News broke near the end of October that hackers, based in North Korea, stole over $6 billion in assets from the world’s largest crypto exchange, Binance. The astronomical sum of stolen crypto came as a shock to many in the community, and after the company froze all assets for around 48 hours, customers have withdrawn about $5 billion from the platform. Fortunately, Binance has promised that it will cover all customer losses, so the impact of this event has been limited. However, not every company in the crypto space can afford to absorb a $6 billion loss, and there is growing concern that those invested heavily in crypto may not be so lucky in the future. Is there a reason to be worried or are concerns of AI-assisted crypto hacks overblown?
Protection of crypto assets
One of the major reasons for concern is the lack of government protection against loss. Crypto is not insured by the FDIC, SIPC, or any other government agency. You don’t get the same protections with money deposited in your bank or money invested in registered securities. Strangely enough, the biggest draw of crypto, a quasi-independence from traditional government oversight and regulation, has now become a major drawback for many considering investing in it.
There has been no shortage of dishonest companies in the space, the most infamous being FTX, and yesterday marked the four year anniversary of their 2022 bankruptcy filing. While just about all FTX customers are being made whole on paper, they are being reimbursed based on the value of their accounts in USD at the time of the failure. That amount pales in comparison to what the amount they had invested in crypto would be worth today, with Bitcoin alone up over 4x from its November, 2022 price (on the day FTX filed bankruptcy in 2022, Bitcoin closed at $17,034, and at the time of writing, Bitcoin is priced at $77,218).
It’s easy to see why customers would be upset about being reimbursed in USD instead of crypto. If you were invested in stock which was stolen, and in the time it took for you to be made whole the stock quadrupled, you would not be happy being paid what the stock was priced at when it was stolen!
Crypto is not backed by the government and if you invest in crypto through an exchange, your investment is only as safe as the company you invest with. Safety and security measures that were more than enough in the past may not be enough to protect your assets in the future, as was recently proven by the Binance hack. Should you be concerned about money invested in crypto or is it unlikely for large hacks like the Binance incident to occur again in the future?
The rise of AI and hacking
The impact of AI has been felt across many, if not most, industries around the world, but the impact has been uneven at best. Certain industries have been rendered almost unrecognizable from what existed several years or even a year ago, while others operate just about the same as they did in the past. Unsurprisingly, the tech space has been one of the most transformed. Many large corporations are using the coding capabilities of advanced AI to augment or replace human coders. The numbers show that while senior employees may not be as impacted, big companies are hiring far fewer coders than they have in the past.
The advancements in AI have also had a big impact on the hacking industry, if you can call it that. AI-powered hackers have been able to discover security exploits at an incredible pace, and while most aren’t immediately exploited, the implications are clear: companies need to up their security or be at risk of major breaches which could often threaten their future or existence. The examples of companies who haven’t been as proactive are all around us, and not just in the crypto space.
One of my biggest hobbies outside of finance is gaming. Just within the last couple weeks, the major video game retailer Playasia was forced to take their website offline after a series of cyberattacks. The morning I am writing this, November 2nd, I saw the news that Sony was forced to issue another update to the PlayStation 5 because it had been jailbroken yet again. I wouldn’t be surprised if the PlayStation 5 is jailbroken again, or several times, by the time you are reading this.
Large companies are increasingly being targeted by AI-assisted hackers, and it’s clear that many of them have been unprepared or unable to patch vulnerabilities in a timely manner. With something like video games, the stakes aren’t too high for consumers. Your order from Playasia may be delayed, or you may need to update your console yet again before playing Grand Theft Auto VI. But the stakes are much higher for those with money at stake, particularly those who depend on a single company or corporation to protect their investments.
So should I invest in crypto?
I am not going to tell you whether you should or should not trust a company to manage your crypto. I don’t know enough about every single company’s individual security measures to make a blanket statement saying you should or should not invest with these companies.
I want to make sure you are educated about the risks of investing in an asset that is not protected by the FDIC or SIPC. While money may be recoverable in some cases, or the company may be big enough to absorb losses, like in the case of Binance, you should assume that may not be the case. Educate yourself on what your company of choice is doing to stay one step ahead of bad actors and how it is working to protect your money, and only entrust them with your money if you feel 100% comfortable doing so.
