The fall of Cryptopia
In January, Cryptopia got hacked two times. In the first case, the attacker stole approximately $16 million worth of Ethereum tokens from over 76,000 wallet addresses. At the second time, the losses were less significant; the hacker siphoned a total of 1,675 ETH.
PLEASE DO NOT SEND ANY DEPOSITS TO CRYPTOPIA.
— Cryptopia Exchange (@Cryptopia_NZ) May 16, 2019
While the operators of Cryptopia attempted to get their crypto exchange back on track, they failed, which resulted in the company being liquidated and filing for bankruptcy in the United States earlier this month.
Despite the liquidation the company’s in, CCN reported on May 21 that attackers had moved $125,000 worth of ETH to Etherdelta.
No access to data
As liquidators are trying to collect and (re)distribute the missing funds to victims affected by the hack, they have encountered another issue.
Instead of running a database of its own, Cryptopia has hired a third-party host in Arizona to store all of the company’s customer information.
Now the Arizona company is terminating Cryptopia’s agreement, demanding $2 million from the cryptocurrency exchange.
Until Cryptopia’s debts are paid, liquidators are unable to access the data they need to determine the digital assets their account holders hold with them also facing the risk of all data overwritten and lost.
“This would be potentially catastrophic for the liquidators and account holders. Recovery efforts are still being made, but to date, none of the stolen digital assets have been recovered,” a liquidator stated to Bloomberg.
According to Cryptopia’s bankruptcy filing, every accounts holder of the hacked cryptocurrency exchange is a potential creditor in the liquidation process with trade creditors owed approximately $2.6 million.
Unprofessional operation adds to customers’ woe
While Cryptopia had started as a hobby project in 2014, the cryptocurrency exchange has grown to up to 300,000 users with the 2017 bull market facilitating the growth of the company.
Debt-Ridden Crypto Exchange Cryptopia Suckers Hacked Customers Again https://t.co/ekPCETcL1e
— CCN.com (@CCNMarkets) May 17, 2019
Despite its growth, it seems like Cryptopia’s operators have still handled the cryptocurrency exchange as a hobby project by making odd business decisions that resulted in the fall of the company.
The first result of Cryptopia’s unprofessional operations was its January hack, followed by a false report of the event claiming that hackers had only taken $2.5 million instead of $16 million.
New Zealand Exchange Cryptopia Lost $16 Million in Hack, Not Initially Reported $2.5 Million: Research https://t.co/PlfvRtqPfy
— CCN.com (@CCNMarkets) January 24, 2019
Another sign of the casual approach of Cryptopia operators is that they have run a cryptocurrency exchange with 300,000 accounts without having their own database or even a proper backup of customer information.
This decision, the hack, and that Cryptopia failed to compensate the Arizona database host for its services have jointly resulted in the current catastrophic situation where liquidators are struggling to recover their lost funds.
As using the funds of Cryptopia users to pay the $2 million to the Arizona firm is not a valid option – due to the flawed operations of the cryptocurrency exchange -, liquidators will struggle to recover even a part of the creditor funds.