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

[Hazink]

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.

If we are to be fair with the price change calculation, before the liquidity exploit happened, the price was around $79,000-$80,000, which after the exploit's value had dropped by a difference of $1k+ (which can be considered a normal drop and nothing attached to the exploit), the current value is $78k+ which is not showing sign of increase in value like you suggested.

"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.

Bitcoin has not been exploited recently, but there has been an attempt to exploit a bug during the Satoshi era, which I will say the patch and how it was handled back then shows how dedicated and seriously a project security should be taken.

[Ambatman]

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

Sorry I'm not following
The hack imo wasn't as a result of a flaw from bitcoin itself  
It was from the wallet key generation mechanism.
What was affected directly was the users of the wallet and not all bitcoin.

and Bitcoin is ultimately pieces of Bitcoin wallets.

I thought wallet just hold keys that gives control over bitcoin
which exist as utxo on the blockchain.

[Smartprofit]

In my opinion, Liquid is a very important part of the entire Bitcoin ecosystem. So news of a successful attack is negative news... Yes, of course, Bitcoin's base layer wasn't attacked. Satoshi Nakamoto created a very well-designed and highly secure system! 🙋

Nevertheless, a successful attack on the Liquid system is a significant event. There's been a lot of talk lately about the need to reform Bitcoin. Scaling within the base layer is impossible. And once Bitcoin becomes secure against quantum computers, we risk an even slower and more efficient blockchain. One option for scaling Bitcoin is sidechains. However, the risks of hacker attacks are now obvious to everyone.

The recent surge in successful hacker attacks is no coincidence. Hackers are using advanced AI models. This can only be countered if developers gain access to these models before hackers do. 🧑‍💻

[BlackHatCoiner]

I thought wallet just hold keys that gives control over bitcoin
which exist as utxo on the blockchain.

This understanding of Bitcoin is not helpful, because to use Bitcoin you need to use a Bitcoin wallet, and therefore you HAVE to choose one to control your bitcoin. The handling of the keys is part of Bitcoin, even though it's not part of the "blockchain", and if it's not working correctly, it is a direct attack to Bitcoin itself.

[NeuroticFish]

In my opinion, Liquid is a very important part of the entire Bitcoin ecosystem. So news of a successful attack is negative news... Yes, of course, Bitcoin's base layer wasn't attacked. Satoshi Nakamoto created a very well-designed and highly secure system! 🙋

Nevertheless, a successful attack on the Liquid system is a significant event.

It also comes (too) soon after the Coldcard hack. And after the BIP 110 crap.

And even though a reasonably informed potential investor will understand that in the liquid hack no user funds were lost and it's not an issue of Bitcoin itself, it still gives the bad feeling that the crypto ecosystem is not mature enough, and I'm not talking here about some random altcoins made yesterday.

And it also gives a big warning to the potential new businesses that even small and old mistakes are found out nowadays easily (especially with help from AI) and exploited very fast.

[dzungmobile]

And it also gives a big warning to the potential new businesses that even small and old mistakes are found out nowadays easily (especially with help from AI) and exploited very fast.

With AI machines that can work tirelessly, they can support a lot for hackers.

Things change in security with The rise of machines and they have raised a higher risk level for all projects, not only Bitcoin projects or cryptocurrency projects but it's strong security risk in general.

In the past, hackers had to work harder than now in order to find security holes in platforms, projects and took security exploitation. Now it has become more easily for hackers while with companies and users, it's harder and more risky for them to defend their platforms, products and funds.

[Ambatman]

This understanding of Bitcoin is not helpful, because to use Bitcoin you need to use a Bitcoin wallet, and therefore you HAVE to choose one to control your bitcoin. The handling of the keys is part of Bitcoin, even though it's not part of the "blockchain", and if it's not working correctly, it is a direct attack to Bitcoin itself.

Yeah I understand the importance of Bitcoin wallet and how closely it ties to Bitcoin
I'm still finding it hard to with the line that a vulnerability exploited in a wallet
Is considered a Bitcoin hack.
Or what you mean as Bitcoin hack is in respect to the entire Bitcoin system.
Which means the Blockchain or it's protocol has never been hacked but a part of the system has.

[ColdLava40]

"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.

We could categorize it separately as a Bitcoin wallet security breach, since Bitcoin itself wasn't hacked. It was the tools or infrastructure used to store and manage the Bitcoin that were compromised.

There are many other scenarios we could look at too, such as the numerous exchanges that have been hacked in the past.

Even when the stolen coins were Bitcoin, people usually refer to those incidents as exchange hacks, not Bitcoin hacks, because the Bitcoin network itself wasn't affected. The problem was with the exchange's wallet or security system.

[Alphakilo]

This understanding of Bitcoin is not helpful, because to use Bitcoin you need to use a Bitcoin wallet, and therefore you HAVE to choose one to control your bitcoin. The handling of the keys is part of Bitcoin, even though it's not part of the "blockchain", and if it's not working correctly, it is a direct attack to Bitcoin itself.

Yeah I understand the importance of Bitcoin wallet and how closely it ties to Bitcoin
I'm still finding it hard to with the line that a vulnerability exploited in a wallet
Is considered a Bitcoin hack.
Or what you mean as Bitcoin hack is in respect to the entire Bitcoin system.
Which means the Blockchain or it's protocol has never been hacked but a part of the system has.

According to what I can deduce, Bitcoin Blockchain wasn't hacked, instead, it was a side network built on it that got hacked.

So it's better to still stick to the old system of network that has a solid reputation and good security standing than try to delve into side networks which is just like a leech on the main Bitcoin Blockchain system and still without a solid or even near solid reputation as the mainnet.

Am just concerned that programmers have to get really sophisticated when it comes to building new programs like side chain on the existing network because hackers seem to know how to exploit loopholes with their tools, I wonder what happens when quantum computers come into play, what would be the fate of investors with large portfolio in the mainnet.
Developers and programmers really need to learn to use very complex softwares if they come up with new ideas because it does not look like they are ready for what quantum computers can do if it gets into the hands of hackers.

[Charles-Tim]

According to what I can deduce, Bitcoin Blockchain wasn't hacked, instead, it was a side network built on it that got hacked.

Liquid network is not part of bitcoin. The only side chain that is BIP recognized is the lightning network. Liquid network is a side chain, but it was not built on bitcoin. If we want to discuss about bitcoin, the bitcoin blockchain and the the lightning network will be talked about. This may be a setback for liquid network.

[ultrloa]

According to what I can deduce, Bitcoin Blockchain wasn't hacked, instead, it was a side network built on it that got hacked.

Liquid network is not part of bitcoin. The only side chain that is BIP recognized is the lightning network. Liquid network is a side chain, but it was not built on bitcoin. If we want to discuss about bitcoin, the bitcoin blockchain and the the lightning network will be talked about. This may be a setback for liquid network.

But actually that Liquid network is been built or created on Bitcoin. This is a sidechain which has been develop which is peg on BTC.

The difference between the Lightning network is this is decentralized and trustless. While the Liquid network rely on the federation of trusted members. This is the reason why Lighting network has been recognize to be a Bitcoin native rather than Liquid.

Maybe the only difference is Liquid may have or serve different purpose, but that network still part of Bitcoin.

[Darker45]

Aside from crypto exchanges and perhaps a handful of other relatively smaller Bitcoin-related financial institutions, are there global financial giants that actively use the Liquid network for the movements of their funds?

I don't think the network is playing a vital role in the wider Bitcoin ecosystem such that this hack would cause a "setback for Bitcoin's institutional adoption". This might not even diminish their confidence a bit knowing all too well that the compromise isn't really about Bitcoin.

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.

1. Isn't that part of BlackRock's--and other issuers for that matter--mandatory public disclosures considering that its Bitcoin Spot ETF is publicly traded?^[1]
2. I guess that's also part of the mandatory transparency that's required of them. Blackrock and other issuers are providing updated ETF data on a daily basis on their websites.^[2]

[1] https://www.sec.gov/Archives/edgar/data/2089969/000143774926020497/bitp20260611_424b3.htm
[2] https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf

[X-ray]

But actually that Liquid network is been built or created on Bitcoin. This is a sidechain which has been develop which is peg on BTC.

The difference between the Lightning network is this is decentralized and trustless. While the Liquid network rely on the federation of trusted members. This is the reason why Lighting network has been recognize to be a Bitcoin native rather than Liquid.

Maybe the only difference is Liquid may have or serve different purpose, but that network still part of Bitcoin.

Just another sidechain that attached itself to Bitcoin I assume, the inner workings of their blockchain is different and more vulnerable because of smart contract built on Elements.

Even if the sidechain peg their wrapped BTC to real BTC, I would not consider it as part of Bitcoin, maybe someone else do.

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.

Yeah that was being hypocrite, taking 15% hostage as a "bug bounty" without consent nor agreement and calling themselves white hat. If they were truly white hat they would have reported the bug in private and get awarded after the fact.

[Lexandroove]

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.

Tbh, I thought the same when I read about the incident.

Though it may be inferred from ETF filings, custody arrangements, wallet attribution, or blockchain analysis, neither BlackRock nor Coinbase has publicly confirmed the relationship, so I felt it was premature for him to treat it as a certainty.

ETF issuers generally disclose holdings through reporting or filings, and trackers can use those disclosures to estimate the amount held. Of course, they’ll label it as “private information,” but many of them use the same routes generally used to estimate these figures.

[Charles-Tim]

But actually that Liquid network is been built or created on Bitcoin. This is a sidechain which has been develop which is peg on BTC.

The difference between the Lightning network is this is decentralized and trustless. While the Liquid network rely on the federation of trusted members. This is the reason why Lighting network has been recognize to be a Bitcoin native rather than Liquid.

Maybe the only difference is Liquid may have or serve different purpose, but that network still part of Bitcoin.

I do more investigation, I am convinced. You are right about it.

According to Liquid network post on X:
The Liquid Network has entered the next phase of its controlled resumption. As a precautionary measure, block production has resumed without transactions while the network is monitored to confirm full stabilization.

https://x.com/Liquid_BTC/status/2098025275921490281