Bitfinex Hot Wallet Hack

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Bitfinex Logo/Homepage

Bitfinex, a cryptocurrency exchange established in 2012 and headquartered in Hong Kong, offers various services such as bitcoin to fiat exchange, margin trading, and liquidity provision. In May 2015, Bitfinex experienced a hack, resulting in the theft of over 1,400 bitcoins from its hot wallet. Bitfinex assured users that all stolen funds would be reimbursed and implemented measures to enhance security, including the creation of a new hot wallet. Bitfinex strengthened its security protocols, introducing features like 2FA and cold storage for funds. Despite subsequent legal issues and another security breach in 2016, Bitfinex remains a major player in the cryptocurrency exchange market.

About Bitfinex

Bitfinex, a cryptocurrency exchange owned by iFinex Inc and registered in the British Virgin Islands, was founded in 2012 as a peer-to-peer Bitcoin exchange and later expanded to support other cryptocurrencies. Offering high-volume trading and various products including spot and derivatives trading, margin funding, and over-the-counter markets, Bitfinex quickly became one of the first large professional platforms in cryptocurrency trading.

Bitfinex, founded in 2012 and based in Hong Kong, operates as a leading cryptocurrency exchange offering various functions like bitcoin to fiat exchange, margin trading, and liquidity provision. Despite being among the highest-volume exchanges globally, Bitfinex continues to operate and remains popular for its extensive trading options, customizable interface, low fees, and wide range of supported currencies and pairs. Bitfinex provides a user-friendly trading platform. It requires KYC verification for certain services but offers basic access with just an email.

Bitfinex functions as a bitcoin to fiat exchange, a margin trading platform, a liquidity provider, and an OTC desk. It provides features like shorting Bitcoin through margin trading, expanding financial positions. The exchange offers a wide range of trading pairs, high liquidity, and various trading options. Additionally, the platform offers cryptocurrencies like Litecoin and Ethereum for trading, not just Bitcoin. The platform charges competitive trading fees based on trading volume and offers flexibility in deposit and withdrawal methods, including bank transfers and cryptocurrency transfers. Deposits and withdrawals are conducted through bank transfers, with fees of 0.1% and a minimum of $20, while Bitcoin and Litecoin transactions are free of charge.

The Bitfinex homepage provides a snapshot of live cryptocurrency prices across various tokens. It lists tokens such as BTC, ETH, SOL, SHIB, DOGE, and others, along with their last prices, 24-hour percentage changes, highs, lows, and 24-hour trading volumes. It also includes a wide range of tokens with their respective prices and statistics.

The Reality

The Bitfinex trading platform was still in its testing (beta) phase at the time of the exploit.

Bitfinex's trust and privacy have been questioned due to its opaque operations and controversies surrounding its management and partnerships. Bitfinex has faced criticism for its lack of transparency and connection to Tether (USDT), accused of manipulative activities.

What Happened

Bitfinex experienced a theft of over 1,400 bitcoins from their hot wallet in May 2015.

Key Event Timeline - Bitfinex Hot Wallet Hack

Date	Event	Description
May 21st, 2015 9:02:07 AM MDT	First Blockchain Transaction	The very first blockchain transaction, which takes 270 bitcoin from Bitfinex into the hacker's wallet.
May 22nd, 2015 3:31:27 AM MDT	First Reddit Post About Hack	The first thread is posted on Reddit which features a mention of the hack. This links to an update on the Bitfinex website which announces that the hack has occurred. The discussion revolves around how the exchange's hot wallet keys were potentially compromised. Users were advised not to deposit cryptocurrency to old deposit addresses. Some users suggested that exchanges should pay out in batches from cold storage to reduce vulnerability, while others highlighted the need for proper verification processes. The conversation also delves into decentralized exchanges (DEX) as a potential solution to counterparty risk. Various DEX projects are mentioned, each with its own approach to decentralized trading. While decentralized exchanges offer advantages like reducing counterparty risk, concerns about latency and scalability are raised.
May 22nd, 2015 4:08:20 AM MDT	Final Blockchain Transaction	The final transaction into the thief's wallet which can be immediately attributed to the hack.
May 22nd, 2015 4:31:37 AM MDT	Initial Post Of Address	A comment on a Reddit thread posts what they believe may be the right addresses for where funds have ended up.
May 22nd, 2015 4:32:16 AM MDT	Reddit Discussion Started	A thread is started in the Bitcoin subreddit about the attack by a Reddit user gowithbtc. The total amount of the loss is initially thought to be 1,459 bitcoin, and multiple bitcoin wallet addresses associated with Bitfinex and the attacker are revealed. Users commenting on the situation discuss potential security vulnerabilities, the ongoing hack, and the implications for Bitfinex users. A lively discussion touches on topics like the nature of cold wallets, the risk of theft, and the role of human error in security breaches.
May 22nd, 2015 5:19:34 AM MDT	Confirmation Of Address	In response to a Reddit discussion, one Reddit user named goldcakes confirms that the bitcoin address which is mentioned in Reddit has received funds which they deposited to the exchange 3 hours earlier.
May 22nd, 2015 5:40:20 AM MDT	CoinTelegraph Article Published	CoinTelegraph reports that Bitfinex's hot wallet was hacked, resulting in the potential loss of over 1,500 bitcoins, equivalent to approximately $330,000 USD at the time. Despite the breach, Bitfinex assured its users that trading was not affected and confirmed that a new hot wallet had been generated to address the issue. The company urged users to refrain from depositing funds into old addresses and reassured them that their accounts would not be affected, with the entire loss to be absorbed by the exchange. While the Reddit Bitcoin community speculated on the destination of the stolen coins, Bitfinex's handling of the situation raised questions about the security of cryptocurrency exchanges. The Bitfinex exchange is described as "a trading platform that is currently still in its testing (beta) phase as it is being prepared to operate under a fully licensed model".
May 22nd, 2015 5:49:00 AM MDT	Twitter Post About Incident	Bitfinex tweets on Twitter about the breach. This links to their announcement on their website and recommends that users do not deposit funds to previous deposit addresses.
May 22nd, 2015 6:29:20 AM MDT	Broken Order Book	An image of the Bitfinex exchange platform is shared, which shows orders appearing to not be matched properly at this moment.
May 22nd, 2015 6:33:58 AM MDT	Revised Total Of Loss	The estimate in gowithbtc's Reddit post is updated from 1,459 bitcoin to 1,474 bitcoin.
May 22nd, 2015 8:29:23 AM MDT	Users Still Depositing Funds	It's reported on Reddit that users are still depositing funds into Bitfinex, despite the risk. They link to a transaction for 114 BTC.
May 22nd, 2015 1:33:36 PM MDT	Forklog Article Published	Forklog publishes an article highlighting how Bitfinex has reported that all stolen user funds will be reimbursed. Although only 0.5% of user Bitcoins were officially reported as stolen, the actual amount was substantial, totaling 1,581 BTC or $373,436. The exchange's security team is investigating the incident, ensuring that security measures are maintained solely by the administration, without third-party involvement. Despite the hack, only a small portion of bitcoins were successfully stolen, thanks to the efforts of the security service.
May 22nd, 2015 2:28:59 PM MDT	Bitcoin Magazine Article	Bitcoin Magazine publishes a report about the hot wallet hack. They report that the exchange has urged users to cease depositing bitcoins into old addresses and assured that any losses incurred would be covered by Bitfinex. However, specific details regarding reimbursement timing and notification procedures for affected users were not provided. Bitfinex is still in the process of establishing a new hot wallet and plans to release further updates on the situation shortly.
May 25th, 2015 4:32:13 PM MDT	HackRead Article	An article on the Bitfinex hot wallet hack is published by the HackRead online journal. Due to robust security measures, only a minimal amount of funds were lost, representing just 0.5% of customer deposits. The exchange keeps over 99.5% of customer assets in highly secure multisig wallets. As a precaution, BitFinex urged customers to refrain from depositing cryptocurrency into designated addresses while they develop a more secure hot wallet. Users were assured that their accounts remained unaffected, and the company is working to return operations to normal. BitFinex expressed gratitude for the community's patience and stated that a complete disclosure would be provided soon.
May 24th, 2015 5:12:54 PM MDT	SiliconAngle Article	SiliconANGLE reports that the hack resulted in the theft of approximately 1474 BTC from Bitfinex's hot wallet, which constituted about 0.5% of the company's total held bitcoins. Following the breach, Bitfinex urged users to suspend bitcoin deposits until the issue was resolved. Despite the incident, the exchange assured customers that over 99.5% of users' BTC deposits were kept in secure multisig wallets. Reddit users estimated the amount stolen, and Bitfinex announced plans to create a new hot wallet and absorb the costs of the hack to ensure customers remain unaffected. The exchange, ranked as the second-largest by volume at the time (behind only OKCoin), vowed to enhance its security measures.
February 7th, 2018 2:37:41 PM MST	Bitcoin Magazine Timeline	Bitcoin Magazine includes the initial hack in their timeline about Bitfinex along with other events, calling the loss 1,500 bitcoins.

Technical Details

Bitfinex used a wallet infrastructure which consisted of separate hot wallets (which were considered intermediate wallets and still intended to be of high security) and cold wallets. In May of 2015, a successful attack was undertaken against Bitfinex's intermediate/hot wallets and over 1,400 bitcoin were transferred to a wallet set up by the attacker.

Mechanisms Of Breach

The exact security setup and mechanism of Bitfinex's intermediate wallets and how they were breached is not widely available.

Blockchain Wallets Affected

Information about the wallets used by the Bitfinex platform was posted on Reddit.

Hacker Blockchain Address:

Bitfinex Intermediate Wallet:

Bitfinex Cold Wallets:

Total bitcoins of Bitfinex in Cold wallet(Found now): 115000+116849=231849BTC

Total bitcoins lost to today hack(up to now 12:22PM GMT): 1474BTC

Percentage of lost: 1474/231849 = 0.635%

Laundering Of Funds

"Reddit user gowithbtc tracked an estimated 1474 BTC (approximately $356 thousand USD) funneled away from Bitfinex in approximately eight hours."

Additional Use Of Deposit Addresses

Many users continued to use the original wallet addresses.

Total Amount Lost

Amounts publicly reported have been as varied as 1,400 BTC, 1,459 BTC, 1,474 BTC, 1,500 BTC, and over 1,500 BTC. These bitcoin constituted either 0.5% or 0.635% of the total bitcoin reserves.

The market price estimates for the value taken have been $356,000 USD or $400,000 USD.

"In May 2015, 1500 bitcoins were stolen during a hack."

"Bitfinex los[t] 1,500 bitcoin, worth $400,000 at the time, when its hot wallets, connected directly to the internet, are hacked."

"Following the hack, Reddit user gowithbtc tracked an estimated 1474 BTC (approximately $356 thousand USD) funneled away from Bitfinex in approximately eight hours."

Many users continued to use the original wallet addresses.

The total amount lost has been estimated at $356,000 USD.

Immediate Reactions

Bitfinex reacted to the hack by promptly issuing an urgent message to its customers, advising them to cease depositing cryptocurrency and suspend bitcoin deposits until the potential compromise was resolved. The exchange acknowledged that although the majority of users' BTC deposits were kept in secure multi-signature wallets, the small remaining amount in coins in their hot wallet was vulnerable to attack. Bitfinex assured its customers that the incident, while unfortunate, would be fully absorbed by the company. Additionally, the exchange announced plans to create a new hot wallet and reassured customers that their funds would remain unaffected.

Bitfinex continued operating their trading platform throughout the incident. Bitfinex notified users of the breach on their website, requesting that users not deposit to the previously used deposit addresses.

The wallet address of the attack was only available through third party blockchain analysis, which was confirmed by tracing a deposit that ended up in the suspected wallet. There was hope that the blockchain activity would lead to the perpetrator.

Announcement On Website

Bitfinex shared an announcement about the breach on their website and spread word through Twitter.

Dear Customer although we keep over 99.5% of users' BTC deposits in secure multisig wallets, the small remaining amount in coins in our hot wallet are theoretically vulnerable to attack. We believe that our hot wallet keys might have been compromised and ask that all of our customer cease depositing cryptocurrency to old deposits addresses. We are in the process of creating a new hot wallet and will advise within the next few hours. Although this incident is unfortunate, its scale is small and will be fully absorbed by the company. Thanks a lot for your patience and comprehension. Bitfinex Team

"BitFinex’s hot wallet has been compromised. The hack may have resulted in the loss of only 0.5% of the total funds." "The amount represents 0.06 percent of the company’s total holdings."

"BitFinex' Director of Community and Product Development, Zane Tackett, told Cointelegraph that "trading was not affected" and confirmed that the Bitcoin address posted in the article below does indeed belong to the culprit. He also said they have generated a new hot wallet "using a spare-machine designed especially for scenarios like this.""

"Don't deposit to old BTC addresses. New addresses are online and updates will follow soon."

Community Reactions

The wider community responded to the Bitfinex hack with concern and interest. The community discusses the hacking incident at Bitfinex, advising users not to deposit cryptocurrency to old addresses. Reddit users actively discussed and speculated on the extent of the hack, with some attempting to track the amount of bitcoins stolen. The incident drew attention to the security vulnerabilities of cryptocurrency exchanges and prompted discussions about the importance of robust security measures in the industry. On Reddit, various users discussed the hack, its potential causes, and the security measures taken by Bitfinex in response.

Suggestions are made for exchanges to pay out in batches from cold storage to reduce vulnerability. Decentralized exchanges (DEX) are considered as a solution to counterparty risk, with various projects mentioned. Concerns about latency and scalability in DEX compared to centralized exchanges like NASDAQ are raised. Overall, the discussion explores challenges and potential solutions in cryptocurrency exchanges, focusing on security, decentralization, and scalability. There are also comments expressing skepticism and criticism regarding the security practices of cryptocurrency exchanges.

Ultimate Outcome

Following this and other hacking incidents, Bitfinex strengthened its security measures and compensated users for their losses. Bitfinex moved from a hot wallet cold wallet set up to another model of segregating customer funds where each user has access to their own wallet which they can review on the blockchain. Bitfinex added additional priority for user security with features like 2FA, IP monitoring, and cold storage for funds.

The exchange has suffered an additional, much more substantial security breach in late 2016 as well as legal issues, including a fine imposed by the U.S. Commodity Futures Trading Commission in 2016 and a lawsuit from the State of New York in 2019. Bitfinex remains a significant player in the cryptocurrency exchange market.

The original hot wallet breach incident was included in many lists, including lists which were put together by Kyle Gibson and BitcoinExchangeGuide. The hack added to the growing number of reported hacks against Bitcoin exchanges in 2015, contributing to a sense of caution among cryptocurrency users and investors.

Total Amount Recovered

Bitfinex continued operating their trading platform throughout the incident and repeatedly indicated that they would cover the loss for users. Bitfinex ultimately strengthened their security measures and compensated users for their losses.

"Although this incident is unfortunate, its scale is small and will be fully absorbed by the company. Thanks a lot for your patience and comprehension."

Ongoing Developments

Bitfinex continues to operate as one of the largest global exchanges.

Individual Prevention Policies

In this case, there were no customer losses. This case does not appear to have resulted in a loss to any individual.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Greater security can be obtained by storing more funds in offline multi-signature storage, and signing specific transactions for larger withdrawals.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.