Axie Infinity’s $600 million hacking undercuts trust in crypto
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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Dirty tricks? Facebook parent company Meta employs a political consulting firm to carry out a national campaign aimed at undermining top competitor TikTok, The Washington Post reported Wednesday, citing newly obtained documents. The records show staffers at Targeted Victory, one of the Republican Party’s largest consultants, coordinating on media and lobbying plans that involve disparaging TikTok, the fast-growing social media platform owned by Chinese company ByteDance. Meta officials defended the arrangement, arguing that TikTok deserves “a level of scrutiny consistent with their growing success,” while TikTok representatives argued the campaign stokes false information about the site.
Running on empty. One of Russia’s largest tech conglomerates faces looming parts shortages that could force wide swaths of the nation’s internet infrastructure offline in the next year, Bloomberg reported Wednesday, citing sources familiar with the matter. Yandex is struggling to acquire semiconductors needed for many parts of the company’s business operations, such as its search engine, cloud infrastructure, ride-hailing, and music streaming divisions. The shortages, which stem from global sanctions tied to Russian President Vladimir Putin’s invasion of Ukraine, could knock out Yandex’s servers within the next 12 to 18 months, Bloomberg reported.
Put your wallet away. Chinese regulators are planning new restrictions on popular live-streaming platforms, part of their broader crackdown on online entertainment, The Wall Street Journal reported Tuesday. Chinese officials are crafting regulations that would limit how much money live-streaming personalities can collect in tips from viewers in the $30 billion industry, while also considering tighter regulation of content. China also issued nationwide limits on video game playing last year, citing the negative impact of excessive gaming on children.
Your pink slip has arrived. The instant-delivery outfit GoPuff is expected to lay off 3% of its workforce, adding to the list of cutbacks in a sector struggling with deep financial losses, frenzied competition, and a cooling IPO market, The Information reported Tuesday. The layoffs would follow a hiring freeze and the departure of several top executives at the Philadelphia-based company, which was eyeing an IPO later this year. Top rival Instacart cut its valuation by 38% last week, while smaller startups Fridge No More and Buyk announced plans to close shop earlier this month.
FOOD FOR THOUGHT
Fighting for power. The battle over noisy crypto mining hardware has arrived in New York’s serene Finger Lakes. The beautiful upstate destination, enjoyed by townies and tourists alike, has been roiled by the arrival of 17,300 crypto mining rigs running all day on the grounds of a gas-fired power plant located on the shore of Seneca Lake, Protocol reported Tuesday. The disruption has pitted local activists and environmentalists against union workers and the plant’s owner, setting the stage for regulatory battles that could define the crypto mining industry’s prospects in the state.
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.
IN CASE YOU MISSED IT
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It’s time for a digital trade agreement, by Myron Brilliant
BEFORE YOU GO
Crafting a walkout. Get your Etsy purchases in now because many sellers are going dark in mid-April. Thousands of vendors on the marketplace, largely home to custom and made-to-order items from independent sellers, plan to boycott the site from April 11 to April 18 in protest of new, higher transaction fees, The Verge reported Wednesday. Etsy executives announced last month that the company would start taking a 6.5% cut, up from 5%, from transactions on the platform, starting April 11. The move riled thousands of vendors, who organized on Reddit and other social media sites to close up their online shops for one week.
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