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Kraken

Kraken Exposes $3 Million Exploit By Research Team, Launches Criminal Investigation

Ronaldo Marquez
by Ronaldo Marquez
1 year ago
·
Posted in Crypto News
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

Cryptocurrency exchange Kraken recently revealed that it had fallen victim to a critical security flaw, resulting in the appropriation of $3 million worth of digital assets by a research team. 

The incident unfolded after the exchange received a bug report through its bug bounty program on June 9 from a self-described security researcher who claimed to have discovered an “extremely critical” bug that allowed him to “artificially inflate” his balance on the platform. 

However, the situation took an unexpected turn when it was discovered that the researcher and their associates had exploited the flaw to withdraw a substantial sum. Kraken has launched a criminal investigation into the matter and is coordinating with law enforcement agencies to address the incident.

Kraken Faces Extortion Attempt

In a social media post, the exchange’s chief security officer, Nick Percoco, said that after receiving the initial bug report, Kraken assembled a cross-functional team to investigate the issue. 

Within minutes, they identified an isolated bug that enabled a malicious attacker to initiate a deposit, receive funds in their account without completing the deposit fully, and effectively create assets in their Kraken account for a limited time. 

Related Reading: Solana-Based Trump Memecoin DJT Is Fake: This Man Is Behind The Fraud

The vulnerability was classified as critical, and the team reportedly mitigated the issue within an hour, ensuring it could not recur. The flaw emerged from a recent user experience (UX) change that allowed clients to trade crypto markets in real time before their assets cleared, a change that had not been thoroughly tested against this specific attack vector.

Further investigation revealed that three accounts had taken advantage of the flaw within a few days of each other. It is alleged that one of these accounts was linked to an individual claiming to be a security researcher who had discovered the bug and credited their account with a “small amount of crypto” to demonstrate the flaw. 

However, instead of reporting the vulnerability and earning a bug bounty reward, this individual disclosed the bug to two associates who fraudulently generated much larger sums. In total, the trio withdrew nearly $3 million from Kraken’s treasuries.

When Kraken requested the return of the funds, the researchers refused, demanding discussions with their business development team and specifying a speculated amount that the bug could have caused if undisclosed.

Legal Action Against Research Company

Percoco further disclosed in its address that Kraken firmly denounced the actions of the research team, considering their behavior as “extortion” rather than legitimate white-hat hacking. 

The exchange, which has maintained a Bug Bounty program for almost a decade, emphasized that it has never encountered issues with legitimate researchers and has always followed clear rules, such as not exploiting vulnerabilities beyond what’s necessary for proof, providing a proof of concept, and returning any extracted assets immediately. 

Related Reading: SEC Crypto Sheriff Steps Down – Regulation In Limbo?

Lastly, the exchange’s chief security officer also stated that Kraken is treating the incident as a criminal matter and is actively cooperating with law enforcement. While the exchange expressed gratitude for the report, it intends to pursue legal action against the research firm involved.

Kraken
The 1-D chart shows the total crypto market cap’s valuation at $2.3 trillion. Source: TOTAL on TradingView.com

Featured image from DALL-E, chart from TradingView.com

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Ronaldo Marquez

Ronaldo Marquez

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Ronaldo is a seasoned crypto enthusiast with over four years of experience in the field. He is passionate about exploring the vast and dynamic world of decentralized finance (DeFi) and its practical applications for achieving economic sovereignty. Ronaldo is constantly seeking to expand his knowledge and expertise in the DeFi space, as he believes it holds tremendous potential for transforming the traditional financial landscape.

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