost about 850,000 Bitcoins. The exchange had to declare bankruptcy, hundreds of thousands of people lost money, and the Japanese authorities arrested CEO Mark Karpeles for fraud. He pleaded not guilty and was subsequently released. In 2014, the authorities restored some of the Bitcoins remaining at the old addresses, but did not transfer them to the exchange, and created a trust to compensate for the losses of creditors.
8. Coincheck, $530 mln, January 26th, 2018
The sum was astonishing, and even surpassed the infamous Mt.Gox hack.
While Mt.Gox shortly filed for bankruptcy following the hack, Coincheck has surprisingly remained in business and was even recently approved as a licensed exchange by Japan’s Financial Services (FSA).
Coincheck was founded in 2014 in Japan and was one of the most popular cryptocurrency exchanges in the country. Offering a wide variety of digital assets including Bitcoin, Ether, LISK, and NEM, Coincheck was an emerging exchange that joined the Japan Blockchain Association.
Since Coincheck was founded it 2014, it was incidentally not subject to new exchange registration requirements with Japan’s FSA — who rolled out a framework after Mt. Gox –, and eventually was a contributing factor to its poor security standards that led to the hack.
On January 26th, 2018, Coincheck posted on their blog detailing that they were restricting NEM deposits and withdrawals, along with most other methods for buying or selling cryptocurrencies on the platform. Speculation arose that the exchange had been hacked, and the NEM developers issued a statement saying they were unaware of any technical glitches in the NEM protocol and any issues were a result of the exchange’s security.
Coincheck subsequently held a high-profile conference where they confirmed that hackers had absconded with 500 million NEM tokens that were then distributed to 19 different addresses on the network. Totaling roughly $530 million at the time — NEM was hovering around $1 then — the Coincheck hack was considered the largest theft in the industry’s history.
Coincheck was compelled to reveal some embarrassing details about their exchange’s security, mentioning how they stored all of the NEM in a single hot wallet and did not use the NEM multisignature contract security recommended by the developers.
Simultaneously, the NEM developers team had tagged all of the NEM stolen in the hack with a message identifying the funds as stolen so that other exchanges would not accept them. However, NEM announced they were ending their hunt for the stolen NEM for unspecified reasons several months later, and speculation persisted that hackers were close to cashing out the stolen funds on the dark web.
Mainstream media covered the hack extensively and compared it to similar failures by cryptocurrency exchanges in the past to meet adequate security standards. At the time, most media coverage of cryptocurrencies was centered on their obscure nature, dramatic volatility, and lack of security. Coincheck’s hack fueled that narrative considerably as the stolen sum was eye-popping and the cryptocurrency used — NEM — was unknown to most in the mainstream.
NEM depreciated rapidly following the hack, and the price fell even more throughout 2018, in line with the extended bear market in the broader industry. Currently, NEM is trading at approximately $0.07, a precipitous fall from ATH over $1.60 in early January.
The extent of the Coincheck hack was rivaled by only a few other hacks, notably the Mt.Gox hack. While nominally Coincheck is the largest hack in the industry’s history, the effects of Mt.Gox were significantly more impactful since the stolen funds consisted only of Bitcoin and caused a sustained market correction as well as an ongoing controversy with the stolen funds and founder. Moreover, Mt.Gox squandered 6% of the overall Bitcoin circulation at the time in a market that was much less mature than it is today.
Despite the fallout, Coincheck is now fully operational and registered with Japan’s FSA.
As practice shows, people make mistakes and these mistakes can cost a lot. Especially, when we talk about mad cryptoworld. Be careful and keep your private keys in a safe place.
submitted by SwapSpace_co to ethtrader [link] [comments]

Cryptopia exchange questions?

Hi,
Isn't cryptopia based in Australia or New Zealand where the exchange must follow strict rules and regulations from the government and isn't there should be a compensation scheme for customers if the exchange gets hacked?
Which coins got hacked in the 1st hack and 2nd hack?
Isn't this the 2nd time the exchange got hacked within a year? I remember the exchange was compensating stolen bitcoins in new zealand dollars in the 1st hack.
I remember bitfinex and mt.gox exchanges got hacked but they were in countries where that was little or no regulations so surely cryptopia cant easily just run off with our coins without the feds chasing them down right? If so surely there will be arrests made correct? I hear mt.gox is compensating customers now after all these years from 2013 so how long do you think cryptopia will take or is it a scam where we will never see our coins again?
If a customer lives outside new zealand or australia then how will a customer file a lawsuit against cryptopia if the exchange keeps neglecting the customer?
What percentage ratio did cryptopia kept the coins in cold storage in compared to hot storage? I understand hackers can steal from hot storage meaning cold coins are still there.
Whos is the ceo of cryptopia and how do we make contact otherwise is there like a dedicated contact email for customers in regards to the hack?
How many customers did cryptopia had in total?
Finally is there a chance to see the exchange going back online soon to allow customers to withdraw their coins that were not hacked?
submitted by very_452001 to Cryptopia [link] [comments]

Private Internet Access (a less than positive review)

Private Internet Access Review
There are many positive reviews to be found of Private Internet Access. They fall into three primary categories: 1. Newbies and neophytes: those inexperienced with VPNs whose highest priority is on a low price. 2. Those who’ve had good luck using PIA and have never needed to request PIA’s tech support. 3. Glowing “reviews” posted on those “VPN review” sites. You know, those “reviews” that look like they were written by PIA’s marketing department (because they were) and the “reviewer” was paid for his “review”?
Category 3 is easy to dismiss for conflict of interest, if not outright duplicity. They’re not reviews at all. They’re ads. Such “reviews” can be found in great abundance because PIA’s marketing department pays far more for advertising and sponsorships than any other VPN.
Category 1 should also be summarily dismissed, and the reason is self-evident.
Category 2 can also be disregarded. Posting a review of any VPN, only to say, “I think this is a great VPN because I’ve never had any problems using it”, is almost meaningless. Why? Because it tells us nothing about the customer experience when things do go wrong. And the reality is that every customer of every form of technology, including VPNs, if they use it long enough and consistently enough, will at some point experience some technical glitch. What we really need to know is how good is the customer support when you need it?
So let me answer that question from the perspective of having been a PIA customer for four years. The first year was okay. Nothing impressive. Just a basic mediocre cheap VPN. PIA isn’t nearly as sophisticated as a couple others I was using at the same time, but at least I didn’t feel cheated because the price was reasonable. But in early 2016 things dramatically deteriorated. I say this not just from my personal experience. It’s the experience of literally thousands of PIA customers too, as evidenced by all the negative comments and complaints on PIA’s forums.
For those who don’t already know it PIA’s tech support is virtually non-existent and their customer support is piss poor. Just try submitting a trouble ticket and see how long it takes for them to respond. Maybe you’ll get lucky and hear something back the same day; but odds are you won’t. If PIA responds at all it’s not uncommon for them to take days, sometimes several weeks, and sometimes never. This is especially true if you sign up as a new customer, have troubles getting it going, submit a trouble ticket, get no response, then realize the clock is ticking down on the 7 day money back guarantee. So you open another ticket and request your money back. There are literally hundreds upon hundreds of negative comments posted by former PIA customers claiming that PIA defrauded them and that PIA’s 7 day money back guarantee is a sham.
If you get a reply at all from PIA’s customer support it’s most likely to be a bot generated email apologizing for the delay in responding because of a “temporary backlog.” Funny thing is PIA’s “temporary backlog” has been going on since early 2016. That’s when company morale reached an all time low and all the competent techs quit, leaving just the ignoramuses. Why did so many leave? Because Andrew Lee set as a goal that PIA would become the biggest VPN in the world. The problem is his entire focus was on signing up new customers. And how do you get loads of new customers? By throwing tons of money into marketing. He succeeded in creating dramatic customer growth, but at the expense of customer service. While 90% of the money was put into marketing virtually nothing was put into hiring additional customer service, tech support, and product development personnel. It was at that point that things went to hell in a hand basket. As a result PIA has some of the worst customer service and tech support in the industry, not to mention some of the buggiest software.
PIA is one of those “You either love them or you hate them” kind of VPNs. There doesn’t seem to be a lot of middle ground. The lovers will say, “They’re great because I’ve never had a problem.” The haters haven’t been so lucky, and the evidence of their problems is posted all over the PIA forums. Oh, wait! PIA “decommissioned” their forums in June 2018 with some incredibly lame excuses. Why? For those who were paying attention it was only too obvious. PIA’s forums contain literally thousands of customer complaints of glitchy software, piss poor customer service, useless tech support, and requests for refunds going ignored. Rather than fixing their company problems by hiring competent people PIA just swept the evidence of their incompetence under the carpet.
Among the PIA haters are many seasoned VPN users who know a bad VPN by much practical experience (that would include me). Over the course of a decade I’ve subscribed to a number of VPNs. I count PIA as one of the worst. So if you think PIA is a good VPN because “They work great for me” count yourself lucky. Your good luck isn’t in the slightest determinative of whether or not PIA is a “good” VPN.
Why would anyone even need PIA’s support, or any other VPN’s support, for that matter? Isn’t the app just a simple plug and play? Yes, in many cases it is plug and play, at least for Windows, Mac, iOS and Android. But unfortunately for way too many people it’s not, and not due to any fault of their own. The fact of the matter is PIA’s apps are riddled with bugs. PIA is currently on version 82 for their Windows and Mac apps. In early 2016 they were on version 53. So we’re talking 30 “updates” in 2-1/2 years. Were any of those updates released to add new features, improve customer experience, etc? No, not a single one. They were all released to allegedly fix bugs. The problem is PIA’s so-called “development team” is, for all intents and purposes, idiots. What coders they do have are inept and incompetent and incapable to fixing bugs without also introducing new ones. This has been the pattern literally for years. They release an update that supposedly fixes bugs, but quite often the bugs aren’t fixed at all and they just introduce new bugs. Over and over again the only thing PIA support can offer (if you can actually get ahold of them at all) is “Try uninstalling the app and install a previous version that might be more stable.” In my case I determined the only way to reliable connect and stay connected to PIA’s servers was to install an OpenVPN app (in my case Viscosity) and load PIA’s OpenVPN config files. That does make for a reasonably reliable setup. The problem is it’s anything but plug and play, which is what most PIA customers want.
My confidence in PIA was already in the toilet, but PIA made the decision quite easy to flush them entirely when they recently hired Mark Karpeles as their CTO. Karpeles formerly operated Mt. Gox, a major Bitcoin exchange. In 2014 Mt. Gox was allegedly hacked and experienced the biggest theft of Bitcoins ever, $480 million. At the same time all the Bitcoins vanished $2.3 million mysteriously appeared in Karpeles' personal Bitcoin wallet, and perhaps many secret wallets the FBI has yet to discover. Karpeles was arrested shortly thereafter. He’s awaiting trial in Japan for fraud, embezzlement and money laundering. The best that could be said of Karpeles is he’s one of the most incompetent “security experts” the world has ever seen. At worst he’s a con artist who robbed his own customers, many of them of their life savings. Andrew Lee’s move to appoint an accused criminal to oversee PIA’s security is one of the most reckless and idiotic decisions any company has ever made. Subscribing to a VPN is all about trust. With an accused criminal now heading up their security PIA isn’t a company worthy of anyone’s trust. My PIA subscription doesn’t expire for almost another year. But I’ve walked away and won’t ever use them again.
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Cryptocurrency News - Mt. Gox Bitcoin Hack - Craig Wright Craig Wright HACKED MT GOX! Bitcoin LAST CHANCE! Stock ... Mt Gox The Untold Story! (Bitcoin Exchange Hack) Mt. Gox Bitcoin exchange goes offline after $350 million hack Mt. Gox: Solving the Mystery of Bitcoin’s Biggest Disaster I Fortune

The task force concluded that Mt. Gox had been hacked by an outsider who had siphoned off more than 600,000 bitcoins in a period between 2011 and late 2013. It was able to trace the bulk of stolen ... “This Bitcoin address associated with the MtGox [sic] hack has a balance of 75,957.20 BTC, and not a single satoshi has ever been moved out of it.” With today’s Bitcoin price, 79,957 BTCs is worth more than $815 millions. Will the Mt. Gox hacked bitcoins ever be recovered? Mt. Gox was a Bitcoin exchange based in Japan, and it began operation in the summer of 2011. By the end of 2014, it grew so big that it was handling nearly seventy percent of global Bitcoin transfers. It became the biggest Bitcoin exchange on the planet. Rather bizarrely the name Mt Gox stood for “Magic: The Gathering Online eXchange”. In June 2011 the Mt. Gox exchange was hacked, most likely as a result of a compromised computer belonging to an auditor of the company. On that occasion, the hacker used their access to the exchange to artificially alter the nominal value of bitcoin to one ... The Mt. Gox exchange had already been hacked in 2011. ... While Mt.Gox stopped all Bitcoin withdrawals on the 7th of February 2014, the exchange had already been emptied of its Bitcoins long before: Mt.Gox’s Bitcoins were reportedly stolen bit by bit ever since the beginning of 2011. The group behind this investigation indicates that by May 2013, Mt.Gox no longer held its Bitcoins. Not long ...

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Cryptocurrency News - Mt. Gox Bitcoin Hack - Craig Wright

I can't believe that Craig wright just admitted he hacked Mt. Gox and Vitalik just said the high 2,5 million dollar fees for ETH could be a blackmail. Will these events be part of the next https ... Mt. Gox, once the world's largest bitcoin exchange, is now offline after losing about $350 million to a two year-long hack that went undetected by the compan... CRAIG WRIGHT CLAIMS HE HACKED MT GOX AND STOLE 80,000 BITCOIN! Bitcoin LAST CHANCE BULLRUN! The Stock MArket TUMBLES!! Crypto News! Time to buy Altcoins Like... This is a brief history of the Mt. Gox exchange. Its history, hacks and impact on Bitcoin and the crypto world. Contact me about crypto business ventures at [email protected] Items That I ... 🔴 Bill Gates Live Microsoft, Bitcoin Crash, Anti-Bearish Coalition, Investments Microsoft US 5,108 watching Live now Inside a Secret Chinese Bitcoin Mine - Duration: 9:17.

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