Another security incident in the crypto market! Blockchain Liquid was hacked and $320 million in bitcoins stolen

The Zhitong Finance App learned that Liquid Network, the Bitcoin blockchain used by many cryptocurrency exchanges, was hacked, and approximately US$320 million worth of Bitcoin was stolen. This is the latest in a series of recent cryptocurrency thefts, once again shaking the market's confidence in the safety of digital assets.

Liquid Network is a blockchain designed to speed up Bitcoin transactions and has been adopted by many cryptocurrency exchanges. The company confirmed that its Liquid Federation wallet was hacked and around 4,000 bitcoins were stolen. At current prices, the loss was approximately US$320 million. The wallet originally held about 4,200 bitcoins, but only about 200 were left after the theft.

Liquid Network said in a post on the X platform that the attackers are “alleged white hat hackers” who usually transfer funds after discovering the vulnerability and intend to return the funds, usually for a fee. The company said the stolen funds were withdrawn through SideSwap. SideSwap is a settlement platform authorized to process this network transfer, but the platform's keys have not been leaked.

Liquid Network said in the post: “Liquid wallets will be affected, and we apologize for any inconvenience this may cause.” The company added that it has suspended all new transactions and “Alliance members are actively working to resolve this issue so we can resume normal operation of the network.”

This hack is the latest in a series of recent attacks, and these incidents have brought cryptocurrency cybersecurity issues into the spotlight. According to industry data, the amount of global cryptocurrency theft in the first half of this year reached 972 million US dollars, and the total number of hacking incidents reached 207, a record high for half a year in history.

Just last week, an attacker stole $6 million from a digital asset lending platform linked to Crypto.com. In August, Coldcard, the popular Bitcoin cold wallet, was hacked, raising questions about the safest way to store digital assets. Coldcard was revealed to have a random number generation flaw, causing a large number of “mnemonic words” generated by offline “cold wallets” to be systematically deduced. Analyst data shows that on August 3, the attackers had stolen more than 1,755 bitcoins from about 5,000 affected wallets, which was about 110 million US dollars based on the market value at the time.

Liquid Network was founded by Blockstream Corp. in 2018. Blockstream is a blockchain technology company co-founded by cryptographer and Bitcoin enthusiast Adam Back. Liquid Network is currently managed by a coalition of more than 80 exchanges, infrastructure companies, and asset managers, according to Blockstream data.

The exchange uses Liquid Network for fast settlement because Bitcoin's main blockchain often has problems with slow transactions and high fees due to network congestion. Liquid Network accelerated this process by issuing Liquid Bitcoin (i.e. L-BTC). L-BTC is backed by actual bitcoins, while actual bitcoins are locked.

Blockstream lists a number of large exchanges using Liquid Network, including BTSE and Bitfinex. Bitfinex is part of the same parent company as Tether, the world's largest stablecoin issuer. BitMEX is also a user of Liquid Network, but the exchange has announced that it will close this month.

Aneirin Flynn, CEO of cybersecurity technology company FailSafe, said preliminary evidence suggests that the incident may have stemmed from a bug that allowed L-BTC to be minted. Aneirin Flynn said that this vulnerability “is the latest in a series of attacks this year that revealed weaknesses in cryptocurrency infrastructure” and that “as about 95% of reserves were exhausted and the network was suspended, this incident revealed a key weakness in Liquid's verification mechanism and asset support model.”