Binance, the world's largest cryptocurrency exchange, suffered a record-breaking hack on Friday, with approximately $6.3 billion in client assets affected. This marks the largest crypto hack on record. Around $3 billion of the stolen assets have been frozen on blockchain networks, and Binance has begun recovering some of them. The company's initial investigation suggests hackers gained access to its withdrawal systems, enabling unauthorized transfers from the exchange's crypto wallets. Binance has assured customers that it will cover the losses, utilizing its $1 billion emergency fund known as SAFU and additional company funds.
The breach highlights the risks of keeping assets on an exchange. While exchanges facilitate buying, selling, and storing crypto, the aftermath of a hack can vary widely, including whether customers recover their money. In Binance's case, roughly half of the affected assets have been frozen, and the SAFU fund provides another layer of protection. However, recovery processes can be lengthy, as seen with New Zealand exchange Cryptopia, which took years to distribute funds after a 2019 hack.
Experts advise crypto investors to research exchanges thoroughly before trusting them with their assets. The Securities and Exchange Commission recommends checking for customer complaints and regulatory status. Martin Mulyadi, a professor of accounting, emphasizes the importance of understanding who owns the crypto and whether assets are kept separate from the exchange's own funds. He also warns that even strong language in user agreements isn't a guarantee of safety, citing FTX's misuse of customer funds despite its terms.
For those wary of exchange risks, self-custody offers an alternative. This involves using a personal crypto wallet and controlling the private keys, but it comes with the responsibility of safeguarding the recovery phrase. Mulyadi suggests a middle ground: keeping actively traded assets on an exchange and holding long-term investments in a personal wallet, provided investors understand how to store and recover them safely.