There is a very real nightmare scenario for crypto startups

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We interviewed four crypto experts about the worst-case scenario for crypto startups. They’ve listed everything from a massive blockchain attack to a hacker emptying users’ wallets. “These nightmare scenarios are very realistic,” said the co-founder of Breach.

In 2014, when more than $ 480 million worth of bitcoin was stolen from the Mt. Gox cryptocurrency exchange, a dark chapter descended on crypto. Bitcoin’s value has fallen 36%, and investors haven’t fully trusted the booming technology for years.

It was far from the last time the hackers succeeded. More than $ 7.6 billion in cryptocurrency has been stolen since 2011, according to analytics firm Crystal Blockchain.

Four crypto experts, from founders to major venture capitalists, told Insider that hackers are by far the nightmarish scenario for the industry, especially for crypto startups.

“Just as hard as we are working to protect our infrastructure, there is someone on the other side of the ledger who is working just as hard if not more to attack it,” said Eyhab Aejaz, co-founder of the crypto startup. -Breach insurance, said.

Experts agreed their main concern was the security holes that allow hackers to steal startup customers.

“There is this corporate level cyber theft and hacking and embezzlement,” Aejaz said. “All of these things are happening and are leaving a very bad mark on the crypto market.”

As venture capitalists like to say, there is a lot of ‘noise’ in crypto right now: in 2021 alone, more than $ 16.5 billion in venture capital funds were invested in startups. cryptographic, according to PitchBook. But Aejaz said not all startups prioritize security from the start.

“You have to be disjointed as a startup, so sometimes you don’t prioritize these things,” he said. “It’s just the nature of building a business that’s at an extremely early stage.”

For startups that create their tokens, inadequate security measures could allow hackers to “create a bunch of tokens and devalue the value of your crypto,” Aejaz said.

Hackers could find other security holes to exploit that would allow them to empty users’ wallets, said Dan Roberts, co-founder of Nayms, an insurance market powered by smart contracts. Firms with “hot wallets”, that is, crypto wallets connected to the Internet, are particularly at risk.

These hacks happen relatively often. Earlier this year, a hacker stole $ 5.7 million worth of cryptocurrency from social token firm Roll’s hot wallet, TechCrunch reported. And last month, the Thorchain blockchain protocol lost $ 8 million in assets when a hacker implemented a custom contract that cheated the protocol, Coindesk reported.

By far the most devastating doomsday scenario would be a 51% attack on blockchains that support the most popular cryptocurrencies, experts said.

A consensus of network computers must verify a cryptocurrency transaction for it to proceed. So if someone could order 51% of these computers of that mining power, they could decide which transactions to approve or reject.

If bitcoin were subjected to 51% hacking, it would “rock the whole space” and undermine confidence in cryptocurrencies in general, Roberts said.

Ethereum classic, a smaller offshoot of Ethereum, has suffered a 51% hack on several occasions. But it should be noted that bitcoin has never suffered a 51% attack. Considering the coin’s considerably larger mining pool, most experts say hackers are unlikely to remove one at this point.

“The hackers have been incredibly tricked to find all the weaknesses,” said Shaun Maguire, a partner at Sequoia Capital. “I would be surprised if there is a fundamental vulnerability in something like Bitcoin, for example, that has not already been exploited.”

Even so, as the stakes rise in the crypto world, so does the incentive for hackers to find a way to steal the money.

“Hackers are extremely sophisticated,” Aejaz said. “These nightmare scenarios are very realistic.”

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