Binance breach raises crypto exchange safety questions

Two high-profile security breaches this week – including the biggest cryptocurrency theft in history – are raising questions on the safety of storing funds in a wallet on a crypto exchange.

A security incident at digital asset exchange Binance on Thursday affected some $6.3 billion in client assets, making it the largest crypto theft on record.

Earlier that day, prediction market platform Polymarket temporarily halted trading on its international exchange after a third-party data provider was hacked, resulting in at least $2.7 million being drained from users’ wallets. The company’s international platform operates on the Polygon blockchain. 

Experts whom CNBC interviewed said the security incidents on the crypto exchanges aren’t surprising, especially in light of recent artificial intelligence hacking incidents.

Most of these experts even said that observers should expect more security incidents, at least in the near term, as that problem worsens. 

Questions over the safety of users’ funds

“I think it’s extremely dangerous,” said Tyler Moore, a cybersecurity professor at the University of Tulsa who has followed the asset class for more than a decade. “I think you should be very wary of leaving any significant amount of funds in an exchange… there are no built-in protections for when these inevitable hacks take place.”

For instance, banking customers can rely on the Federal Deposit Insurance Corporation to insure deposits up to $250,000 per depositor, per insured bank, in the event of an institution’s failure.

There is no similar form of coverage available for funds lost from a cryptocurrency exchange, noted Moore.

Binance and Polymarket reassured users that they would make affected investors whole. That’s a sign that users should feel confident in crypto exchanges, according to Ido Ben-Natan, CEO of blockchain security company Blockaid. 

“I actually think no users will lose any money,” he said. “Binance has said they’re going to cover everything… I actually don’t think it’s a bad idea for users to put money in these exchanges. These exchanges need to work really hard to make sure they don’t take another hit like this.”

Ben-Natan noted that while he thinks more hacks are likely as the cybersecurity landscape changes due to AI, he said it will only make the crypto industry stronger.

As a result, a crypto wallet could ultimately become a safer place to hold funds compared to other options, since the industry will have the experience of how to handle these attacks, Ben-Natan said. 

Vulnerabilities on offshore…