New Zealand Police: Cryptopia Hack is a 'Complex Situation', Taking Investigation 'Very Seriously'

New Zealand-based digital asset exchange, Cryptopia “suffered a security breach which resulted in significant losses” (on January 14th, 2019). An extensive follow-up police investigation of the Christchurch cryptocurrency trading company is currently being performed.

Police: Unable To Say How Long Investigation Could Take

According to the New Zealand Herald, local police officials are conducting a forensic digital investigation, while also examining the on-site operations of Cryptopia. In an official statement, police authorities said: 

We are dealing with a complex situation and we are unable to put a timeframe on how long the investigation may take.

Although the police department did not disclose specific details regarding their investigation into the recent hack, an officer pointed out that there was a lot of “speculation in the online community about what might have occurred.”

He added: 

It is too early for us to draw any conclusions and police will keep an open mind on all possibilities while we gather the information we need.

Cryptopia's Exchange Now In Maintenance Mode

At present, the police officials do not know the amount of funds allegedly stolen due to the security breach reported by Cryptopia. After announcing that its crypto trading platform was hacked, Cryptopia informed its followers (via Twitter and through it official website) that the exchange had been “put into maintenance [mode] ... [as the company] assessed damages.”

As CryptoGlobe reported, the first tweet regarding the hack was sent out by Cryptopia’s management team on January 14th (at 06:55 UTC). At that time, the exchange operator only stated its trading platform had been taken offline due to “unscheduled maintenance.” The company did not provide any details about what had happened.

On January 15th (at 08:00 UTC), Cryptopia’s support team revealed it had suffered a damaging hack which had reportedly resulted in “significant losses.” However, the crypto exchange has still not disclosed the amount of funds Cryptopia and/or its users may have lost. As mentioned in the message to its followers, the firm’s staff have “notified … the appropriate government agencies.”

High Tech Crimes Division & Police Department Launch Joint Investigation

Currently, the matter is being investigated by New Zealand’s High Tech Crimes and the country's police department. An incident report was published (on January 15th) by the island nation’s authorities which confirmed that Cryptopia’s exchange was hacked and that the police department was “taking [it[ very seriously.”

As mentioned in the incident report, New Zealand’s police is “currently talking to the company to gain a further understanding of what has occurred.” A “dedicated investigation team” will be formed in Christchurch “including specialist police staff with expertise in this area”, local authorities stated.

At present, police are also “liaising with relevant partner agencies” based in New Zealand and other locations where Cryptopia’s services are offered.

CZ Explains How Binance Dealt With Aftermath of $40 Million Theft

On Sunday (May 19), Changpeng Zhao (aka "CZ"), the Co-Founder and CEO of digital asset exchange Binance, told the crypto community what he and his team had been up to since the May 7 security breach that resulted in a theft of over 7,000 BTC from their Bitcoin hot wallet. 

What Happened on May 7?

According to CZ, the hackers involved in the security breach somehow managed to get control over a number of user accounts and structured large withdrawals from these accounts in such a way thay managed not to be detected/noticed by Binance's "pre-withdrawal risk management checks." Their "post-withdrawal risk monitoring system" only noticed something was wrong after the hackers had moved the stolen BTC off of the exchange via a single transaction, at which time it immediately suspended all "subsequent withdrawals." 

At first, the Binance team was not exactly sure what had happened, and so they decided that the safest course of action was for CZ to send out a tweet to say that the "withdrawal servers" were in "unscheduled maintenance mode" while the team was investigating the incident. 

Communication With the Crypto Community

Once the team had confirmed that the exchange had been hacked, information about the security incident was broadcast to the outside world via all of Binance's communication channels (such as Telegram, Twitter, and Medium). 

Since the team could not be sure which user accounts the hackers had access to, it was decided that it would be too risky to allow further withdrawals to be made until the team had the chance to make "significant changes" to the platform (to make it more secure). Binance's announcement on May 8 estimated that the exchange needed to do "a thorough security review" and estimated that this would take about "ONE WEEK," and that during this period, "deposits and withdrawals" would need to "REMAIN SUSPENDED."

By being fully transparent in their communication with Binance users, they were able to receive "tremendous support" from them.

CZ's Periscope AMA Session on May 8

Seeing CZ live put much of the Binance community "at ease." Unfortunately, because CZ had been up all night, he was not in an ideal mental state when he did the AMA. Just before the AMA, his team told him that a Bitcoin Core developer had suggested that it would be technically possible to roll back the single Bitcoin transaction carried out by the hackers by "hugely incentivizing the miners." CZ made the unfortunate mistake of mentioning this "reorg" idea (which he now realizes is a "taboo topic") during the AMA, for which he took a heavy beating (especially from hardcore Bitcoin maximalists) on Twitter (and elsewhere). 

CZ's Mental State Right After Being Told About the Bitcoin Theft

Although he was in a "F***, F***, F***” state" for around 10 seconds, a few moments later, he "began to come to terms with it," and a quick mental calculation told him that the theft of around 7000 BTC (equivalent of around $40 million at the time) could be fully covered by their SAFU fund. Meanwhile, his team had already gone into "War Mode", and their professionalism and support cheered up CZ. 

Support From the Crypto Community

Binance received support from many sources: people defending him and Binance on social media platforms, and helping to answer questions; the Binance Angels (who are all volunteers) "addressing questions" and "reassuring" users on "multiple communities"; analytics firms helping with the tracking of the stolen funds; exchanges and wallet services offering to help by blocking "any deposits associated with the hacker addresses"; and "numerous offers for help from law enforcement agencies around the world."

A Blessing in Disguise?

"Speaking with various team members, and as correctly analyzed by community members, such as Gautam Chhugani, this incident may actually be a good thing for us in the long run. Security is a never-ending practice. There are always more things to do in security, and we have implemented many of them in this last week and will continue to implement more in the future. Given this incident, Binance has actually become far more secure than before, not just in the affected areas, but as a whole."