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Friday, 21st February 2025 will be a date etched in the memory of the crypto community, for all the wrong reasons. The news of Bybit’s staggering $1.4 billion Ethereum (ETH) hack sent shockwaves through the market, representing the largest single theft in cryptocurrency history and a stark reminder of the potential pitfalls inherent in the digital asset world. Amidst the shock and speculation, there’s a crucial opportunity to learn and adapt, extracting vital lessons for enhanced security and risk management across the entire crypto ecosystem.
As I discussed with my friend and colleague Matteo Salerno, one of our Directors and fellow cryptocurrency trading experts here at Salerno Law, this event serves as a critical learning experience for everyone involved: “The Bybit hack, while devastating in its scale, highlights the importance of understanding the vulnerabilities within different platforms and taking proactive steps to mitigate those risks. It’s about learning from these events to build a more robust and secure future for cryptocurrency.”
To the media coverage of the hack, the Forbes report was devastating in its simplicity. Hackers exploited a vulnerability in Bybit’s Ethereum cold wallet, cleverly masking the UI and URL to deceive signers into approving a malicious transaction, stealing over 400,000 ETH. Both Forbes and Channelnewsasia pointed the finger squarely at North Korea’s Lazarus Group, a notorious cybercriminal organisation sanctioned by the United States. This alleged connection underscores the sophisticated and well-funded nature of these attacks. In fact, you could argue that the deceptive methodology these hackers used to lure the unsuspecting signers in, was the most successful (for all the wrong reasons) example of clickbait in history!
Ethereum & Bitcoin: Understanding the Structural Differences
Why Ethereum and not, for example, Bitcoin? The answer lies in their fundamentally different architectures. While both are cryptocurrencies, they achieve consensus and manage transactions in distinct ways, resulting in differing security profiles.
- Bitcoin’s Design: Bitcoin operates on a single-layered architecture, prioritising simplicity and robustness. It relies on a Proof-of-Work (PoW) consensus mechanism, where miners compete to solve complex cryptographic puzzles to validate transactions and add new blocks to the blockchain. This model requires significant computational power, making it highly resistant to attacks. To successfully attack Bitcoin, someone would need to take over more than 50% of its network, the computing power of which exceeds all the fastest computers on earth.
- Ethereum’s Capabilities: Ethereum, on the other hand, has a more complex, multi-layered architecture. It introduced smart contract functionality, allowing developers to build decentralised applications (dApps) on its platform. However, this increased complexity also introduces potential vulnerabilities, as smart contracts can be exploited if not properly secured.
- Consensus Mechanisms: As mentioned above, Bitcoin uses a Proof of Work method for consensus, requiring a heavy network of miners to solve computer problems that keep it safe. Ethereum has transitioned to a Proof-of-Stake (PoS) consensus mechanism, where validators “stake” their ETH to secure the network. While this reduces energy consumption, some critics worry about the potential for centralisation if a relatively small number of entities control a large portion of the staked ETH.
- Auditing Systems: As both methods vary, Bitcoin security is regularly audited in a unique way. By contrast, Ethereum performs irregular security audits and they are often conducted in-house, an element that undermines Ethereum security. As a result, Bitcoin security can be audited daily by anyone who accesses its data.
Open-Source Transparency vs. Legacy Systems
One silver lining to the Bybit hack is the inherent transparency of blockchain technology. Unlike traditional financial systems, where transactions are often opaque and difficult to trace, every crypto transaction is recorded on a public ledger. The fact that blockchain analytics firms were quickly able to link the hack to the Lazarus Group underscores the power of open-source transparency. This traceability is invaluable for law enforcement agencies and for holding criminals accountable. Contrast this with the often-secretive world of fiat currency transactions, where illicit activities can be obscured behind layers of intermediaries.
Real-Time Monitoring & Proactive Defence
In the fast-moving world of cryptocurrency, being reactive is simply not enough. At Salerno Law, we understand that protecting our clients’ assets requires constant vigilance. Our dedicated team monitors crypto news and market activity 24/7, leveraging cutting-edge blockchain analytics tools to identify potential threats and vulnerabilities in real-time. This proactive approach allows us to advise our clients on best practices for security, risk management, and compliance.
Navigating Crypto Complexities
Our expertise extends beyond simply reacting to crises. We have a proven track record of successfully navigating the complex legal and regulatory landscape of the cryptocurrency world. One notable example is our work with crypto foundations like Tether, the issuer of the largest stablecoin in the world. In several instances, our clients had their Tether holdings frozen by law enforcement agencies due to investigations into crimes unrelated to their activities. Our team successfully negotiated with the U.S. Secret Service and other international agencies to secure the release of these funds, demonstrating our ability to protect our clients’ interests even in the most challenging circumstances.
The Bybit hack is a sobering reminder of the risks inherent in the crypto space, it reminds us, through contrast, of the importance of designing robust systems with security at the forefront. Protecting your digital assets requires a proactive, informed, and legally sound approach.
If you are a cryptocurrency exchange or trading platform, custodian, institutional service provider, blockchain infrastructure provider, or other company utilising blockchain technology, Salerno Law is uniquely positioned to assist you.
We offer comprehensive fintech, digital economy, and crypto legal services including:
- Regulatory compliance advice
- Risk management and mitigation strategies
- Guidance through cryptocurrency licensing laws and compliance procedures
- Assistance with cross-border transactions
- Legal support in cases of fraud, theft, or security breaches
Stop-Loss Strategy
Contact us today for a consultation to discuss your specific needs and how Salerno Law can help your organisation navigate the complexities of the crypto landscape. Don’t risk becoming the next victim. Instead, think of us as your ultimate stop-loss strategy: a globally-connected digital currency legal specialist with a proven track record in the most volatile asset class on Earth, standing ready to shield you if and when the crypto skies darken again.
Author Jim Holding
Jim brings over 20 years of experience in law and digital assets, with an outstanding track record in leading global teams and navigating complex regulatory landscapes. Jim has held key leadership positions, including Country Managing Partner of DLA Piper in Australia after heading up the Brisbane M&A department as a Partner, demonstrating his expertise in leading and scaling large organisations. He has also been the Chairman of Queensland Cricket and Brisbane Heat, responsible for improving their profitability.
More recently he has worked as the Chief Strategy Officer at TOKO FZE in Dubai, where Jim played a pivotal role in the company’s growth, overseeing the tokenisation of real-world assets and driving TOKO’s licensing process with the Virtual Asset Regulatory Authority (VARA). His deep understanding of global regulatory regimes spans Australia, Hong Kong, Singapore, the UK, and beyond.
Jim was also the Managing Director of DLA Piper’s innovation businesses that saw him lead a litigation funding company, a consultancy business, an AI legaltech provider and TOKO FZE. He led UK, Hong Kong, Dubai, South Korea, United States, Sydney, Melbourne and Brisbane teams. With a passion for the future of digital assets and the transformative potential of tokenisation and decentralized finance, Jim is an incredible addition to our team. We are excited to benefit from his leadership as we continue to innovate and navigate the evolving digital asset space.
Jim has been appointed to lead a period of growth at Salerno Law, which will see the firm become a leader in digital assets, M&A, and capital markets, and continue to grow its already strong existing practices.
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