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Axie Infinity’s $600 million hacking undercuts trust in crypto

March 30, 2022, 4:58 PM UTC

Cryptocurrency still has plenty of growing up to do before it can get the keys to the world’s economy.

The latest example of crypto’s immaturity came Tuesday, when Sky Mavis, developer of the groundbreaking non-fungible token game Axie Infinity, disclosed that a hacker stole about $600 million worth of crypto from its players last week. Sky Mavis officials said the thief found private passwords used to validate transactions on networks it employs, then used that information to withdraw about 173,600 Ethereum and $25.5 million in stablecoins tied to the U.S. dollar

The cyberattack will ultimately rank as the largest or second-largest theft of crypto on record, nose-to-nose with last summer’s hack of PolyNetwork. (In February, federal officials arrested a New York couple accused of laundering about $4.5 billion worth of crypto stolen from the Bitfinex exchange, but the currency had a value of roughly $70 million at the time of the hack in 2016.)

News of the latest theft prompted predictable responses from supporters and critics of blockchain. 

Crypto champions described it as an unfortunate but necessary part of the movement’s maturation, further reinforcing the importance of improving security protocols. Boosters also noted that the hacker likely will struggle to cash out on the haul, largely because forensic and law enforcement investigators can trace the stolen coin on the public blockchain.

Skeptics, meanwhile, added the hack to a fast-growing list of breaches draining money from innocent victims. Blockchain analytics firm Chainanalysis reported that criminals stole $14 billion worth of crypto last year through various hacks, scams, and tomfoolery.

Crypto supporters, however, shouldn’t shrug off their problems with another kind of currency: trust.

While the most ardent crypto evangelists envision a decentralized financial world untethered from elite institutions—central banks, commercial banks, predatory lenders—that utopian fantasy isn’t materializing anytime soon. 

Our society remains organized around centralized governments, which exist, in part, to ensure criminals like the Axie Infinity hackers are brought to justice. Crypto entrepreneurs also are successfully accumulating gatekeeping power through exchanges, marketplaces, and digital networks, turning massive profits in the process. 

Policymakers across the globe have been slow to regulate cryptocurrency, likely owing to their own naivete and the industry’s breakneck growth. But deeper regulation is fast approaching, and the most powerful figures in crypto know that you can only fight city hall so hard.

The industry’s top players recognize this dynamic. It’s why Binance CEO Changpeng Zhao traded in his casual hoodies for suits and ties, telling Fortune’s Vivienne Walt in a profile published Tuesday: “We’re communicating with all the regulators right now. The issues we had before we are solving, right now.” It’s why exchanges and venture capitalists bullish on crypto—Coinbase, FTX, Andreessen Horowitz—are building a stable of lobbyists in Washington, D.C.

Those efforts, however, will continue to get undercut by multimillion-dollar hacks that exploit vulnerable crypto investors. (Axie Infinity’s largest user base resides in the Philippines, where the per capita income is about $3,500.)

To curry much-needed favor with lawmakers, the crypto community will need to prove that its underlying technology is trustworthy. While the Axie Infinity hack might not look large in the bigger picture—$600 million represents 0.0003% of the global crypto market cap—the mere threat of similar thefts could lead to burdensome and industry-stunting regulations.

Crypto still has plenty of time to graduate into a world-changing revolution. But first, it’ll have to endure some growing pains.

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Jacob Carpenter


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From the article

What happens to the bitcoin mine is also being closely watched by other miners. If its air pollution permits are renewed, it would essentially signal that upstate New York’s many aging or shuttered power plants are ready to become zombified on the cheap, too. 

Power plants in the towns of North Tonawanda, Somerset and elsewhere are already on the horizon—or already working—as mining operations. Together, they would create perhaps an insurmountable challenge for New York to meet its climate goals.


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