$320M Liquid Hack: A Setback for Bitcoin’s Institutional Adoption?

[Lexandroove]

I believe that at this point, the Bitcoin hack is no longer news. In case you live under a rock, a Bitcoin-linked blockchain (Liquid network) used by several crypto exchanges has been hacked for $320 million, which is the latest in a string of thefts shaking confidence in digital-asset security.

As a result of this hack, roughly 4,000 of the 4,200 Bitcoin held in the network’s Liquid Federation wallet were stolen, affecting many Liquid wallets and resulting in a halt of all new transactions.

One fact that we should have in mind is that it’s not Bitcoin’s base layer that was hacked, but a sidechain/ infrastructure. I personally believe this will create a major setback to institutional adoption, as the Liquid network is designed partly for exchanges and institutional settlement, which raises questions about whether these infrastructures are sufficiently secure for large-scale institutional use.

A major selling point of Bitcoin’s network has always been its security, and despite these so-called “white hats” saying that they would return most of the BTC after the vulnerability is fixed, this event creates a scar that will long remain on investors’ minds.

What do y’all make of this?

[greysonz]

Topic about this:
https://bitcointalk.org/index.php?topic=5593374.msg67119452#msg67119452

[dkbit98]

Liquid network was never a bitcoin adoption, it was different federated network, and there was no BTC adoption at all.
They also heavily advertised Tether stupid stablecoins, and I don't see how that private company benefited bitcoin.
Maybe projects like this deserve to be exploited, to show how fragile this side projects are, and I am not talking only about Liquid project.

[Lexandroove]

Liquid network was never a bitcoin adoption, it was different federated network, and there was no BTC adoption at all.
They also heavily advertised Tether stupid stablecoins, and I don't see how that private company benefited bitcoin.
Maybe projects like this deserve to be exploited, to show how fragile this side projects are, and I am not talking only about Liquid project.

Liquid network was built around Bitcoin, though, and enabled BTC to move in a faster and more programmable environment. Your distrust of its infrastructure is valid, but we can’t pretend that there is zero Bitcoin utility involved.

[Ceemv22]

One fact that we should have in mind is that it’s not Bitcoin’s base layer that was hacked, but a sidechain/ infrastructure.

whats interesting to me from a monitoring/forensics angle is HOW this is playing out. instead of the usual silent DM negotiation you see after CEX hacks, this entire thing is happening in public, onchain, via OP_RETURN messages back and forth between the attacker and Blockstream. anyone can watch the negotiation happen in real time, track exactly how much comes back and when, no need to trust anyone's press release


also worth being skeptical of the 'whitehat' framing specifically because its self applied. the story isnt resolved until the full amount lands back in the federation wallet and the numbers reconcile, not when someone claims good interntions 

[xenomorfo]

Liquid network was never a bitcoin adoption, it was different federated network, and there was no BTC adoption at all.
They also heavily advertised Tether stupid stablecoins, and I don't see how that private company benefited bitcoin.
Maybe projects like this deserve to be exploited, to show how fragile this side projects are, and I am not talking only about Liquid project.

oh god but the more people use it the better and this is my way of seeing things, then again maybe I'm wrong in thinking like this
then if I didn't misunderstand, correct me, the guy who did this hack did it to protect and will return everything, at least that's what I seemed to understand with my not exactly perfect English

[BlackHatCoiner]

You got to love the "white hat" defense. Translation: "I successfully stole it, realized I can't wash 4,000 BTC without the feds kicking my door in, so now I am graciously returning it in exchange for a bug bounty and no jail time."

I don't see how it is a setback for institutional adoption. Most real money from institutions is held by BlackRock.

[dzungmobile]

I don't see how it is a setback for institutional adoption. Most real money from institutions is held by BlackRock.

BlackRock dominates Bitcoin Spot ETFs in both AUM and 24h volume especially 24h volume. Some Bitcoin Spot ETF trackers below have figures and chart for visualizing BlackRock domination in this Bitcoin Spot ETF branch industry.

A table https://blockworks.com/analytics/bitcoin-etf/tracker
A table and a heatmap https://www.coinglass.com/etf/bitcoin
Bitcoin Spot ETF Cumulative Flow (US$M) https://farside.co.uk/btc/

[BlackHatCoiner]

A table https://blockworks.com/analytics/bitcoin-etf/tracker

I have two questions.

1. How does this tracker know that BlackRock's bitcoin is custodied by Coinbase? There is no announcement from neither BlackRock nor Coinbase regarding who custodies the bitcoin, AFAIK.
2. How does the tracker know how much BTC each ETF company owns? I don't think this is published either.

Bitcoin Spot ETF Cumulative Flow (US$M) https://farside.co.uk/btc/

So basically, BlackRock and Grayscale own something around 90% of all ETF bitcoin.

[aoluain]

A major selling point of Bitcoin’s network has always been its security, and despite these so-called “white hats” saying that they would return most of the BTC after the vulnerability is fixed, this event creates a scar that will long remain on investors’ minds.

What do y’all make of this?

You are absolutely 100% correct that one of Bitcoins advantages, strengths, benefits, features
and . . . selling points is its security. The Bitcoin network has never been hacked or compromised.

You cannot confuse that with an exchance or any other third party Bitcoin client getting hacked
because that security is in the hands of those platforms developers..

In terms of the thread title, the less 'institutional adoptions' that happen means there is more Bitcoin
for the common people.

[IjawMan]

I believe that at this point, the Bitcoin hack is no longer news. In case you live under a rock, a Bitcoin-linked blockchain (Liquid network) used by several crypto exchanges has been hacked for $320 million, which is the latest in a string of thefts shaking confidence in digital-asset security.

Op are you not yourself missing on something different this time about what Bitcoin price is doing in the middle of all these hacks? Not like what it would have been the market reaction to these hacks news where price would have been falling sharply but instead Bitcoin is making highs.

This does not reflect a setback motion in the adoption of Bitcoin, and do you want to know why? Cause Bitcoin has gone past certain phases that  hacks from technical vulnerability of some wallets will deter investors from continuous adoption.

[Donneski]

This might turn to be a concern for institutional confidence and might affect the amount the put into Bitcoin going forward.
It's a disturbing development but it's important that we seperate a Bitcoin related sidechain being compromised from Bitcoin being hacked so the gullible ones doesn't run with a wrong narrative.

It wasn't Bitcoin network that was hacked, it was an issue with the Liquid's federation infrastructure so it doesn't in any prove that Bitcoin security is now failing.

[Lida93]

It wasn't Bitcoin network that was hacked, it was an issue with the Liquid's federation infrastructure so it doesn't in any prove that Bitcoin security is now failing.

It's important that a clear distinction is made for public understanding without a misinformation getting spread about bitcoin network security. It might be an easy thing to understand for us about what really got exploited but how about the no-bitcoiner out there seeing a flash headline about the hack and conceiving it wrongly.

So it's worth noting that it wasn't the bitcoin network that got hacked but a side chain concerned problem. I have being seeing a different discussions on some social media platforms and many people out there are interpreting these hacks wrongly.

[Lexandroove]

One fact that we should have in mind is that it’s not Bitcoin’s base layer that was hacked, but a sidechain/ infrastructure.

whats interesting to me from a monitoring/forensics angle is HOW this is playing out. instead of the usual silent DM negotiation you see after CEX hacks, this entire thing is happening in public, onchain, via OP_RETURN messages back and forth between the attacker and Blockstream. anyone can watch the negotiation happen in real time, track exactly how much comes back and when, no need to trust anyone's press release


also worth being skeptical of the 'whitehat' framing specifically because its self applied. the story isnt resolved until the full amount lands back in the federation wallet and the numbers reconcile, not when someone claims good interntions  

It’s interesting and baffling, NGL, as the public on-chain communication makes the process independently verifiable rather than relying on statements from either side.

Anyone can basically monitor the addresses, transactions, and amounts in real time.

I also won’t call them “Whitehats” just yet, at least until the funds are all returned.
The final balance and reconciliation will tell us how this actually ends.

It wasn't Bitcoin network that was hacked, it was an issue with the Liquid's federation infrastructure so it doesn't in any prove that Bitcoin security is now failing.

It's important that a clear distinction is made for public understanding without a misinformation getting spread about bitcoin network security. It might be an easy thing to understand for us about what really got exploited but how about the no-bitcoiner out there seeing a flash headline about the hack and conceiving it wrongly.

So it's worth noting that it wasn't the bitcoin network that got hacked but a side chain concerned problem. I have being seeing a different discussions on some social media platforms and many people out there are interpreting these hacks wrongly.

I see no reason people won't take a little time to research what really happened. I guess that's what you get from social media anyway: noise.

It’s a development that still calls for a level of concern, though, making the news of this spreading quite warranted

[pooya87]

I believe that at this point, the Bitcoin hack is no longer news.

"Bitcoin hack" would be the top of all news all over the world. But there has not been any "bitcoin hacks". What we have had so far are exchange hacks, centralized networks hacks and exploits, altcoins/shitcoins going belly up, and stuff like that. They are not important enough to be considered "news" in a bitcoin world if you ask me. That includes the mess involving Blockstream's Liquid Network.

In case you live under a rock, a Bitcoin-linked blockchain (Liquid network)

Clarification: A centralized network called Liquid...

I personally believe this will create a major setback to institutional adoption,

Not really. Anybody using Liquid network is not adopting bitcoin. They are adopting a centralized censorable network controlled by some company. They hand over their money/bitcoin tot his centralized authority and that authority can decide whether they can get their bitcoins back ever or not (can be seized). Or even if they can get them back at a 1:1 rate!

A major selling point of Bitcoin’s network has always been its security,

And what happened to Liquid has absolutely nothing to do with Bitcoin and its security.

What do y’all make of this?

If people don't want to lose money to exploits and hacks they should not use centralized third party controlled networks that only carry the name of Bitcoin but have nothing to do with it.

[BlackHatCoiner]

"Bitcoin hack" would be the top of all news all over the world. But there has not been any "bitcoin hacks". What we have had so far are exchange hacks, centralized networks hacks and exploits, altcoins/shitcoins going belly up, and stuff like that.

I would argue that the recent Coldcard self-custody wound is a Bitcoin hack. Yes, it wasn't a Bitcoin client / Bitcoin network / Bitcoin cryptography kind of hack, but it was a wallet hack, and Bitcoin is ultimately pieces of Bitcoin wallets.

And it wasn't any kind of wallet hack, it was a hack on cold storage security. This is the worst kind of hacks.

[pooya87]

"Bitcoin hack" would be the top of all news all over the world. But there has not been any "bitcoin hacks". What we have had so far are exchange hacks, centralized networks hacks and exploits, altcoins/shitcoins going belly up, and stuff like that.

I would argue that the recent Coldcard self-custody wound is a Bitcoin hack. Yes, it wasn't a Bitcoin client / Bitcoin network / Bitcoin cryptography kind of hack, but it was a wallet hack, and Bitcoin is ultimately pieces of Bitcoin wallets.

And it wasn't any kind of wallet hack, it was a hack on cold storage security. This is the worst kind of hacks.

Fair enough but OP was talking about Liquid not hardware wallet, even though I' still argue that a closed sourced and unreviewed hardware wallet should not have been considered secure in first place. So it is not exactly like it was the good cold storage option that got hacked.

If there is any news about who is doing these hacks, please let me know.

A-holes who know enough programming and enough time to be able to find flaws in other systems who also think that it's okay to steal other people's money!

[Zaguru12]

Fair enough but OP was talking about Liquid not hardware wallet, even though I' still argue that a closed sourced and unreviewed hardware wallet should not have been considered secure in first place. So it is not exactly like it was the good cold storage option that got hacked.

I wouldn’t still call it a “bitcoin hack” for me coldcard wallet hack was a coldcard vulnerability that resulted in the wallet been drained of bitcoin, if we should actually call cold card hack as a bitcoin hack then it is also safe to call exchange hacks in which bitcoin have been stolen as a bitcoin hack.

Not that I am blindly supporting bitcoin but I don’t see much of a difference with the cold card vulnerability with most of the phishing attacks we read of and if we cannot call the attack a bitcoin hack then cold card shouldn’t also,

The underlining number of entropy (bits) said to be safe for private key is 128 bits and anyone going down below this like cold card did wouldn’t be called a bitcoin hack in my opinion.

Been able to decrypt a private key from public key would be a bitcoin hack,
51% attack would be a bitcoin hack

[BlackHatCoiner]

if we should actually call cold card hack as a bitcoin hack then it is also safe to call exchange hacks in which bitcoin have been stolen as a bitcoin hack.

Definitely not the same thing. A Bitcoin exchange being hacked is orders of magnitude a different case of "Bitcoin being hacked" than cold storage funds being compromised. If you deposit bitcoin on an exchange and they are compromised, the company bears the responsibility. With self-custody you do. Cold storage is the panacea of self-custody, because it ensures that, while you bear responsibility, you sleep easy knowing hackers have no way to reach your funds. The ColdCard case rotates this.

Not that I am blindly supporting bitcoin but I don’t see much of a difference with the cold card vulnerability with most of the phishing attacks we read of and if we cannot call the attack a bitcoin hack then cold card shouldn’t also,

Except that cold storage is the only way to protect yourself from all these kinds of "Bitcoin hacks", and this is where the value proposition of Bitcoin lies on. If cold storage is not a certainty, there is significantly less value.

[Faisal2202]

1. How does this tracker know that BlackRock's bitcoin is custodied by Coinbase? There is no announcement from neither BlackRock nor Coinbase regarding who custodies the bitcoin, AFAIK.

Official SEC Filings
You can search more about Coinbase from the same filing by searching "coinbase" alone to save time.

2. How does the tracker know how much BTC each ETF company owns? I don't think this is published either.

BlackRock has to share that data every day because they are required by law, so they publish this data on their site. https://www.blackrock.com/us/individual/products/333011/ishares-bitcoin-trust-etf

Which then these trackers scrap and you know the rest.

So basically, BlackRock and Grayscale own something around 90% of all ETF bitcoin.

But BlackRock and Fidelity are the top two holders. Grayscale is at number three. BR alone covers around 70%, and if you combine all top 3, they cover at least 90%. So the top two only make up 80% (almost).