Bitcoin Wasn’t Hacked!

Last night, a most curious headline hit my desk. It stated that the Federal Bureau of Investigation (FBI) had “retrieved” part of the Bitcoin (BTC, Tech/Adoption Grade “A-”) that was paid as ransom in the recent Colonial Pipeline Hack.

No further details were given on how the crypto was “retrieved,” leading talking heads to claim Bitcoin's encryption was “cracked.”

That was a head-scratcher because there is no way anyone in the U.S. government, or indeed the world, can crack Bitcoin’s encryption.

Don’t take my word for it.  Reddit user u/SACHD has a beautiful breakdown of how this encryption works. Read it and see for yourself just how impossible cracking the encryption is.

To my dismay, however, the same erroneous headline that Bitcoin had somehow been “cracked” made the rounds in popular media outlets. Here’s one. And another. And yet another.

But these claims are only partly true.

Yes, it’s true that the U.S. government recovered part of the stolen Bitcoin. But it DID NOT do so by cracking Bitcoin’s encryption.

So how then were they able to retrieve the stolen Bitcoin?

Essentially because the hackers allowed them to. No, likely not intentionally. Despite their sophistication, they were careless, as you can see from the facts.

This group managed to successfully attack critical U.S. infrastructure in a big way. They held the oil supply chain hostage, and the only suitable short-term response was to give them what they wanted. That speaks to a level of skill and sophistication that one would find in a Die Hard villain.

On the other hand, though, this group of hackers chose to receive their ransom payment in Bitcoin – probably the easiest public blockchain to track in the world. That meant that anyone, including the U.S. government, could follow the money directly to them. Their bigger blunder, though, was choosing to receive the funds in a wallet for which they DID NOT own the private key.

Let me restate that: The attackers held the Bitcoin in a wallet they DID NOT control. Meaning a custodian was the one technically in possession of that stolen Bitcoin.

The custodian, being the responsible actor that they are, simply HANDED OVER the private keys to law enforcement. And this is what allowed the U.S. government to make the claim that part of the ransom was “retrieved.” No hacking or cracking necessary.

This is not a story about law enforcement having access to technology you and I can only dream of. Far from it. This is a story about clever, sophisticated attackers seemingly not knowing the basics of how cryptocurrencies work.

Their mistake was to Colonial Pipeline Company’s benefit, but it’s a mistake being repeated by news outlets right now, stoking baseless fear in the crypto market.

I have no idea how to mount a cyberattack on critical infrastructure the way these hackers did. But a five-minute internet search will teach me how to secure my Bitcoin in a way that prevents access by any third party, no matter who they might be. Another five-minute internet search would verify just how secure Bitcoin’s encryption is.

And if some clever hacker somehow developed the technology to break Bitcoin’s encryption, cryptocurrency is the LAST thing you need to worry about ... and the last thing these talking heads would focus on.

Why? Because Bitcoin’s encryption was developed by the National Security Agency, and it’s the standard encryption used in all manner of critical infrastructure.

The U.S. government — and major corporations — rely on it for security.

So, if Bitcoin’s encryption was well and truly cracked, the very fabric of the internet would be under attack.

The damage would be in the trillions.

And society would be in disarray as basic internet services would cease to function.

It’s the stuff you read about in sci-fi novels or see in B-rated summer action movies.

Which is why it’s not true.

No matter what, if you ever read any headline that suggests or implies that Bitcoin may have been hacked, you can go ahead and dismiss it as fake news.

That’s all it is.



About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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