Continuing Crypto Crises: Latest crypto hack shows its volatility

April 17, 2022

3 min read

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What's going on here?

The second largest crypto hack in history has almost caused millions of people to lose their money, showing the fragility of cryptocurrency.

What does this mean?

Hackers stole £467m worth of Ethereum and USDC (two types of cryptocurrencies) from Ronin Network, the platform that hosts Axie Infinity, a popular mobile game. Both the game and the platform itself allows for an active exchange of cryptocurrencies. Axie Infinity allows players to win prizes in the form of crypto and collect NFTs (non-fungible tokens). NFTs are virtual one-of-a-kind assets that can be bought and sold in the digital world. Its unique properties are causing NFTs to become as important as cryptocurrency in the new wave of investment trends. Ronin Network, on the other hand, allows users to exchange the crypto earned while playing Axie Infinity for other currencies such as Ethereum.

According to the Network, the hackers started their operations in November of last year when the game’s user base expanded uncontrollably. The sudden influx of players forced the network to loosen security measures to focus on accommodating the larger audience, and even when the situation resolved itself in the next month, they forgot to retighten its security measures. Hackers took advantage of these errors and used it to transfer $540 million worth of cryptocurrencies to themselves.

What's the big picture effect?

The increasing number and severity of cryptocurrency-related hacks uncovers the vulnerability of cryptomarkets at the expense of its users. Experts consulted by the BBC continue to express concerns regarding crypto security, stating that “cryptocurrency is increasingly being seen as low-hanging fruit by hackers.” Tom Robinson of Elliptic, a company that provides crypto compliance solutions and blockchain analysis, cites a number of reasons crypto is especially targeted by hackers.

The first reason is that crypto transactions are irreversible, therefore successful hacks result in a guaranteed and almost irreversible paycheck. Unless the hackers themselves give back the stolen money, like in the case of the Poly Network hack in August 2021, it is difficult for anyone else to force back the money to its rightful owners. Another reason crypto is so enticing for hackers is because it doesn’t have the hassle of other cybercrimes. Crypto hacks can be done without any contact or negotiations with their targets, like in the case of ransomware, where hackers have to negotiate terms with hacked companies.

This also sheds light on the concerning issue that companies have yet to find a solution to retrieve stolen money or an efficient way to reimburse their customers. While customers subjected to mass crypto hacks are compensated, it takes an unreasonable amount of time for the appropriate payments to be made – often months to sometimes years. Considering the fact that crypto attracts millions of customers and billions of their money, there is a concerning lack of conflict resolution, security measures and open communication in regards to possible hacks. David Canellis, a cryptocurrency writer, emphasises this, stating that “direct communication with cryptocurrency companies is notoriously poor.”

The continued hacks should not only prompt for further regulation in the cryptoworld to ensure a sustainable environment for continued currency trade, but should also push platforms to focus on facilitating efficient communication amongst themselves and with their user base. Several factors have sent prices soaring even before the invasion. The first factor is the Covid-19 pandemic which saw, and continues to see, large-scale disruption to market transport routes and global food supplies. For the UK, the second factor is Brexit: further issues of shipping bureaucracy and negotiation with the EU and global importers already caused food prices to reach new heights before the pandemic. 

The third, and arguably most impactful factor, is climate change. Following extensive drought, wildfires, and floods from Latin America to Australia last year, the price of durum wheat increased by 90%. In the Horn of Africa, around Somalia, three years of drought has delivered failed crops, high livestock mortality, and amplified conflict and displacement in communities. To combat the effects of climate change, the EU was set to implement the sustainable food strategy ‘Farm to Fork’, marking a 13% drop in food production and a 20% drop in fertiliser use. However, calls for humanitarian action, and to scrap the strategy, from France, Spain, and Italy following the Ukrainian invasion may curtail this progress to deliver net-zero targets. Further action, therefore, becomes a balance between short-term and long-term remedies for a food security crisis.

Report written by Woojin Nam

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