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Crypto is a polarizing subject. Mention it at a dinner table with your friends, and you’ll get a variety of answers: some will condemn it for being an unregulated, money-wasting, dangerous investment, some will sing its praises and declare it the future of the economy, and others will look at you with blank stares. A recent $320 million crypto hack in Wormhole, a popular crypto bridge that allows users to essentially convert their coins into other types of crypto, brings major implications to crypto and related Web3 brands. It begs the question, how do Web3 brands manage their business after a crypto hack?
What is Crypto
But first, a brief overview of what crypto is. Cryptocurrency is virtual or digital currency secured by cryptography. Many are based on blockchain technology, which utilizes a distributed computer network that allows for the decentralization, counterfeit protection, and existence outside of government manipulation that makes them so popular. Unfortunately, while crypto has been praised (especially so by forward-thinkers) for its potential, it’s been criticized for its role in criminal activities, excessive energy consumption, and, of course, liability to hacks.
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How do crypto hacks occur?
Crypto is kept safe by having “keys” or passwords that allow users to access their cryptocurrencies. Exchanges and Bridges often have wallets that store these keys. The problem is that exchanges and bridges must have “hot wallets” (wallets that keep the keys to cryptocurrencies online) so they can be easily accessed and sent to users. The digital nature of wallets and the keys inside the wallets make them a prime target for hackers. If the keys are stolen, the coins are stolen, and a crypto hack has occurred.
The $320 million Wormhole hack is the second-largest exploit ever. Hackers stole at least 93,750 ETH (Ethereum, one of the most popular cryptocurrencies). Wormhole has stated that it will replace these stolen coins, but how they’ve obtained these replacement coins remains unclear. ETH founder, Vitalik Buterin, has claimed that bridges won’t be around much longer due to the “fundamental limits to the security of bridges that hop across multiple zones of sovereignty” — in reference to how bridges allow people to use crypto on different blockchains.
The largest hack ever occurred on the Poly Network bridge, resulting in $600 million in crypto being stolen. Surprisingly, the hacker ended up returning the stolen assets after a public dialogue with Poly Network, but things don’t always end this way. Crypto hacking has already become a multi-billion dollar industry, and many victims are left with no closure as their hackers go unfound.
Other notable crypto scandals:
- Multiple pump-and-dump and rug pull schemes disguised as new crypto coins
- $35 million Crypto.com hack
- $200 million BitMart hack
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Implications of hacks
Hacks are a massive blow to consumers’ trust in crypto. Its appeal is primarily based on decentralization and privacy, but hacks make it apparent that crypto is not as foolproof as it seems. Additionally, crypto doesn’t have consumer protection in place like banks do, making getting back your hacked crypto extremely difficult. Tracking down crypto hackers is also tricky as developers are hesitant to turn to law enforcement as they want crypto to be anti-oversight and anti-government. When they turn to law enforcement, tracking crypto down is an exhaustive and drawn-out process.
Hacks are also very detrimental to public perception. Cryptocurrency is often presented as a future alternative to fiat currency, but hacks and the lack of consumer protection push away the more conservative and frugal people. Furthermore, crypto hacks will undoubtedly bring the government’s attention—the one thing many crypto supporters are trying to avoid. If large-scale hacks and scams continue to happen, regulation will surely be on the horizon. President Biden has already expressed his desire to regulate the cryptocurrency sector.
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How companies recover and regain trust after a crypto hack
It is admittedly challenging to regain consumer trust after they lose money to hacks. The most common way Web3 companies recover is to guarantee consumers the return of their stolen assets. However, this isn’t enough for companies to completely regain the consumers’ trust.
A tweet from Wormhole following the hack:
1/2
All funds have been restored and Wormhole is back up.
We're deeply grateful for your support and thank you for your patience.
— Wormhole🌪 (@wormholecrypto) February 3, 2022
Examples:
Poly Network is the best example of a Web3 brand regaining trust. They’ve demonstrated commitment to enhancing security protocols, and interestingly enough, they thanked the person responsible for the $600 million hack for exposing a flaw in their code. While the hack certainly scared consumers away, Poly Network and the crypto space in general continue to move on, a signal that many crypto supporters are here to stay in the long term.
Here’s a post-hack tweet from Poly Network, announcing a new program aimed at improving the security of their website:
#PolyNetwork system is soon about to be relaunched as the team gets things in order to proceed as per the #roadmap . In addition to the previous 500k proposal for #MrWhiteHat, #PolyNetwork officially announces a separate 500k #bounty program open for top #security agencies https://t.co/esvKZsd1IP
— Poly Network (@PolyNetwork2) August 16, 2021
So what should brands do?
While Web3 brands recovering from hacks is virtually an unexplored space, the fundamentals of rebuilding trust with consumers remain true. Businesses must communicate and admit their mistakes transparently, promise to do better, and actually deliver results on their promises. Companies like Chipotle have encountered their versions of “hacks” (the e.coli scare) and recovered, so it follows that Web3 brands can similarly rebuild trust.
Final verdict
In the case of a Web3 company’s life after a hack, honesty is the best answer. The people supporting crypto are a strong, committed bunch. However, lack of clarity over procedures and failure to improve security is a huge red flag for all consumers. Going forward, Web3 brands must ensure that in addition to technology and innovation, communication must be a focus.
Want to know how other entrepreneurs increase their presence in the Web3 space? Check out how Mark Cuban is using NFTs as a marketing play here
