Poloniex Withdrawal Hack

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Poloniex Logo/Homepage

Hot wallets are almost always hackable, whether for a silly error like this one or for more complicated exploits. Poloniex is interesting in that it presently claims insurance on the front of the website, and expressly denies having insurance in the terms of service. They’re also apparently based in the United States and working with regulators, yet unable to serve any residents of the United States. Hopefully they have real hot wallet insurance which can be used in the event of any future hacks.

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

https://bitcointalk.org/index.php?topic=499580.240

https://www.blockchain.com/explorer/addresses/btc/1Ktq7TE3J5vZ3c99M5weqKfFcNkHQdqPrq

https://www.blockchain.com/explorer/addresses/btc/1Ktq7TE3J5vZ3c99M5weqKfFcNkHQdqPrq

https://bitcointalk.org/index.php?topic=499580.msg5507709#msg5507709

https://bitcointalk.org/index.php?topic=500157.20

About Poloniex

Poloniex welcomed users to its fast and secure exchange platform, offering the ability to trade bitcoins for various cryptocurrencies. The platform lists a wide range of currencies, including Litecoin, Dogecoin, Namecoin, and many others. Users can sign up for an account if they don't have one already, or utilize the navigation tabs provided to begin trading. With its diverse selection of cryptocurrencies and intuitive platform layout, Poloniex aimed to cater to the needs of cryptocurrency traders of all levels.

Poloniex was a US-based cryptocurrency exchange. With just a valid email address, traders could start trading within minutes by creating an account or signing in if already a member. The platform promised best-in-class tools such as stop-limit orders to minimize trading risk, customizable SMA and two EMA lines, and candlesticks ranging from 5 minutes to 4 hours, along with fully zoomable charts covering complete market history.

The platform emphasized community and support, resolving all support tickets promptly and with care. It boasts an active chatbox community for idea-sharing and updates, with chatbox moderators on hand to address users' immediate questions and concerns.

Homepage:

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Poloniex Withdrawal Hack

Date	Event	Description
March 4th, 2014 1:31:32 AM MST	BitcoinTalk Thread	A new thread is posted in the BitcoinTalk forum which covers the event. It's posted by busoni, who is the proclaimed Owner of Poloniex.
July 2nd, 2014 8:29:00 AM MDT	CoinDesk Repayment Claimed	In a CoinDesk article, Poloniex claims that all customers have been fully reimbursed for their losses. According to Poloniex owner Tristan D’Agosta, 97 BTC were taken and 97 BTC were repaid, with the exchange using its profits to compensate affected customers. Customer feedback regarding Poloniex's reimbursement process has been largely positive. In the article, Poloniex's successful reimbursement of affected customers was compared to Silk Road 2.0's repayment following a hack in February.
October 19th, 2017 2:11:44 AM MDT	CoinSutra Top 6 List Feature	The incident is included in a list of the top 6 exploits which is put together by CoinSutra. According to the entry, the Poloniex hack resulted in the loss of 12.3% of all BTCs, equivalent to 97 BTC. The company disclosed the hack on the Bitcointalk forum, attributing it to the exploitation of a flawed withdrawal code. Following the incident, Poloniex temporarily halted operations and announced a 12.3% reduction in funds for all users to mitigate losses. Despite these challenges, Poloniex resumed operations and assured customers that all affected users were fully reimbursed. However, reports suggest that Poloniex faced subsequent hacking attempts in 2017, raising concerns about the platform's security measures.
August 31st, 2018 8:50:00 AM MDT	CoinTelegraph Top 5 List	CoinTelegraph lists the Poloniex exploit in an article about the top 5 hacks in the space.The article included high level information on the vulnerability in the exchange's software which allowed simultaneous processing of withdrawal requests, leading to losses equivalent to 12.3% of users' funds. To mitigate the impact, Poloniex reduced all user balances by the same percentage, freezing the affected funds temporarily before reimbursing them from personal funds. Despite the incident, users accepted the resolution, and Poloniex continued operations under Circle, an American payment system. D'Agosta publicly acknowledged the flaws in the exchange's security measures and implemented changes to prevent future breaches, including queuing withdrawals and enhancing auditing and security features. Additionally, new developers were hired, and a bug bounty program was established to fortify Poloniex's security.

Technical Details

"The hacker discovered that if you place several withdrawals all in practically the same instant, they will get processed at more or less the same time. This will result in a negative balance, but valid insertions into the database, which then get picked up by the withdrawal daemon." “The major problem here was that withdrawals should have been queued at every step of the way. This could not have happened if withdrawal requests were processed sequentially instead of simultaneously. Additionally, auditing and security features were not explicitly looking for negative balances. They add deposits and withdrawals and check that accounts are in balance. If you have 2 BTC, withdraw 10 BTC, and are left with -8 BTC, the software would see that you deposited 2, withdrew 10, and have exactly what you should: -8.”

Total Amount Lost

Multiple sources have reported the loss as 97 BTC.

Kyle Gibson claims the amount lost is $1,000 USD.

The total amount lost has been estimated at $662,000 USD.

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

“I sincerely apologize for this,” Poloniex’s owner wrote in a statement, “and I am very grateful to the many people who have already expressed their support and belief in my character. I take full responsibility; I will be donating some of my own money, and I will not be taking profit before the debt is paid.” “the company has committed to operating at a fractional reserve until it can replenish the losses itself.”

Ultimate Outcome

Details of the exploit were later posted by Poloniex founder Busoni. The Poloniex platform ultimately relaunched with greater security and repaid all customers the missing amounts. The incident was included in several different hack lists, and also received special attention as one of the top 5 hacks.

Announcement By Busoni

Owner busoni came clean about the withdrawals and balance shortfall of all users on the platform.

I take full responsibility for this and am committed to repaying the debt of BTC. The exchange funds are 12.3% short. Because there is not enough BTC to cover everyone's balances, all balances will temporarily be deducted by 12.3%. Please understand that this is an absolute necessity--if I did not make this adjustment, people would most likely withdraw all their BTC as soon as possible in order to make sure they weren't left in that remaining 12.3%. Aside from the obvious drawback of most of the BTC being taken out of the exchange, this would not be fair--some people would get all of their money right away, and a few would get none right away.

Updated Homepage

D'Agosta publicly acknowledged the flaws in the exchange's security measures and implemented changes to prevent future breaches, including queuing withdrawals and enhancing auditing and security features. The Poloniex homepage following the incident appeared to take a more security-focused approach. In terms of security, Poloniex promised to ensure the safety of customer funds by keeping the majority of them in cold storage. The entire exchange reported undergoing continual audits and inspections to detect any unusual activity, with two-factor authentication available for added protection. Poloniex confirmed to CoinDesk that they had implemented enhanced security measures, including automatic auditing, server security enhancements, and redesigned command processing to prevent similar attacks in the future.

Repayments Praised

Customer feedback regarding Poloniex's reimbursement process has been largely positive. Dor Konforty, CEO of Uppbit.com, praised the company's transparency and D'Agosta's accountability, expressing confidence in the reimbursement process. While some customers have confirmed receiving reimbursements, others have not responded to inquiries from CoinDesk. Despite the breach, Poloniex experienced a boost in trading volume, partly attributed to the success of altcoins like Monero (XMR), which facilitated faster customer repayments. D'Agosta acknowledged Monero's role in aiding the exchange's recovery, highlighting Poloniex's support for innovative cryptocurrencies.

Poloniex's successful reimbursement of affected customers was compared to similar efforts in the industry, such as Silk Road 2.0's repayment following a hack in February. These instances demonstrate the viability of customer repayment plans and suggest a potential strategy for cryptocurrency businesses to manage setbacks effectively. Overall, Poloniex's swift response, coupled with customer satisfaction and altcoin trading success, underscores the resilience and adaptability of the cryptocurrency industry in overcoming challenges.

Inclusion And Recognition

The incident was ultimately included in lists compiled by Bitcoin Magazine, Kyle Gibson, , the Bitcoin Exchange Guide, and Slowmist. It received recognition as one of the top 6 attacks by CoinSutra and one of the top 5 attacks by CoinTelegraph, although it is unclear what it was about the Poloniex hack that warranted such mention.

Total Amount Recovered

Poloniex claims to have repaid all customers who suffered losses in this attack. According to Poloniex owner Tristan D’Agosta, 97 BTC were taken and 97 BTC were repaid, with the exchange using its profits to compensate affected customers. D'Agosta emphasized that the value of bitcoin remained relatively stable during this period.

There do not appear to have been any funds recovered in this case.

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

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.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

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

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

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

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

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