- Cryptos have a serious weakness,
one that could slam the brakes on their expansion,
one that caused $2 billion to disappear,
meaning our crypto investments are at risk
even if you aren't a victim of theft.
I'm talking about the weakest link in crypto,
Bridges,
which naturally leads us to the question,
What are crypto bridges?
You know that whole parallel universe theory,
the idea that there are other universes out
there that we can't see, can't hear,
we don't even know they're out there.
Imagine there are people just like us in those
parallel universes, doing the same things we are.
It makes sense to join forces, maybe even
trade with one another,
but we can't.
There's no way for us to break that universal barrier.
And so we just carry on unaware of
each other, finally, until one faithful day where
we all die a violent heat death.
But cryptocurrencies work pretty much the same way.
Let me explain.
A blockchain exists in its own digital universe.
A blockchain's code is like the laws
of physics of that crypto universe.
Everything that happens, happens
within those specific rules.
And you can build all sorts of amazing
things within the universe, so long as those
things conform to the rules of the blockchain.
But these things exist unaware of
everything else outside of that universe.
Like universes with different laws of physics, crypto
blockchains just cannot talk to one another.
There's no way for one blockchain to simply pop by
and hang out in the code base of another.
In the Bitcoin universe, there's no Ethereum.
And in the Ethereum universe, there's no Bitcoin.
They have no idea one another exists.
But we do.
Here in the real world, we're like all-seeing gods
who can see literally every digital universe.
We have this outside perspective, and we can figure out
ways to make the universes talk to one another.
It sure would be useful if you could buy
something for sale in Bitcoin with BNB or ADA
or whatever you happen to be holding.
Far easier than doing multiple swaps and paying
fees every single step of the way.
So, how do you communicate
between two disparate universes?
Well, you build a wormhole, obviously.
In the crypto world, this wormhole is
called a Crypto bridge or a Blockchain bridge.
They're capable of connecting to other universes,
making it possible to talk to each other,
to trade with one another.
So, what does the communication actually look like?
And why has it become such a massive threat?
Let's say you have Ethereum, but you want to
buy something in Bitcoin, you need to head over to
a bridge with Ether in your crypto wallet.
The bridge then takes your Ether and creates a
Wrapped Ether token out of it, letting you use
the new token on the Bitcoin blockchain.
In other words,
That disguise allows it to travel on the Bitcoin blockchain,
meaning you can carry out your perfectly legal transaction.
Once you're done, you simply go back to the crypto bridge,
unwrap whatever is left of your wrapped Ether, and get
your change back in regular Ether.
Think of it like a spacesuit for a token.
It lets you travel to another universe where
the laws of physics are a little bit different,
but the token can still function.
Now, this is actually a huge deal.
The whole beauty of crypto bridges is that they
can create a unified digital currency ecosystem
that will not only help cryptocurrencies get adopted
as a means of exchange, but will also help the whole decentralized
finance ecosystem grow far, far larger.
Imagine if some stores only took Visa, others
only Mastercard, and more only American Express.
Oh, in the stores that take Mastercard,
they don't take US Dollars,
only British pounds.
So now you're going to have to get a second
bank account in British pounds just to buy cat food.
This is what the world of crypto looks like right now.
Basically, everything is much easier
when the universes can communicate.
This is a crucial step in terms of making crypto
mainstream, making it a part of the everyday economy.
As long as cryptocurrencies exist in
these separate universes, they'll be socially awkward
and unattractive to everyday users.
So these crypto wormholes are a great thing,
or they would be, except they have a serious problem.
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Okay, this has become the year
of the crypto bridge hack.
Over the past twelve months, crypto bridges have had
13 major hacks, cleaning out more than $2 billion.
It all really got started with
the Poly network hack, and this highlights
the biggest problem with crypto bridges.
It's not just the bridges that are damaged.
It's all the cryptos that they touch.
Everything takes a hit, trust and prices collapse.
Most of these hacks have used different methods,
exploiting new weaknesses every single time.
But they all have one thing in common,
See, crypto bridges use smart contracts,
basically a computer program
that executes without human intervention.
Smart contracts are confirmed by
multiple nodes on a network.
In this case, think of it like a message
in a bottle sent through a wormhole from one
universe to another for the purpose of a trade.
The note in it says, we have sent
you a million dollars worth of widgets.
Now send us a million dollars in thingamabobs in exchange.
If the note is confirmed as legitimate,
the thingamabobs are sent through
the wormhole back to the other universe.
Or at least that's how it's supposed to work,
A perfect example of this is the recent hack
of the Nomad bridge, which connects several blockchains.
In this case, the hack was possible
because of an error in Nomad's code.
They accidentally left open a back door that
allowed users to go in, spoof messages and
just enter in their own destination address.
So basically, these parallel universes were
receiving notes saying, send us Thingamabobs because we sent you widgets.
But in reality, there were no Widgets.
There were never any widgets.
These were old requests that had been recycled.
All the hackers had to do was enter in
their crypto wallet, address and voila, free money!
Who wouldn't do it?
And it looks like a lot of
people figured out this trick on Nomad.
According to analysts, about 90% of the addresses
involved were copycats mimicking the original hacker.
Some 40 different people got in on the action, and
it was basically a stolen crypto free for all.
And I hate to say it, but it
can actually be far worse than that.
With crypto bridge hacks, you could end up
with fake tokens on a blockchain undermining
the value of the entire cryptocurrency.
This is what happened to
a crypto wormhole called...
This is a bridge between Ethereum and Solana.
Hackers found an exploit in Wormhole smart contract
that allowed them to mint 120,000 wrapped Ether
tokens on the Solana blockchain, all without putting
up any actual Ether tokens as collateral.
What that means is for a period of time,
there was $320 million worth of tokens on
the Solana blockchain that weren't real.
This fake crypto wasn't backed by anything.
It wasn't created by an algorithm
or any legitimate smart contract.
And when people found out about the fakery,
the value of Solana fell by more than 13% overnight.
This is the real danger of flaws in crypto bridges.
They can damage not only bridges,
but entire cryptocurrency ecosystems.
In the case of Wormhole, its parent company, Jump Trading
covered the losses, swallowing the massive theft.
But what if the boss can't cover the bill?
What if Jump Trading didn't have the hundreds of
millions of dollars needed, then likely the value of
those wrapped ether tokens would have crashed, and then
the platforms and blockchains relying on them would have
fallen like dominoes as well.
This is the nightmare scenario.
Someone's software creating a big enough problem
that it hits your personal crypto portfolio.
Even if you aren't using bridges personally,
it doesn't seem fair.
And if enough of these hacks happen, it
will shake public confidence in crypto, and that
could keep crypto from going mainstream.
So what's the solution?
Well, crypto bridges have started offering bounties,
saying essentially, hey, Mr. Hacker,
you're probably not a bad guy.
Go ahead and return that money.
We'll give you a little reward, and we call it a day.
Sound good?
But this might not be enough, because we're not
just talking about random people hacking these crypto bridges.
In many cases, we're talking about entire governments.
Well, one government in particular.
North Korea, has become a major
global hotspot of digital crime.
And its biggest hacker collective has been
making quite a name for itself.
In fact, I talked about them recently.
Here's a recap.
They're a new kind of bank robber,
and they represent an entirely different crime.
We're talking about the Lazarus group,
a hacker collective that has grown
exponentially over the past decade.
In North Korea, a hacker syndicate like Lazarus
does not operate outside the law.
They're funded by, protected by, and working
directly for the North Korean government.
So they effectively hacked the White House,
the Pentagon, the New York Stock Exchange, Nasdaq,
the Washington Post, and Amazon.
In 2014, they did their most impactful action yet, and they
did under the moniker of guardians for peace.
This was the hack of Sony pictures.
They wanted to stop the release of a movie.
This led to the leak of thousands of
confidential emails from top executives, producers, and actors.
As devastating as the Sony hack was, it could almost be
seen as a rehearsal for a far more ambitious hack that
Lazarus would attempt just two years later in 2016.
The goal was to take $951 million at the Bangladesh National Bank
had sitting in the New York federal reserve
and transfer it out to their own accounts.
And the reason that they didn't fully
succeed was a matter of total chance.
However, about $101 million still went through.
Well, now the Lazarus group is back, and they've
been linked to several of the recent bridge hacks,
including the largest one yet, the Ronin bridge incident.
This bridge connects the NFT game
Axie Infinity with the Ethereum blockchain.
Hackers were able to hop in and
steal more than $620 million worth of coins.
This was a sophisticated attack.
The Ronan bridge has nine nodes
that validate each and every transaction.
And if you can take control of five
of them, you effectively control the entire network.
This is what's known as a 51 percent attack.
When you take control of a network like this,
you can do pretty much anything you want.
Cancel previously approved transactions,
approve fake transactions.
If you can dream it, you can essentially do it.
And that's what hackers did with Ronin,
so well in fact, that nobody noticed the hack for six days.
Afterward, the US Treasury Office
investigated and announced sanctions against
the Ethereum address involved in the hack.
And of course, they listed the owner of
the account, the Lazarus group, North Korea.
Since then, Lazarus has been linked to the
Horizon bridge hack, a crypto bridge for Harmony tokens.
And more recently, another company, deBridge, said
it had been targeted by hackers who
sent employees fake emails in a fishing expedition
in absolute hallmark of Lazarus.
So, needless to say, now is a bad
time to be in the bridge business.
But why is North Korea doing this?
What are they even up to?
Well, the reality is North Korea is perfectly
happy doing anything that damages western countries.
This is outright digital warfare.
And given that North Korean citizens don't even have
access to the Internet, it's not like hacking these
bridges will do them any personal harm.
And politics aside, North Korea just
flat out needs the money, too.
Here's an insane stat for you.
Last year, North Korea's total
exports were worth $89 million.
Meanwhile, at the same time the Lazarus group hacked
their way to $1 billion in revenues from Crypto bridge attacks,
they made ten times more money hacking.
Attacking crypto is literally
North Korea's biggest export.
But before you decide it's time to put an
end to crypto bridges, here's some good news.
It isn't going to be so easy for the hackers
to get away with their crypto loot, because crypto is
on the blockchain, meaning thefts can just be traced.
Every transaction is recorded.
You can literally look at the assets
in a crypto wallet, including North Korea's.
In many cases, the stolen tokens from bridge hacks are
still just sitting there in thieves' crypto wallets, and law
enforcement is just waiting to see what happens.
But that doesn't mean they all get caught either.
There are ways around the transparency of crypto.
The biggest is what's called a crypto mixer.
These are platforms that take crypto from different
sources and blend them together to make it
difficult to see where the tokens are coming from
or where they're headed.
The US Treasury department actually denounced that they're
banning Americans from using Tornado cash, a crypto mixer known
to be used for money laundering.
Treasury officials say that the Lazarus group used it
to launder $455 million in stolen crypto this year.
So it looks like the Lazarus group has gotten
its loot out, or at least half of it.
But the bottom line here is we're
going to need better crypto bridge security.
But not everyone believes that's even possible.
Vitalik Buterin, the cofounder of Ethereum
argued in a reddit post that crypto bridges
are a major vulnerability and probably shouldn't exist.
His argument was pretty technical and complicated.
But it came down to basically this.
If you have lots of crypto bridges connecting
all currency blockchains, then a security flaw in
one of them exposes all cryptocurrencies.
Buterin wants to see a
What he means is that it's perfectly fine to
build platforms on top of individual blockchains,
like Arbitrum and Optimism are built on top of Ethereum.
But you can't build platforms that cross over from
one blockchain to another without massive security risks.
However, some say those problems can be fixed.
There's an argument to be made that this is
new tech, and some of these bridges have very
few people working on them, meaning mistakes just go
unnoticed, but that the mistakes are fixable.
So there may still be hope for crypto
bridges benefiting us all,
not just North Korean hackers.
And maybe we'll live to
see the great crypto multiverse.