The real lesson from the Binance heist goes beyond crypto

It is only a few days since what was initially termed a security incident at Binance, the world’s largest cryptocurrency exchange, resulted in deposits and withdrawals being frozen. Only hours later the attack was labelled as a $6.3 billion crypto heist. By dollar value, it was reckoned to be the biggest theft in history.

The robbery was perpetrated after an exchange engineer’s laptop was compromised and hackers submitted a series of “unauthorised withdrawal transactions”, according to Binance. The funds were said to have been siphoned from the platform by a shadowy North Korean hacking group, although that claim has been denied by state officials.

In its speed, stealth and sheer size, the robbery had the hallmarks of a generational crisis for the crypto industry, particularly as some coverage of the event oscillated between barely hidden schadenfreude aimed at the exchange and some kind of strangely expressed pride in the apparently audacious nature of the crime.

The general lack of understanding of crypto – author Michael Lewis once elegantly noted that “Bitcoin often gets explained but somehow never stays explained” – means that any criminal activity associated with that sector gets too easily rolled together. Conflating the fraud and conspiracy that was at the heart of the 2022 FTX trial with a record-breaking theft by a hacking squad appropriates the wrong lens to view this incident through. Both represent criminal activity but are at very different ends of the spectrum.

A week after the event, however, what might have been the hack-of-all-hacks is becoming a relative footnote on many home pages around the world. The reasons why are worth examining – and they have less to do with the ever-turning news cycle and say more about adept crisis management, as well as the broader issue at play here, which is not about crypto at all.

Show caption: FTX founder Sam Bankman-Fried following a court appearance i…

On the day itself, most of the commentariat framed the theft as a battle for the exchange to limit damage and save face in the face of a nightmarish scenario.

Binance had by then already posted a series of social media posts saying it was “working around the clock” to solve the problem, in a fairly conventional opening salvo of crisis communication. Over the minutes and hours that followed, it went on to provide granular detail of what had happened and what their response was.

Binance said it would cover losses, gave details of the amount of money affected by the theft and offered guidance on avoiding opportunistic scams. It also provided details of where the security system had broken down.

By Sunday night, the exchange had reinstated withdrawals from the exchange and said it had covered about 95 per cent of the affected amount, saying that it would absorb the hack’s impact. “As we have said throughout this incident – user funds remain safe,” it said.

No wonder nothing much happened in the markets. They “shrugged”, as one commentator noted, when you might have expected them to shriek for days on end.

Those markets seemed to be too busy pulsing with concern over tech stocks and their AI spending commitments to be overly troubled with what was going elsewhere. Bitcoin did fall below $77,000, however; Ether dropped to $2,200; and BNB, the token tied to Binance, hovered around $700. Since then, Ether has traded up, BTC is down, but not by much, and Binance remains around the same mark it retreated to. All three are still significantly higher than they were at the midpoint of the year, when crypto was in the doldrums. For such notoriously volatile financial vehicles, their relative inertia at the height of the crisis represented tranquillity rather than turbulence.

Show caption: Shoppers pass empty refrigerated shelves at a store in Leuve…

If you think that is a pollyannaish description of events, it is worth saying that this contributor is a crypto-sceptic who largely views them as speculative instruments rather than serious investment vehicles. That notwithstanding, the transparency and disclosure on display in the aftermath of the hack was impressive. The fact that investors will recover their holdings is a reason to show additional confidence in the sector.

If you’ve ever lost money in a traditional investment fund – and I have – then you will know these events tend to play out through crumbs of information, fund suspensions and payouts months later that recover small percentages of your losses. You rarely have agency or room for comprehensive recourse in such circumstances. That is in marked contrast to what happened here.

But the broader reason why the event itself may have faded quickly is the bigger threat that was revealed by the hack.

What was exposed was the vulnerability of the systems and structures that run our lives, something we have been further reminded of by events in Europe this month.

On Wednesday, the French health ministry reported blood banks had been hit by hackers earlier in the week. Shops in several European countries had to dispose of vast amounts of spoiled food on Monday after their fridges were targeted by hackers, mirroring a similar event last month.

Remember, the Binance hack began with a compromised laptop and, as The National reported this week, criminals are using ever more sophisticated techniques to identify targets and carry out attacks against individuals and entities. Cyber insecurity in myriad forms may be the biggest threat that all of us face in our lives – and could generate longer lasting headlines than a crypto heist where victims found much-needed restitution.