Crypto enthusiasts have been glued to the Bitfinex hack story for the past few weeks. The exchange hit the headlines when fed agencies began recovering billions of dollars worth of stolen funds.
With significant ramifications for the industry, it is worth understanding how the Bitfinex billions came about and what the crypto experts are saying.
An Introduction to Where We Are
The Bitfinex hack involves multiple players. At the center is Heather Morgan - a rapper with a history of advising companies on cybersecurity. Accompanied by her cybersecurity specialist husband, Ilya Lichtenstein, both were caught trying to launder funds stolen from Bitfinex following a 2016 hack.
Based in the British Virgin Islands, Bitfinex was one of the biggest crypto exchanges at the time. The Bitfinex hackers made off with billions of dollars worth of crypto.
The hack was a swift one. In just two Bitcoin blocks, several Bitfinex whales with funds under the custody of Bitgo were drained dry. All in all, the thieves stole about 120,000 BTC - worth a whopping $4 billion.
One of the most significant attacks in crypto history, the Bitfinex fiasco caused a massive selloff in Bitcoin's price, the coin dropping to about $500. The hackers are still at large, and the hack itself caused one of the biggest security overhauls in the crypto industry.
The Long - and Genius - Road to Recovery
The Bitfinex team responded by releasing recovery right tokens (RRT) and BFX tokens - assets that essentially represented ownership in the exchange. Bitfinex sold the tokens as an IOU to customers affected by the hack. They could either be exchanged for cash or swapped for stock in iFinex (the parent company of Bitfinex)
Both tokens were designed so that Bitfinex could eventually purchase them back. With this ingenious solution, Bitfinex remained liquid while compensating affected customers. By April 2017, Bitfinex had raised enough cash to cover all users affected by the hack.
Fast forward five years. Law enforcement watched associated wallets, but some of the stolen Bitcoin was moved or laundered. Hacked bitcoins were eventually blacklisted from crypto exchanges, making it increasingly difficult to launder the stolen funds.
In early February, 90,000 BTC - worth about $3.6 billion - suddenly moved. The Justice Department orchestrated the move. And this is where Morgan and Lichtenstein came into play.
Billions Just Sitting Around
According to a statement from the DOJ, special agents were able to access files through an account under Lichtenstein's control. The files contained the private keys to the wallet that received the stolen funds. Agents could now seize and recover over 94,000 BTC.
Both Morgan and Lichtenstein are appearing in an upcoming Netflix project about the Bitfinex hack.
Serious Questions Abound
While the Bitfinex story is intriguing, it's had some major impacts on the current crypto space.
For one, the Justice Department is now one of the biggest holders of crypto. A wallet belonging to the agency holds 94,632 BTC worth over $4.29 billion. While the agency is committed to reimbursing customers, the question is how.
Moving such a massive load of coins will significantly affect the market and coin prices. Now that we're in a bear market, Bitcoin's dominance is at a peak. If its price drops, so will those of other assets.
Speaking on the WAGMI podcast, Bitfinex's technology chief Paolo Ardoino expressed confidence about their ability to regain the funds. Ardoino said the company is working to compensate all victims and safely return their money, though the process will take time.
The story is far from over. From Morgan and Lichtenstein managing to get the funds to Bitfinex fighting to reimburse victims (and possibly make some money), the entire saga is a gift that keeps on giving.