- Users should understand the risks associated with keeping their tokens on a centralized exchange.
- A SIM swap attack is a common attack deployed on a user's cryptocurrency wallet on a centralized exchange like Coinbase, Binance, Kraken, etc.
- The best way to store your cryptocurrency is through self-custody on a cold wallet.
- If users choose store their tokens with an exchange, they should use either a security key or an authentication app for dual-factor authentication.
The global cryptocurrency market cap has been growing at exponential rates since the inception of Bitcoin. Today, the entire crypto market cap has surpassed 1 trillion dollars, and new retail and institutional investors continue to enter the market. This growing internet money has piqued the interest of many hackers and criminal groups as there is substantial monetary gain to be made by exploiting this new technology. Since the digital asset industry is still in its very early stages, it is still very arcane and difficult for new users to understand completely. New users often misuse this technology in ways that put their tokens, NFTs, and money at risk. Due to the primitive state of cryptocurrency, stolen funds are almost impossible to be recovered, and users are left helpless, another major reason for hackers to target this industry specifically.
Although many people lose their funds due to negligence when dealing with cryptocurrency, there are also those who fall victim to more complicated, malicious attacks. One may believe that they are safe holding their crypto on an exchange locked with a password and multi-factor authentication, as this is the recommended security practice on many exchanges. However, this is far from the case. Hackers have been able to exploit this security system on many different accounts, breaking through both the user's password and dual-authentication.
In this article, we’ll cover the intricacies of attacks on users' cryptocurrency accounts on centralized exchanges and how hackers are able to break through the security features offered by such platforms.
How Does the Exploit Work?
This attack is performed by first gaining access to users' passwords and login emails for the cryptocurrency exchange account. Since cryptocurrency login information is such sensitive data, many platforms that offer cryptocurrency products or services online are at high risk of attack by hackers. Stolen credentials are distributed on the dark web and sold for higher premiums as they are valuable and lead to high net worth cryptocurrency exchange accounts.
Hackers perform extensive research on their victims and gather as much information about them as possible, including birthdates, phone numbers, family member names, and their internet service providers. With this info, they are able to formulate and deploy a social engineering attack. They contact the internet service provider and inform them that they have either lost or broken their phone and need the phone line associated with the victim ported to a different sim card. If the internet service provider follows their company’s security guidelines, which more often than not they don’t, they will request certain pieces of information to verify their identity like a pin code. The attacker will continue to convince and coerce the employee into performing this sim swap, and with enough information about their victim, they are able to do so.
Once the social engineering attack is successful, the attacker will have a cellphone with the victim's phone number and the victim’s cell service will be terminated. This means all calls and texts directed to the victim's phone will be received by the attacker. With this, the attacker is able to receive the dual factor authentication codes sent to the victim's phone, a code that is required for both logging into the account and initiating a cryptocurrency withdrawal. The hacker is then able to easily and quickly drain the victim's entire cryptocurrency wallet. Once all the funds have been drained, the hacker is able to cash out by hiding the source of their funds using a crypto scrambler like Tornado Cash.
How to Protect Yourself
The best way to store your cryptocurrency is through self-custody which you can learn more about here. This means that you hold your own keys to your cryptocurrency and don’t rely on a third party for storage and transactions. Not only is one of the main advantages of safety, but self-custody also will allow you to make transactions more easily and interact with smart contracts. Familiarization with self-custody of cryptocurrency is a good stepping stone in eventually dabbling in decentralized finance. This would open doors to earning yield, lending, borrowing, and even trading derivatives on a decentralized exchange like SynFutures.
If you don’t trust yourself to the custody of your crypto, then the best course of action is to use a physical security key or authentication app on your phone for dual-factor authentication. This means that even if an attacker is somehow able to take over your phone, your funds will be safe.
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