Cryptocurrency and Exchange like WazirX

If you are looking for a primer on Bitcoin, I wrote this years back. Feel free to check it out. Recently on July 18 2024 WazirX, an Indian Crypto Exchange, was hacked and there was $230 million dollars heist (2000 crores in Indian rupees) which was about 40% of its over crypto assets.

Indian Crypto scene is still in infancy and many earlier exchanges like Zebpay, Coinex shut their operations owing to regulatory challenges or had to comply to Financial Intelligence Unit – India (FIU-IND). Few exchange like CoinSwitch already say that they are FIU registered. But overall it has been very difficult for people to sustain crypto businesses with many money laundering charges put on these entities due to lax KYC implementation. 

WazirX like exchanges are needed so that people can convert their Fiat Currencies to Crypto assets like Bitcoin, Ether and hundreds of other variants that exists today. In India if anything promises quick money be it Multi-Level Marketing schemes, EMU farming, Golden Harvest or plain simple money lending, all these  excites many people. And crypto currencies did the same, in 2009 Bitcoin were hovering around $0.0009 to current price of $65000 (went to crazy $90000 in my post being draft to published) which is a staggering CAGR of 234%. In other words if you have managed to somehow get 7.6 paise worth of Bitcoin (it was probably not possible and this is very hypothetical) and just kept it, it would be worth 54 lakhs in 15 years. This seems like a dream when nobody still knows who the founder of bitcoin was or if Satoshi Nakamoto was the name of an individual or group of people.

Lazarus Group

Lazarus is a biblical person who was raised from the dead by none other than Jesus. Hence the word means someone who makes comeback from obscurity. Lazarus Group has been alleged to be the notorious gang of cyber attackers with links to North Korean Government. As you may we aware that North Korea has been under stringent sanctions for many years and it is believed that they use these kind of nefarious tactics to make money. They have been accused of many other heists and we will get into two of  them in this article.

WazirX Heist is being put on them probably because in the world of cybercrime they have gained some notoriety. In this heist of WazirX , there was a multi-sig wallet involved that means multiple users need to approve the transactions. WazirX multi-sig wallet was maintained by Liminal Custody during the time of the heist but exact modus operandi used by hackers is still not clear. Both WazirX and Liminal Custody have done their independent audits where both claim that they have come clean. 

For criminal minded people crypto works out pretty well as even the blockchain or ledger is open but the to whom these addresses belong is not open and there is no centralized authority approving the transactions rather it is the decentralized network.  

Bangladeshi Bank Heist of a billion dollar

In Feb 2016, there were 35 transactions initiated by the Bangladesh Bank  to transfer close to 1 billion dollars. All these 35 transactions were fraudulent and was initiated by hackers who had infected the network with malware  and bypassed the security. All these transactions were initiated using the SWIFT system which is like a highly secure e-mailing systems that is used to transfer money all around the world. Five of the thirty five transactions were successful and  101 Million dollars were transferred, 80 Million to Philippines and 21 Million to Sri Lanka. 

Why did rest of transaction did not go through? 

Bangladesh Bank is central bank and like others central banks they have an account with Federal Reserve Bank of New York. The money that was transferred to Philippines was to bank called Rizal Commercial Bank Corporation which was on Jupiter street. The hackers could have chosen any other bank to create these accounts but it was probably Bangladesh Bank’s luck that they chose a bank which was on Jupiter street that was also a name of shipping vessel that was affiliated to Iran. Just this rang bells in Fed Bank and they tried to reach out to Bangladesh Bank and rest of the transactions were stopped.

Another transaction that was being sent to a charity called Shalika Foundation in Sri Lanka. Here also they was a typo in the transaction and the hackers put the name as Shalika Fundation. And a banker saw this and transaction was reversed.

Eventually the loss was reduced to 80 million and this money was laundered through casinos or various path to China and maybe eventually to their final destination 

Indian Cosmos Bank ATM Heist

Cosmos Cooperative Bank is an Indian bank headquartered in Pune, India. It is one of the oldest cooperative bank of India. In August 2018, this bank was also compromised and hackers got card details of many of its customers and they changed the ATM system such that pin was not needed to withdraw money using the fraudulent ATM cards.

This lasted for about two hours and twelve thousand withdrawals were done causing bank to lose $14 million dollars (118 crores in today’s money). These hackers hired daily wage labourers as money mules. Many of these people were told that they are going to for a movie and in the scene they need to go to ATM machine withdraw money. Many people in India would do this 🙂

Why Crypto? 

Hackers had to go to extremes and break their head in order to do these kind of heists. But sometimes there was not enough bang for their buck. Also there was a possibility of getting caught. Even once you have money laundering such large cash is a huge challenge. 

Crypto is not owned by anyone and government or any agency is not involved in transaction. The idea is about decentralization but many exchange that exist today make it centralized and hence they are prone to hacker attacks. There are services like Tornado Cash which mixes various transaction like a Khichdi and it is difficult to track transactions anymore. The blockchain or ledger is open but the who are the holders of the wallet is not very easy.

Crypto make money laundering very easy when compared to fiat money and hence exchanges are becoming a target.

WazirX heist is not the first one and neither it is going to be the last one. It was done by the Lazarus Group is just a indication but it has not been proven. All the crypto from WazirX Hot Wallet has been moved already and money laundering is complete. The possibility of getting the crypto back is very bleak. This was mostly in Ether and Shibu Inu.

Indian agencies have caught the guy who created KYC enabled account on WazirX that was used of the heist. He may have done to make some money but now in jail. But he must be lowly pawn in this game. 

If there few things that you would like to takeaway from this 

Do not open links from emails that look too enticing (Phishing Emails)

Never think that someone is hiring you for a movie role unless you  have met the director and other actors. Do your checks.

Crypto investments do not just have volatility risks but they are also prone to being stolen and money getting lost. Be aware of this when you are investing your money.