Hacks are widespread in the bitcoin realm. Every day, it seems like another hacker gets their hands on hundreds or millions of dollars because to a flaw in the blockchain or platform they were able to exploit. In the vast majority of cases, the hackers are never apprehended, and the cash taken are never recovered.
However, in certain cases, the judicial system in the nation where the breach took place is able to outsmart the perpetrators and reclaim the monies stolen during the attack. This is precisely what happened in the 2016 Bitfinex hack. Continue reading to discover more about this hack and the pair suspected of being the perpetrators.
The Bitfinex Exploit
The narrative begins in August 2016, when the Bitfinex platform was hacked in the second largest attack at the time. The incident resulted in the theft of 119,756 Bitcoins, worth about $72 million USD.
The attack was straightforward: almost 2,000 authorized transactions ended up in the wallet of a single user, rather than going where they were meant to go. Bitfinex halted its platform when the breach was revealed to prevent more losses. In order to cover the stolen monies, all users' balances were also decreased. With this decrease, each user was granted a platform-based token, BFX, to act as a placeholder for Bitcoin, allowing Bitfinex to refund the stolen cash in the future.
Despite utilizing BitGo, a multi-signature security system, Bitfinex was unable to track the breach or restore the stolen monies to consumers.
The Bitfinex Market Has Started to Move
Then, in 2017, something unusual started to happen. Small sums of money began to flow out of the suspicious wallet and onto the AlphaBay marketplace, where they were laundered. Time this was allowed to go on for a while, AlphaBay was finally shut down later that year, and the FBI was given access to much of the site's transaction logs during the takedown.
Meanwhile, the money launderers simply switched to a different form of laundering. Bitcoin ATMs were utilized to withdraw a large portion of the cryptocurrency, and some was used to purchase gold and NFTs. They would occasionally use Bitcoin to buy gift cards, which they would then have shipped to their actual address.
The Couple Responsible for the Bitfinex Hack Has Been Apprehended
Whether the FBI learned of the money laundering through their access to the AlphaBay marketplace or because the criminals bought gift cards to use to ship goods from Walmart to their home address, the trail led to Ilya Lichtenstein, 34, and his wife Heather Morgan, 31.
It's unclear if the FBI first observed the couple or just went out with a search warrant, but in February 2022, the FBI raided Lichtenstein's cloud storage business and discovered gold, albeit Bitcoin gold. Law police uncovered a document on the cloud service that contained the passwords of various bitcoin wallets involved in the Bitfinex breach. The FBI seized $3.6 billion in Bitcoin from the couple using these passwords.
Despite the couple's extensive money laundering, around 80% of the money stolen in the breach remained in the wallets uncovered by the US government. This is most likely owing to the fact that Bitcoin's price has risen dramatically, implying that the pair didn't need to pay out all of the money they stole to make millions.
Did Lichtenstein and Morgan, on the other hand, hack Bitfinex?
Shortly after the search warrant was issued, the couple was detained, and they are scheduled to appear in court on money laundering allegations. Officials believe the two laundered the money since the credentials were in the cloud account (as well as the fact that they delivered food to their home with laundered money), but it is unclear whether they were the ones who carried out the original attack.
Morgan is quite active on social media, and many people rushed to her Instagram profile after the arrests to find bad rap songs that make her appear, well, foolish. However, she may be wiser than everyone thinks, and she may have purposefully published these films in the hopes of one day claiming innocence in the breach.
While her Instagram doesn't prove her to be guilty, a presentation she gave titled "How to Social Engineer Your Way into Anything" demonstrates that she isn't a moron. She is an expert at making friends, fitting in, and most likely, stealing a huge sum of bitcoin.
After all, those credentials were in his cloud service, and who would give up passwords with access to that much money? Her spouse, Lichtenstein, doesn't have social media to throw the people off his trail. He also went through Y Combinator, a well-known Silicon Valley training program, which may have given him the technical expertise to accomplish the hack, as well as ideas on how to launder the money once it was taken, adding to the potential of guilt.
In any case, the US legal system will have to decide whether this pair were the criminals or merely money launderers who profited after the fact.
What Does the Bitfinex Hack Mean for Cryptocurrencies?
The price of Bitcoin plummeted after the Bitfinex breach in 2016. The same situation did not happen following the CREAM breach in 2021. This is because, despite the fact that bitcoin hacks are still common, consumers are increasingly trusting the concept of digital money.
While some investors may have pulled out following the 2016 Bitfinex breach, the truth is that Bitcoin is here to stay. And, owing to the Bitfinex breach and the fact that the FBI apprehended the culprits and is likely to return the money to its rightful owners, people's trust in crypto will likely be restored, if only marginally.
Apart from the confidence (and Bitcoins) that will be restored once the monies stolen in this attack are recovered, it will be fascinating to see what happens to the value of Bitcoin as thousands of coins that haven't been traded in years are about to resurface. Will the price be reduced? Or will it remain stable? It's difficult to say because the legal procedure in the United States can take years, and no one knows what the coin return process will look like after everything is said and done.
Overall, it's uncertain how the last chapter of the Bitfinex breach will effect Bitcoin's future. For the time being, all you can do is sit back and let the drama develop.
