Crypto News
4 Apr 2022

The Ronin Hack: One of the Biggest Crypto Heists in History Explained

Savan

Money Heists involving banks, moving trains, and art galleries are exciting but outdated. Hackers are the new Professors, and the booming crypto space is the new Royal Mint of Spain.

In one of the biggest crypto heists till date, Ronin, the blockchain network behind the famous Axie Infinity online game, was hacked on March 23. The hack was discovered only a week later. By then, the hackers had made away with nearly $620 million—that is, 1,73,600 Ether worth $594.6 million plus $25.5 million in US dollars.

Biggest Crypto Heist

(Image source: Statista)

Meanwhile, the Ronin network, and the Katana Decentralized Exchange (DEX) associated with it, halted operations. In response, the Axie Infinity token (AXS) price dropped by nearly 10% before eventually recouping losses. And Ron, the native token of the Ronin blockchain, fell by almost 22%.

What is Axie Infinity, and What’s Ronin?

Axie Infinity is a crypto-based play-to-earn video game developed by Vietnamese blockchain gaming startup Sky Mavis. As part of the game, players can earn NFT-based virtual assets, which can then be exchanged for real money.

With 2.8 million daily active users, Axie Infinity is the largest blockchain-based online game today.

Ronin is a separate network (sidechain) built on top of Ethereum, the mainchain, to meet the crypto needs of blockchain games like Axie Infinity. It includes a digital wallet for storing crypto and a “bridge” to move crypto in and out of the game. The bridge is what the hackers targeted.

All About the Heist

How did they do it?

The Ronin sidechain has nine validators, and any deposits or withdrawals require at least five signatures. A validator is someone who is responsible for verifying transactions on the blockchain.

The hacker managed to get hold of the private cryptographic keys of five among the nine validators—just enough to break into the cross-chain bridge. The hack was brought to notice when a user could not withdraw 5,000 ETH.

The startup Sky Mavis is still grappling with understanding the exact nature of the attack. Perhaps as a result of this, it issued a statement a few days ago that might need some explaining. “This was a social engineering attack combined with a human error from December 2021,” the co-founder and COO of Axie Infinity, Aleksander Larson, tweeted. The human error being referred to is in fact the outcome of the highly centralized model—requiring only five validators—adopted by the Ronin network.

Where’s the loot now?

Thanks to the transparent properties of blockchains, the digital wallet containing the stolen funds is visible to the public. Most of the stolen ETH remains in the hacker’s address barring a small portion (4,970 ETH), which was moved into multiple unknown wallets in three major crypto exchanges—FTX, Crypto.com, and Huobi.

Action taken

Sky Mavis told Bloomberg that the company is “fully committed” to recovering or reimbursing players. The same was echoed by co-founder Aleksander Larson.

Besides temporarily pausing the Ronin bridge to prevent further attacks, for the short term, the company has increased the validator threshold from five to eight. Sky Mavis also announced that they are in touch with major exchanges and are working closely with government agencies and blockchain firm Chainalysis to track and recover the stolen funds.

Issues with Cross-Chain Bridges: The Context

The Ronin debacle is not the first. Earlier in February, more than $300 million was lost in the Wormhole bridge attack, for instance.

What’s common to many of these crypto hacks is a weakness in the bridge. According to blockchain research firm Chainalysis, nearly $1 billion worth of cryptocurrency has been stolen from blockchain bridges in the past year, across seven different incidents.

And more than $21 billion is locked in Ethereum bridges alone, posing a grave threat to security, says Dune Analytics.

(Image source: Chainalysis/Bloomberg)

A blockchain bridge, also known as a cross-chain bridge, connects two different blockchains. The bridge allows users to send crypto from one blockchain to another—for example, when you have ETH but want to spend it as AXS tokens. Cross-chain bridges, just like Layer-2 solutions, are individual entities that don’t belong to any blockchain.

Earlier this year, Vitalik Buterin, the co-founder of Ethereum, himself issued a warning about how bridges have “fundamental security limits.”

However, bridges have already become a critical infrastructure in a multi-chain world where users want to move their tokens easily from one blockchain to another.

All is not lost, though. Experts believe it is possible to build secure bridges, and a decentralized bridge is more secure and less vulnerable to cyber threats.

Can the Stolen Crypto Be Recovered?

Yes, the chances of recovery are high with sophisticated tracking tools in place and increased coordination between players in recent years.

One of the myths associated with crypto is that they are non-traceable and suitable for illegal activities. However, recent examples—including in the infamous 2016 Bitfinex hack where $3.6 billion worth of stolen Bitcoin were recovered this year—prove otherwise. And it sure makes sense to expect it to be increasingly harder to pull off frauds and other crimes on the blockchain.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

writer

Savan

Content Writer

Table of content