By INSEAD Associate Professor Ben Charoenwong
The recent security breach for around $1.5 billion at Bybit, the world's second-largest cryptocurrency exchange by trading volume, sent ripples through the digital asset community. With $20 billion in customer assets under custody, Bybit faced a significant challenge when an attacker exploited security controls during a routine transfer from an offline "cold" wallet to a "warm" wallet used for daily trading.
Initial reports suggest the vulnerability involved a home-grown Web3 implementation using Gnosis Safe — a multi-signature wallet that uses off-chain scaling techniques, contains a centralized upgradable architecture, and a user interface for signing. Malicious code deployed using the upgradable architecture made what looked like a routine transfer actually an altered contract. The incident triggered around 350,000 withdrawal requests as users rushed to secure their funds.
While considerable in absolute terms, this breach — estimated at less than 0.01% of the total cryptocurrency market capitalization — demonstrates how what once would have been an existential crisis has become a manageable operational incident. Bybit's prompt assurance that all unrecovered funds will be covered through its reserves or partner loans further exemplifies its maturation.
Since the inception of cryptocurrencies, human error — not technical flaws in blockchain protocols — has consistently been the primary vulnerability. Our research examining over a decade of major cryptocurrency breaches shows that human factors have always dominated. In 2024 alone, approximately $2.2 billion was stolen.
What's striking is that these breaches continue to occur for similar reasons: organizations fail to secure systems because they won't explicitly acknowledge responsibility for them, or rely on custom-built solutions that preserve the illusion that their requirements are uniquely different from established security frameworks. This pattern of reinventing security approaches rather than adapting proven methodologies perpetuates vulnerabilities.
While blockchain and cryptographic technologies have proven cryptographically robust, the weakest link in security is not the technology but the human element interfacing with it. This pattern has remained remarkably consistent from cryptocurrency's earliest days to today's sophisticated institutional environments, and echoes cybersecurity concerns in other — more traditional — domains.
These human errors include mismanagement of private keys, where losing, mishandling, or exposing private keys compromises security. Social engineering attacks remain a major threat as hackers manipulate victims into divulging sensitive data through phishing, impersonation, and deception.
Read the full piece here.
