Global Crypto Exchange’s ‘bank-level security’ is said to be a myth following unsolved hack

Following a tough year in 2022, another juggernaut faces legal troubles in the crypto space.global crypto exchange coin base It was accused of touting it as having “bank-level security” while customer accounts were reportedly hacked and looted. We’ve heard from the legal team and industry experts who are taking action against Coinbase on their response.

Creating trust with cryptography

After Bitcoin reached its all-time high (around $68,000) in November 2021, the cryptocurrency is on a downward trajectory. We have seen a glimmer of hope, but the trend is still negative. Yet, despite the fiasco Terra When FTX, with reports of hacking, crypto adoption continues. In fact, according to merchant machinecrypto use is set to increase by 14.9% worldwide by 2030.

As its popularity grows, users must feel they can trust cryptocurrencies, especially the exchanges on which their assets reside. However, this is difficult to do for a well-reputed name in the space. binance, poly network When Axie Infinity, was hit with an incredibly large and impactful hack all year. The latest addition to the list is Coinbase.

Coinbase lawsuit filed

Three parties have been banned from their accounts for no reason, according to a new lawsuit filed against Coinbase. When they tried to call his Coinbase for help, they were redirected from one complaint screen to another without being able to speak to anyone. Both parties claim their accounts were hijacked by hackers, resulting in a total loss of over $214,000 between them. These claims were reported on Bloomberg but have not been confirmed by Coinbase. Fintech Times.

The alleged hack follows a 2021 incident in which Coinbase admitted hackers stole from at least 6,000 customer accounts.

lawyer Matt Bowden “Plaintiffs represent a larger group of people who fell victim to arbitration clauses that meant they were unable to bring crypto exchanges to court. This is not a one-off hack. Coming out of the woodwork, they’re starting to share similar experiences.”

Legal sources suggest that two separate lawsuits have been filed.

• A class action lawsuit means that Coinbase must repair the damages caused by the hack and return the lost money to the plaintiffs.
• An injunction that means Coinbase cannot “falsely advertise” its products as having “bank-level security” if personal accounts are compromised and looted.

One of the plaintiff’s attorneys said Fintech Times About two solutions to the injunction. These include removing false advertising of the alleged “bank-level security” or improving security systems so that the statement is true. will be

He also delved further into the reasoning behind the class action lawsuit.Under U.S. law, if a bank account is hacked, it is the bank’s responsibility to restore the victims. Due to Coinbase’s status as a financial institution, he and his prosecutors believe Coinbase must also comply with the same laws and return the value of its assets.

Coinbase did not respond to a request for comment on this lawsuit.

Cryptographic trust at risk

The long-term effects of this will not hurt cryptocurrencies as much as it damages Coinbase’s image. Those who are still interested in cryptocurrencies are likely to go to another exchange that can ensure their assets are protected. However, had there been better communication and dedication from Coinbase to resolve the issue following the alleged hacking, the lawsuit might not have happened.

So what’s the proper response to a hack?

Clear communication between Exchange and all customers (impacted or not)

Bradley DigikExecutive Vice President, Emerging Issues + Technology signpost solutiona global security, compliance and investigation consultancy, said:

“The exchange has provided all customers, not just those affected, with a letter notifying them of the breach, has made a public commitment to conduct a risk assessment of its information security controls, and has immediately put in place a risk remediation plan to address all You must perform: Severe and Moderate Risk for Information Security Vulnerabilities.

“Exchanges must also commit to implementing an information security management environment that complies with known security frameworks such as ISO 27000, NIST, or another framework, and even obtain certification. Exchanges must undergo an assessment to ensure compliance with relevant regulations, such as those applicable to exchanges registered by the New York Department of Financial Services.”

root cause

Max GalkaCEO and Founder Elementus, an organization helping others harness the power of blockchain, said: Also, be transparent with your customers about the severity of the hack and what additional steps you can take to protect their funds, such as calling customers to action.

“Investigating the root cause of a hack requires the ability to analyze blockchain data and understand the often very complex transaction flow. It requires expertise and advanced tools, and working with a company that has this blockchain data and research expertise is critical.”

bank-like trust

Naturally, when large sums of money or life savings are involved, customers want to keep their assets safe at all costs. More recently, with the rise of fintech, customers have begun to trust to keep their funds with financial institutions other than banks. Look at neobanks, for example.according to Statistawith 24.9 million accounts in the US alone, and this number is projected to grow to 39.1 million by 2025.

With this in mind, it’s no surprise that users are starting to trust cryptocurrencies more. especially, blockware intelligence Bitcoin adoption alone is projected to reach 10% globally by 2030.

But should exchanges have the same level of trust as banks? In short, the answer from the industry is no.

spencer SolowayVice President of Marketing Horizon laboratory, the blockchain company said: Consumers should feel safe buying cryptocurrencies from reputable exchanges, but users cannot be given her FDIC protection and should understand the risks involved.

“The old adage is, ‘It’s not your key, it’s not your coin. I understand that self-management can be a confusing topic (and comes with its own set of risks), but I encourage you to seriously consider and learn about the options available to you!”

Concerns about regulation of centralized exchanges matter

Hacking has never been the main cause of asset security in crypto exchanges. bob Russco-founder sorogenic, a blockchain-powered network for tokenizing securities. He noted the importance of decentralized exchanges compared to centralized exchanges in terms of regulatory concerns.

“Cryptocurrency exchange hacks have been sidelined when it comes to malicious activity in the industry. Many centralized cryptocurrency exchanges are collapsing due to their complete disregard for user funding by the centralized entities behind the exchanges.

“Yes, in the current situation, despite the possibility of hacking, customers are opting for centralized crypto exchanges because their funds are not safe due to the lack of a regulatory framework to protect their assets. Treating it like a full-fledged bank is very risky.

“We therefore recommend that centralized cryptocurrency exchanges consider demonstrating proof of solvency as well as continuing to work with reputable auditors. We need to restore trust in a beleaguered industry, and while hacks often remain out of control, we want exchanges to transparently communicate with customers. You have the power to control how you interact.

“If we want a healthier crypto market to emerge from this downturn, ensuring customer trust is paramount. It is a solution that allows all customers to have full control over their assets without the need for a third party in the middle, increasing the risk of hacking and bankruptcy.”