A massive cyber heist of crypto exchange Binance is exposing some of the fragilities of the sector and reinforcing perceptions of the industry as a financial Wild West, critics warn.
Transcript
SCOTT SIMON, HOST:
This week, hackers stole more than $6 billion from the Binance Crypto Exchange, the biggest heist in the history of cryptocurrency. The incident is sparking new fears about that sector, sometimes called Wild West of finance, and it comes as the crypto industry has been trying to gain broader respectability under a friendly administration. We’re joined now by NPR senior business editor Rafael Nam. Rafael, thanks so much for being with us.
RAFAEL NAM, BYLINE: Hey, Scott.
SIMON: How did this happen? How did they lose so much money?
NAM: I know. It’s a staggering amount. So a group of hackers, widely believed to be the North Korean military, broke into accounts that investors hold at Binance to trade cryptocurrencies such as Bitcoin and then stole their money, essentially. Now Binance has promised to repay anybody who lost money and is working hard at recovering as much of it as it can. The company says they’ve managed to freeze about $3 billion of the stolen crypto.
SIMON: You don’t often hear about so much money being taken – stolen from a financial exchange. How did it happen?
NAM: Yeah. I mean, so there’s still a lot we don’t know, Scott. And it’s too early to say whether there were any major flaws at Binance’s security systems. If anything, researchers I talk to say it may have more to do with how sophisticated North Korean hackers are. But the one thing critics did point out is that the way these crypto exchanges are set up deserves some scrutiny here.
What’s peculiar is that at crypto exchanges, you can not only buy and sell Bitcoin, for example, you can also hold that Bitcoin at a trading account at the exchange itself. That’s a very unique and risky feature that makes it different from traditional stock exchanges, according to Amanda Fischer from financial advocacy group Better Markets.
AMANDA FISCHER: You may trade on the New York Stock Exchange, but you don’t keep your funds with the New York Stock Exchange. You keep it with your broker. And your broker is audited and regulated by the SEC, and your broker has to pay for insurance that will make customers whole in the event that there’s a cyberattack.
SIMON: So, Rafael, what are the consequences when crypto exchanges become this kind of one-stop shop for trading?
NAM: Well, first, it makes crypto exchanges a tempting target for hackers. You know, Scott, it’s kind of like the famous quote attributed to robber Willie Sutton. When asked why he targeted banks, he supposedly said, because that’s where the money is. And second, although Binance has said they will pay back investors who lost money, they don’t necessarily have to offer the same protections as established financial institutions, and that can lead to risky behavior by crypto exchanges. This is Fischer again.
FISCHER: It can become almost irresistible to dip into those client funds just this one time, you know – is what they say – to cover their losses, but we know that that can cascade into catastrophe for investors.
NAM: And I should say, this has happened before, including most prominently with crypto exchange FTX, which collapsed in spectacular fashion in 2022.
SIMON: Rafael, I do not understand why crypto exchanges – why don’t crypto exchanges have to follow the same rules as Wall Street?
NAM: So this one drives crypto critics crazy. They think the crypto sector is trying to have it both ways. Exchanges like Binance say they are safe venues, and they deny they do anything shady. But they also don’t want to follow the same rules as Wall Street firms. They say this is a young and promising industry that needs easier regulations to grow.
SIMON: Could a theft of this magnitude lead to changes?
NAM: Probably not, is what I’m hearing. Scott, under the Biden administration, regulators took a really strict approach to the crypto sector. But the Trump administration has promised a much lighter regulatory approach. So many consumer advocates consistently tell Americans, when it comes to crypto, buyer beware.
SIMON: NPR’s Rafael Nam. Thanks so much for being with us, and I hope you’ll stick around. We have sports ahead.
NAM: I’d love to, Scott. Thank you.
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