Following is a list of some of the most infamous crypto exchange failures to date
Mt. Gox
Mt. Gox was a cryptocurrency exchange that operated between 2010 and 2014. Mt. Gox once accounted for over 70% of all Bitcoin transactions. In 2014, Mt. Gox was hacked and thousands of Bitcoins were stolen; the company filed for bankruptcy shortly thereafter. In late 2021, creditors and the Tokyo District Court reached an agreement on the Mt. Gox rehabilitation plan, closing a seven and half year legal battle.
Bitfinex
The 2016 security breach in the Hong Kong-based crypto exchange, Bitfinex, was another episode that shook the cryptocurrency industry to its core. At the time, the exchange was among the largest crypto trading platforms by market cap. On August 2, 2016, the platform experienced a lethal cyber-attack in which anonymous hackers stole 119,756 BTC, valued at around $72 million at that time (and $3.2 billion according to the current prices). After the hacking attack, the company immediately launched an investigation with law enforcement agencies. On top of that, it also offered a $3.5 million reward for anyone who would provide any information leading to the recovery of the stolen amount. However, only a small portion of the stolen funds has been recovered to this day. Since the incident, Bitfinex has improved its security and introduced several safety measures. The exchange continues to provide its crypto trading platform to users worldwide and is among the ten largest exchanges by trading volume.
QuadrigaCX
Quadriga failure is another notable example of how poor administrative management can lead to disasters in crypto exchanges. Founded in 2013 by Quadriga Fintech Solutions, QuadrigaCX was the biggest cryptocurrency exchange in Canada at that time. The platform abruptly stopped functioning in 2019 and filed for bankruptcy with over 215.7 million CAD in liabilities and 28 million CAD in assets. The company announced they had lost the private keys and access to the cold wallet holding customer funds. On investigation of the matter, it was revealed that the company had a serious lack of control and oversight with the platform and usersâ funds. All of the money under the companyâs custody was controlled by only one person, i.e., Gerald Cotten â founder and CEO of QuadrigaCX. Unlike most centralized cryptocurrency exchanges, QuadrigaCX had no bank account or accounting system. The entire setup was being run by an encrypted laptop owned by Cotten. Further investigations by the Ontario Security Commission (OSC) discovered that Cotten was using customersâ money to pay other customers, proving the exchange to be a Ponzi scheme. Moreover, Cotten was also using this money to finance his trading losses and lavish lifestyle.
Cryptopia
Cryptopia was a New Zealand-based cryptocurrency exchange that faced a security breach in January 2019, which resulted in the loss of millions of dollarsâ worth of crypto funds. The platform had been operating since 2014 and had built a solid reputation over the years. The breach, thus, came as a shocking blow to the entire crypto community and made everyone think about how even reliable exchanges can be vulnerable to hackers. The subsequent investigation revealed that the breach was a result of a highly sophisticated and intricate hacking operation. The hackers managed to get access to Cryptopia wallets, which allowed them to steal large sums of crypto funds. Data from the Ethereum network revealed that first, the hackers got into two of the core Cryptopia wallets. After that, they attacked over 76,000 other secondary wallets of the platform. However, even after multiple investigations, the hackers remain unknown. Several reports suggest that the stolen crypto assets are worth somewhere around $16 million to $23 million. Many also believe that Cryptopia didnât actually get hacked and pulled off an exit scam. Following the attack, the exchange was forced to shut down and file for bankruptcy.
FTX
FTX collapsed in early November 2022 following a report by CoinDesk highlighting potential leverage and solvency concerns involving FTX-affiliated trading firm Alameda Research. FTXâs collapse shook the volatile crypto market, which lost billions at the time, falling below a $1 trillion valuation. FTX in November 2022 faced a liquidity crisis and searched for bailout funds; rival exchange Binance considered buying portions of the company but quickly backed out. By Nov. 11, 2022, FTXâs CEO stepped down and the company filed for bankruptcy. In the hours following, FTX experienced a possible hack in which hundreds of millions worth of tokens were stolen. FTX founder and ex-CEO Sam Bankman-Fried was arrested in The Bahamas and extradited to the United States in late December. He pleaded innocent to all criminal charges on Jan. 3, 2023.
