A recent video by CNBC informs viewers of the story behind FTX. The company, First Trust Exchange, is a cryptocurrency trading platform. David Pakman of Silicon Valley venture capital firm Venrock says he does not believe the company’s fall was a result of hacker infiltration alone and offers his own theories. “This was an entirely avoidable tragedy that could have been prevented if they had taken simple precautions.”
Each day brings another story of a major cryptocurrency exchange falling victim to hacking or exit scams, as investors become wary about putting their money in these types of companies. More and more people have begun to question whether the cryptocurrency trading space is becoming increasingly unsustainable.
Genesis Mining, a cloud mining service, recently announced that it had a security breach on some of its servers. It appears criminals created thousands of new credit cards and then tried to use the stolen data to purchase bitcoin on the platform. VISA blocked a large number of these transactions, which was fortunate for Genesis.
However, there are more ways hackers can exploit an exchange than outright stealing from it. “Theft is not the only attack vector,” warns Pakman during the CNBC video. He points out that hackers who break into an exchange can manipulate trading data in order to profit. The price of a coin can be artificially driven up, and then dumped back down to make a quick profit. “This happens all the time on pump and dump scheme bad actors and it wipes out retail investors who are just trying to make a few thousand dollars on some bitcoin or ether or whatever it is they think they are investing in and that is happening right this moment.”
Pakman explains that many of these exchanges generally do not have adequate security measures in place to prevent such attacks. “When an entire exchange gets hacked and somehow the hackers get in, if you’re a bad guy, it is completely avoidable. People are hacking exchanges left and right. They should have had some sort of two factor authentication or two step validation on their accounts.”
Pakman points out that it is no secret that companies need a lot of money to develop new blockchain technologies. “Remember now there are very few venture capital firms that don’t deal with cryptocurrency or blockchain technology. And the reason they do it is because the assets under management, both VC and private equity assets are getting massive amounts of record numbers of deals at unbelievable valuations – hundreds of millions, billions of dollars in 2016 alone.
