By CHRIS ILLING
FTX and SALT will jointly present a new event, Crypto Bahamas, that will debut this week from April 26-29 at the Baha Mar resort in Nassau. The invitation-only event will feature collaboration and networking among leading investors and builders in the digital assets industry.
The passage of the Digital Assets and Registered Exchanges (DARE) Act 2020 has put in place the legal framework for a vital, well-regulated and compliant industry in The Bahamas for those interested in entering the digital asset space. The Act’s introduction has already provided a positive stimulus for our Bahamian job market and high-end real estate sector. It seems there is a new influx of FinTech (financial technology) companies heading to our shores, and the new digital asset world might be exactly what The Bahamas needs to compensate for the decline of private banking institutions. But there are some concerns in recent news.
Once again, a crypto exchange has been hit. The path the thieves took is very unusual. The operation took only 13 seconds. Thefts have long been part of the daily routine in the world of Bitcoin and its counterparts. Anonymous currencies that promise enormous price increases, and lead to gigantic nominal values, obviously arouse great desire. They attract many fortune hunters who hope to jump on the bandwagon in time and forget to secure their newly-won fortunes. The young fintechs that run the crypto accounts are often just as poorly secured. This creates a playground for talented hackers.
Now the young crypto exchange Beanstalk, which has only been around for a few months, has become the victim. The operators have publicly admitted the theft. One of the founders said to the Vice platform: “We are screwed.”
The newly-formed crypto exchange operated with its own digital currency, a so-called stable coin called ‘Bean’. Its value should be kept stable at $1 by user deposits. However, as is usual with decentralised blockchains, these same users can decide on changes to the code, which in turn is the technical basis of the digital currency. You get as many shares as you own units of the digital currency. Anyone who holds about 1 percent of all ‘Beans’ also has 1 percent of the voting rights.
This is exactly what the hackers took advantage of. In the first step, they borrowed almost $1bn in various digital currencies via a kind of ‘Flash loan’. A ‘flash loan’ allows users to borrow large amounts of cryptocurrency for very short periods of time (minutes or even seconds). Flash loans are meant to provide liquidity or take advantage of price arbitrage opportunities, but can also be used for more criminal purposes. With that money, they immediately acquired a two-thirds majority in Bean and, with it, 67 percent of the voting rights. After that, they decreed that all deposits of $182m be transferred to themselves. According to the technology portal The Verge, what sounds like a complex operation took only 13 seconds. After repaying the lightning loan and fees, the hackers still had $80m left.
The Beanstalk team has no choice but to appeal to the thieves. If they pay back 90 percent of the $80m, they could keep the other 10 percent as a kind of finder’s fee for uncovering the vulnerability.
There are always cases like this in the crypto world. The most well-known case recently was a gigantic $650m theft. Players of the Axie Infinity game, which is popular in Asia, were particularly affected. The thieves targeted so-called bridge software. This is used to exchange crypto money in the game for other digital currencies.
The hack stole 173,600 units of the digital currency Ethereum. The attackers managed to withdraw the digital currencies with hacked crypto keys. Such bridges, which exchange digital currencies for other digital currencies or, as in this case, are used for purchases, have recently become the target of hackers again and again.
As an investor who is looking for alternative instruments to strengthen his/her portfolio, you should use an established broker or exchange and pay attention to the fine print regarding the security of your assets.
Bahamian regulators had the great foresight to be front-runners with the introduction of the DARE Act. But it is still a long road ahead to give the investors the security we are looking for.
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