Gatecoin Lost $2m Worth of Bitcoin and Ethereum In Hot Wallet Cyber Hack

The Gatecoin exchange is offline following a hot wallet breach that saw hackers running off with 15% of its cryptocurrencies.

Cryptocurrency exchanges remain the prime target for cyber criminals as the apparent weakest link in the blockchain ecosystem. Since the collapse of MtGox we have seen more and more services go offline temporarily or even completely shut down due to hackers stealing their holdings. This single point of failure should fuel the drive toward completely decentralized exchanges that will theoretically be much more secure than the current exchanges model.

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The latest victim to suffer from cyber crime is the Hong Kong regulated financial institution for blockchain assets, Gatecoin. On Saturday, the founder and CEO of the firm Aurelien Menant published a statement to investors confirming a breach of Gatecoin’s system resulting in a loss of client deposits.

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Aurélien Menant, founder and CEO, Gatecoin
Aurélien Menant, founder and CEO, Gatecoin

Menant writes: “On Friday night HKT, May 13, we detected some suspicious transactions and immediately suspended our services to investigate, and to prevent any more unauthorized access to the ETH and BTC hot wallets.

We have previously communicated the fact that most clients’ crypto-asset funds are stored in multi-signature cold wallets. However, the malicious external party involved in this breach, managed to alter our system so that ETH and BTC deposit transfers by-passed the multi-sig cold storage and went directly to the hot wallet during the breach period. This means that losses of ETH funds exceed the 5% limit that we imposed on our hot wallets.

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In total, the hot wallet breach resulted in the loss of ETH 185,000 and BTC 250, which is equivalent to USD 2 million. This represents 15% of total crypto-asset deposits held by Gatecoin.”

Recovery Steps

Gatecoin says that a bespoke platform designed to enable all clients to withdraw their remaining funds in BTC, DAO, DGD, REP, USD, EUR and HKD will be released on May 28, 2016. The date for ETH withdrawals has yet to be confirmed.

The firm tries to further assures clients by saying that while 5% of all BTC funds were compromised in the breach, 95% remain stored in multi-sig cold wallets and that all fiat currency funds held in USD, EUR and HKD are secured in segregated client accounts. Furthermore, Gatecoin has already funded the DAO contracts for DAO token holders.

Finally the Gatecoin team is said to be working on raising funding to cover the hot wallet losses and to reimburse all affected Bitcoin and Ethereum clients as soon as possible.

Back in April Finance Magnates interviewed George Popescu, the Chairman of the Board of Advisors for Gatecoin. He talked about Gatecoin and blockchain innovation as well as the cross-sections of forex and cryptocurrencies from his unique vantage point on both industries.

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