BitFinex Hack Overview
0 likes322 views
The document summarizes the security issues that led to the BitFinex hack. It explains that BitFinex used a multi-signature wallet system requiring two keys to authorize transactions, with one key held by BitFinex and one by BitGo. However, in practice only BitFinex's key was needed since BitGo would sign any transaction already signed by BitFinex. This created multiple attack vectors, as a hacker could steal funds by obtaining two keys stored in different locations or one key plus the API access token. The prevailing theory is that is what occurred in the BitFinex hack. The redundant security layers increased risk rather than enhancing protection.
![PAGE 8
Rather than create additional layers of security, BitFinex created layer upon layer of redundancies,
increasing the number of possible attack vectors.
1. See BitFinex Terms of Service (accessed 09-Aug-2016)
2. See the BitGo White Paper (accessed 09-Aug-2016)
BitGo’s key is redundant
BitFinex claims that transactions are more secure because it uses
“Multi-Signature Wallets” whereby each transaction needs to be
signed by two keys, one held by BitFinex and usually one held by
BitGo.
In practice (if you have access to the BitFinex servers) only one
key is needed to sign a transaction (one of the two keys controlled
by BitFinex) because BitGo uses its “keys to sign transactions as
directed by BitFinex”1.
The only control BitGo’s key seems to provide is a limit on the
size of transactions. BitGo’s white paper claims “the service can
refuse to sign large transactions”2, but doesn’t list any other fraud
prevention controls. This control could possibly be circumvented
by submitting multiple small transactions.
Therefore, in practice BitGo’s key seems to act as an automated
‘tick in the box’ for any “transaction that is first signed by
BitFinex.”1
The problem with redundant controls
Why create redundant layers of security?
The CFTC recently fined BitFinex $75,000 for breaching Dodd Frank
requirements by not “actually deliver[ing] bitcoins to the traders who
purchased them. Instead, Bitfinex held the bitcoins in deposit wallets
that it owned and controlled”.
This breaches the Dodd Frank requirement that “financed commodity
transactions – including those in cryptocurrencies like bitcoin – must be
conducted on an exchange, unless the entity offering the transactions
can establish that actual delivery of the bitcoins results within 28 days.
Where actual delivery requires a transfer of possession and control of
the commodity.”
According to BitGo “the Bitfinex configuration was unique”. One
potential explanation for this could be that BitFinex was looking to
address regulatory concerns rather than security in its set up, ensuring
that:
—U.S. users could be provided with a key that would denote
“possession and control” over the bitcoin. At the same time BitFinex
would retain ultimate control by storing a copy of that key on its own
servers and retaining the ability to instruct BitGo whether to co-sign
a transaction.
—Non-U.S. users would still have no access to their keys.
3. See the BitGo’s BitFinex Breach Update (accessed 09-Aug-2016)](https://image.slidesharecdn.com/bitfinexhackoverview-160827052808/85/BitFinex-Hack-Overview-9-320.jpg)
BitFinex Hack Overview
- 1. Overview of BitFinex Hack The problem with redundant controls
- 2. PAGE 1 In order to maintain anonymity on the blockchain, all transactions are made between random strings of characters called “public keys”. Your identity is linked to a private key which is cryptographically linked to the public key. The counterparty can see your public key, but they will never know who controls the corresponding private key. You use your private key to authorise a transaction, and your public key to receive the transaction. Encryption / Anonymity Anonymity / Encryption Private Key Public Key Risk: institutions will have to keep a very careful record of their public and private keys. If you lose a private key, you lose ownership of the assets that correspond to it. Encryption Identity Public Ledger
- 3. PAGE 2 Stored offline by user Stored on user’s computer BitGo generates three different private keys and requires at least two keys to sign every transaction. The idea is for all three keys to be stored in separate locations with separate access controls. BitGo’s Multi-Sig Wallets Encryption Requires any 2 of the 3 keys Stored by BitGo Password Protected 2 Factor Authentication
- 4. PAGE 3 *U.S. users also get a copy of the BitFinex online key BitFinex offline Key BitFinex online Key BitFinex is an online “exchange” that allows users to trade bitcoin and other crypto-currencies. BitFinex uses BitGo’s multi-sig technology but stores all the keys themselves. How BitFinex Works BitFinex User Login (two factor authentication required, i.e. password and sms) BitFinex API token (allows BitFinex to instruct BitGo) Encryption Requires any 2 of the 3 keys BitFinex Retains control of the user’s bitcoin BitGo online Key BitGo Signs transactions on instruction from BitFinex
- 5. PAGE 4 *U.S. users also get a copy of the BitFinex online key BitFinex offline Key BitFinex online Key Under this model, an attacker can instruct payments if they: steal the user’s login. The problem with redundant controls BitFinex User Login (two factor authentication required, i.e. password and sms) BitFinex API token (allows BitFinex to instruct BitGo) Encryption Requires any 2 of the 3 keys BitFinex Retains control of the user’s bitcoin BitGo online Key BitGo Signs transactions on instruction from BitFinex
- 6. PAGE 5 *U.S. users also get a copy of the BitFinex online key BitFinex offline Key BitFinex online Key Under this model, an attacker can instruct payments if they: steal any two of the three keys (stored in 4 locations). The problem with redundant controls BitFinex User Login (two factor authentication required, i.e. password and sms) BitFinex API token (allows BitFinex to instruct BitGo) Encryption Requires any 2 of the 3 keys BitFinex Retains control of the user’s bitcoin BitGo online Key BitGo Signs transactions on instruction from BitFinex
- 7. PAGE 6 *U.S. users also get a copy of the BitFinex online key BitFinex offline Key BitFinex online Key Under this model, an attacker can instruct payments if they: steal one key and the BitFinex API token. The problem with redundant controls BitFinex User Login (two factor authentication required, i.e. password and sms) BitFinex API token (allows BitFinex to instruct BitGo) Encryption Requires any 2 of the 3 keys BitFinex Retains control of the user’s bitcoin BitGo online Key BitGo Signs transactions on instruction from BitFinex
- 8. PAGE 7 *U.S. users also get a copy of the BitFinex online key BitFinex offline Key BitFinex online Key The prevailing theory at the moment is that the hacker obtained the private keys held online by Bitfinex, coupled with API access to BitGo to instruct BitGo to sign the withdrawals.1 The problem with redundant controls BitFinex User Login (two factor authentication required, i.e. password and sms) BitFinex API token (allows BitFinex to instruct BitGo) Encryption Requires any 2 of the 3 keys BitFinex Retains control of the user’s bitcoin BitGo online Key BitGo Signs transactions on instruction from BitFinex 1. http://hackingdistributed.com/2016/08/03/how-bitfinex-heist-could-have-been-avoided/
- 9. PAGE 8 Rather than create additional layers of security, BitFinex created layer upon layer of redundancies, increasing the number of possible attack vectors. 1. See BitFinex Terms of Service (accessed 09-Aug-2016) 2. See the BitGo White Paper (accessed 09-Aug-2016) BitGo’s key is redundant BitFinex claims that transactions are more secure because it uses “Multi-Signature Wallets” whereby each transaction needs to be signed by two keys, one held by BitFinex and usually one held by BitGo. In practice (if you have access to the BitFinex servers) only one key is needed to sign a transaction (one of the two keys controlled by BitFinex) because BitGo uses its “keys to sign transactions as directed by BitFinex”1. The only control BitGo’s key seems to provide is a limit on the size of transactions. BitGo’s white paper claims “the service can refuse to sign large transactions”2, but doesn’t list any other fraud prevention controls. This control could possibly be circumvented by submitting multiple small transactions. Therefore, in practice BitGo’s key seems to act as an automated ‘tick in the box’ for any “transaction that is first signed by BitFinex.”1 The problem with redundant controls Why create redundant layers of security? The CFTC recently fined BitFinex $75,000 for breaching Dodd Frank requirements by not “actually deliver[ing] bitcoins to the traders who purchased them. Instead, Bitfinex held the bitcoins in deposit wallets that it owned and controlled”. This breaches the Dodd Frank requirement that “financed commodity transactions – including those in cryptocurrencies like bitcoin – must be conducted on an exchange, unless the entity offering the transactions can establish that actual delivery of the bitcoins results within 28 days. Where actual delivery requires a transfer of possession and control of the commodity.” According to BitGo “the Bitfinex configuration was unique”. One potential explanation for this could be that BitFinex was looking to address regulatory concerns rather than security in its set up, ensuring that: —U.S. users could be provided with a key that would denote “possession and control” over the bitcoin. At the same time BitFinex would retain ultimate control by storing a copy of that key on its own servers and retaining the ability to instruct BitGo whether to co-sign a transaction. —Non-U.S. users would still have no access to their keys. 3. See the BitGo’s BitFinex Breach Update (accessed 09-Aug-2016)
- 10. PAGE 9 Rule of banking #1 depositors are the last to lose money