The theft of $6 billion in cryptocurrencies.. This was not the first incident and why will it not be the last?

For years, the cryptocurrency industry has sought to escape its association with criminal activity, while promoting itself as a safe alternative to traditional banking and investment services, but with a new record theft, concerns are rising about security vulnerabilities in the sector. On Thursday, Binance, the world's largest cryptocurrency trading platform, was subjected to an unauthorized withdrawal of more than $6 billion from its system within about 20 minutes.

About half of this money was “stablecoins,” a type of cryptocurrency that the companies issuing them quickly froze, while the rest of the money was in the form of digital assets such as “Bitcoin” and “Ethereum.” These currencies lack central administrative bodies, which makes their recovery almost impossible, according to researchers in the field of cryptocurrencies. Binance's losses may exceed $3 billion, according to researchers' estimates, and although this amount represents a small portion of the total assets of users on the platform - which amount to $155 billion - it far exceeds the $1 billion emergency fund that Binance has allocated for such cases.

The company pledged to cover losses using those emergency reserves and other assets, stressing that “users’ funds are safe.” Binance suspended deposits and withdrawals on Thursday, just hours after PolyMarket, a cryptocurrency forecasting platform, suffered a smaller security breach that disrupted its operations.

This is the second hack that Polymarket has been exposed to since June, and it is likely not related to the incident that affected Binance. According to analytics company Babble Maps, about 700 PolyMarket users lost a total of $2.7 million as a result of unauthorized withdrawals.

Similar to what the Binance platform did, Polymarket pledged to compensate its clients for their losses. However, security experts warn that covering customer losses is not a sustainable strategy in the long term.

“The fact that Binance has a balance sheet that can absorb the damage is encouraging, but financial strength should not be confused with operational security,” Ryan Kirkley, CEO of cryptocurrency infrastructure firm Global Settlement Network, said in an email. He added: "We are talking here about the largest platform for trading cryptocurrencies in the world, which is forced to rely on emergency freezing measures and promises of compensation. This is a serious problem for a sector that seeks to gain the trust of financial institutions to deposit much larger amounts with it."

Certainly, any business may be vulnerable to cyber attacks, but centralized platforms - such as Binance - have become high-value targets for hackers. This is partly because they operate outside the strict regulations of banks and other financial institutions, and cryptocurrencies have long been a favorite of criminal networks due to their ability to move money quickly and anonymously across borders. It is noteworthy that the “Binance” platform - which was founded in China and does not have a fixed headquarters - admitted in 2023 to violating US federal rules against money laundering, in addition to other charges. This is the case that led to the imprisonment of its Canadian founder, Changping Zhao, for 4 months.

Although Zhao received a pardon from US President Donald Trump last year, he is still legally prohibited from running Binance. Artificial intelligence contributes to the rapid exacerbation of security risks on the Internet.

Regarding the Binance hack on Thursday, researchers at Chainalysis noted “patterns of money laundering that we have never seen before,” explaining that “thousands of transactions in a short period of time indicate that attackers are using automation techniques to hide the path of funds.” Despite the support that cryptocurrencies receive from the Trump administration, it remains a high-risk field in the absence of adequate regulatory frameworks.

In the United States, the vast majority of people who invest in cryptocurrencies use centralized trading platforms, which lack the kind of federal deposit insurance that traditional banks provide. “Centralized trading platforms pose a risk due to their centralized nature; once this system is hacked, all users' funds could be at risk,” Eman Shafie, founder of Keystone Research Group, said in an email.

He pointed out that the simplest way to protect is not to leave money on the same platforms that are used for buying and selling, adding: “Once you decide to keep your assets, move your cryptocurrencies to a self-custodial wallet.” Of course, the self-management option — where an individual manages his or her digital wallet — entails its own challenges and risks. If the user loses his password, he will not find a place or customer service that he can turn to, which means that that money is effectively lost.

In 2021, Chainalysis estimated that about 20% of all Bitcoins ever issued may have been lost or become stuck in wallets that their owners can no longer access.