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Hackers have stolen millions of dollars in bitcoin

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Written by Kamil Arli

Just after midnight on August 11, self-professed night owl Jered Kenna was working at home in Medellin, Colombia, when he was notified the passwords had been reset on two of his email addresses.

He tried to set up new passwords himself by prompting the email service to send him text messages containing a code — but they never arrived.

SO I CALLED THE COMPANY TO MAKE SURE I HAD NOT FORGOTTEN TO PAY MY PHONE BILL

“So I called the company to make sure I hadn’t forgotten to pay my phone bill, and they said, you don’t have a phone with us. You transferred your phone away to another company,” he says. A hacker had faked his identity and transferred his phone number from T-Mobile to a carrier called Bandwidth that was linked to a Google Voice account in the hacker’s possession. Once all the calls and messages to Kenna’s number were being routed to them, the hacker(s) then reset the passwords for Kenna’s email addresses by having the SMS codes sent to them (or, technically, to Kenna’s number, newly in their possession). Within seven minutes of being locked out of his first account, Kenna was shut out of of up to 30 others, including two banks, PayPal, two bitcoin services — and, crucially, his Windows account, which was the key to his PC.

While this would wreak havoc on anyone’s life, it had especially disastrous consequences for Kenna. “I’m an early bitcoiner,” he says. “I don’t think you have to say anything else.”

KENNA WAS SO EARLY IN BITCOIN THAT HE REMEMBERS WHEN HE WOULD HIS

Kenna was so early in bitcoin that he remembers when he would plug his computer into the network and see only four other computers running it. Now, there are more than 5,000. Computers supporting the network are slated into a competition to win bitcoin roughly every 10 minutes. In the early days, the payout was 50 bitcoin each time; now it’s 12.5. Kenna recalls that at a certain point, when he was “only” winning 50 bitcoins a day, he stopped supporting the network, thinking it wasn’t worth it. At today’s price, he was giving up on $40,000 a day.

Though he did have some bitcoins in online services, particularly since his businesses accept bitcoin as payment, he kept almost all his bitcoins on an encrypted hard drive. “It was essentially my never-sell-this-until-it-goes-to-a-billion-dollars nest egg,” he says. He had kept it offline for most of the past several years, but had connected that device in recent weeks to move them somewhere more secure and sell some. Though he had locked it with a 30-character password, the hackers moved the coins off. And unlike a credit card transaction, a transfer of a cryptocurrency is irreversible.

When asked how many bitcoins he lost, Kenna laughs. Confirming only that it was millions of dollars’ worth, he says, “I was one of the first people to actually do anything in bitcoin and I no longer have any bitcoin to speak of,” he says. “I’ve got, like, 60 coins or something, which is nothing compared to — it’s a fraction.

Plus, he still does not have his number back. (T-Mobile declined to discuss individual customer cases.)

IN A LARGER WAVE OF BITCOIN SCAMS THAT HAVE HIT EVERYONE FROM EVERYDAY

In a larger wave of bitcoin scams that have hit everyone from everyday people to hospitals, Kenna’s experience is only one of a spate of recent hackings of high-profile cryptocurrency industry players such as venture capitalists, entrepreneurs, C-level executives and others who have had their phone numbers hijacked, some of whom have also suffered financial losses, several of whom have been threatened or ransomed, and one of whom was put in physical danger.

Their experience is part of a larger trend. In January 2013, the Federal Trade Commission received 1,038 reports of these incidents, representing 3.2% of all identity theft reports to the FTC that month. By January 2016, 2,658 such incidents were filed — 6.3% of all such reports that month. There have been incidents involving all four of the major carriers.

While it’s difficult to put a number on the cryptocurrency hackings, Coinbase, the highest-volume U.S.-based cryptocurrency exchange, says it is on track to see double the number of such cases from November to December among its customers. Industry-wide, targets have included venture capitalists Adam Draper, Brock Pierce, Bo Shen and Steve Waterhouse, an unnamed executive at Coinbase, Gem chief executive Micah Winkelspecht, former Bitfury executive Michael Golomb, early Bitcoiner and entrepreneur Charlie Shrem, miner Joby Weeks, developer Joel Dietz, six affiliates of a decentralized prediction platform Augur, and others who declined to be named for fear of being further targeted.

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WHILE MANY OF THEM DID NOT TAKE A FINANCIAL HIT

While many of them did not take a financial hit, several did, with Kenna’s losses among the largest. Shen had $300,000 of his Augur REP tokens taken, plus an undisclosed amount of bitcoin and other cryptocurrencies. Weeks lost about $100,000 worth of bitcoin, and was cleaned out of his holdings in lesser known cryptocurrencies such as Ether, Ripple and Monero. Additionally, his friends also collectively gave the hacker, who posed as Weeks requesting to “borrow” money, $50,000 worth of cryptocurrency. (Weeks has introduced many people to bitcoin over the years by giving away what he claims is about 1,000 bitcoins, so his friends are well-versed in sending digital currency to each other.) Kenna and other victims also said their hackers have been hitting up friends for bitcoin and other virtual currencies.

But the security weakness being exploited here is not one that only affects cryptocurrency industry players — they are simply being targeted first because such transactions cannot be undone. The security loophole these hackers are milking can be used against anyone who uses their phone number for security for services as common as Google, iCloud, a plethora of banks, PayPal, Dropbox, Evernote, Facebook, Twitter, and many others. The hackers have infiltrated bank accounts and tried to initiate wire transfers; used credit cards to rack up charges; gotten into Dropbox accounts containing copies of passports, credit cards and tax returns; and extorted victims using incriminating information found in their email accounts.

Blockchain Capital VC Pierce, whose number was hijacked last Tuesday, says he told his T-Mobile customer service representative, “It’s going to go from five customers to 500. It’s going to become an epidemic, and you need to think of me as the canary in the coal mine.”

The Phone As Your Identity

In all these cases, as with Kenna’s, the hackers don’t even need specialized computer knowledge. The phone number is the key. And the way to it get control of it is to find a security-lax customer service representative at a telecom carrier. Then the hacker can use the common security measure called two-factor authentication (2FA) via text. Logging in with 2FA via SMS is supposed to add an extra layer of security beyond your password by requiring you to input a code you receive via SMS (or sometimes phone call) on your mobile phone. All fine and dandy if you’re in possession of your phone number. But if it’s been forwarded or ported to your hacker’s device, then that code is sent straight to them, giving them the keys to your email, bank accounts, cryptocurrency, Facebook and Twitter accounts, and more.

Last summer, the National Institutes of Standards and Technology, which sets security standards for the federal government, “deprecated” or indicated it would likely remove support for 2FA via SMS for security. While the security level for the private sector is different from that of the government, Paul Grassi, NIST senior standards and technology advisor, says SMS “never really proved possession of a phone because you can forward your text messages or get them on email or on your Verizon website with just a password. It really wasn’t proving that second factor.”

Worst of all is if the hacker doesn’t have your password but the password recovery process is done via SMS. Then they can reset your password with just your phone number — one factor.

But 2FA via SMS is ubiquitous because of its ease of use. “Not everyone is running around with a smartphone. Some people still have dumb phones,” says Android security researcher Jon Sawyer. “If Google cut off 2FA via SMS, then everybody with a dumb phone would have no two-factor at all. So what’s worse — no two-factor or two-factor that is getting hacked?” (At the end of 2016, 2.56 billion non-smartphones and 3.6 billion smartphones will be in use worldwide, according to mobile industry market research firm CCS Insight.)

This is exactly why Google says it offers 2FA via SMS — it is the method that could offer the most users an extra layer of security. The company also offers users options with higher levels of security, such as an app called Google Authenticator that randomly generates codes or hardware devices like Yubikeys, for users at higher risk (though one could argue those methods should be used by all users who manage any sensitive information such as bank accounts with their email address).

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Even cryptocurrency companies that would seem to fall in that higher risk category still use 2FA via SMS. When asked why Coinbase, which has a reputation for good security, still allows for 2FA via SMS, director of security Philip Martin responded via email, “Coinbase has about five million users in 32 countries, including the developing world. The unfortunate fact is many users have no better technical alternative than SMS, because they lack a smart phone or the technical confidence and knowledge to use more sophisticated techniques. Given those restrictions, our attitude is any 2FA is better than no 2FA.” Another Bitcoin startup also known for strong security and that also has a growing customer base in emerging markets, Xapo, uses 2FA via SMS but plans to phase it out soon.

Jesse Powell, CEO of U.S.-based exchange Kraken, who wrote an extensive blog post detailing how to secure one’s phone number, blames the telcos for not safekeeping phone numbers even though they are a linchpin in security for so many services, including email. “The [telecom] companies don’t treat your phone number like a bank account, but it should be treated like your bank. If you show up without your pin code or your ID, then they shouldn’t help you,” he says. “But they prioritize convenience above all else.”

He says that attitude especially puts people who own cryptocurrency at risk. “The Bitcoin people have a different threat level,” says Powell. The average person might have photos or private information compromised, or be able to ask their bank to reverse the credit card transaction. “But for people in the bitcoin space, there are real consequences,” he says. “The phone companies aren’t building a service for people who are in charge of millions of dollars. They’re in the business of providing a consumer product.”

Fenbushi Capital’s Shen described a mismatch between the security required so far online versus the kind of security needed for those working at the frontier of cryptocurrency. “I think most of the current services like Google, Yahoo or Facebook or Amazon are working out solutions good for the information web,” he says. “Now we are at the value web, which is real money involved.”

The Hacker’s Weapon Of Choice: “Social Engineering”

In order to find that opening through the customer service representative, hackers often employ what’s called social engineering, used in 66% of all attacks by hackers. An elaborate version is demonstrated in this video (starting around 1:55), in which a woman with a baby crying in the background (really just a YouTube recording) claims she’s newly married and doesn’t know what email address is used to log into her husband’s account. She then has the rep change the email and password, locking the victim out.

“When people think of hackers, they think of someone breaking into your computer through software and that is definitely not the way it is happening nowadays,” says Chris Hadnagy, chief human hacker at Social-Engineer, a firm that educates companies on combating social engineering attacks.

Hadnagy says that with LinkedIn, Facebook, Twitter and FourSquare, “I can create a very accurate psychological profile — what you eat, what music you listen to, your work history, marriage history, I know enough about you to pretext as you with most of your utilities and services.” Birthdates are easily discovered on sites like Facebook and birth years deduced from LinkedIn, so a hacker employing social engineering can use that information to call up, say, a telco and claim they forgot the pin to the account but give a birthdate, phone number and address or even the last four of the Social Security Number since it is so commonly used to identify people, to reset that passcode, Hadnagy says. He also notes that in the last two years, hackers have increasingly been using phones to perpetrate a hack because the ability to “spoof” a line — make it seem like you are calling from another number — has become so easy.

“You can do it through most VoIPs for free, and there’s no way to validate it,” he says. “I can take this number you’re calling me from and call you back in a minute from this number. If this is your cell number and you didn’t have a pin, I can call this number from your number and log right into your voicemail. I can call you from the White House. I can spoof any number in the world.”

In the phone hijacking of Micah Winkelspecht, chief executive and founder of blockchain company Gem, a persistent hacker called T-Mobile six times in one day trying to impersonate him. Five times, the hacker was denied access to the account, but the sixth representative let him in and allowed him to move the line to another phone. “This is not the fault of the customers. It’s the fault of the carriers for not following their authentication procedure,” he says. “I was using a password manager, random passwords, 2FA — you name it, I use it.” Winkelspecht, who didn’t lose any money, says he could take every precautionary method available to him and still be victim because “a single employee at a call center can make a mistake and it can compromise your entire digital identity.”

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The experience of Steve Waterhouse, former partner at blockchain and cryptocurrency venture capital firm Pantera Capital, shows just how easy it could be to social engineer when dealing with a customer service agent eager to help. Hijackers ported his number to carrier Bandwidth two months ago. When he recently got his number back, he called up Verizon to turn on international dialing again. The customer service representative asked for the pin on his account. “I said, hang on, let me just remember, because I have a series of businesses and different accounts, and the guy’s like, oh, don’t worry about it, just give me the last four of your Social. I said, whoa, what’s the point of the password then? And he was like, well, you know. And I said, Can I port my number? Actually, I didn’t want to port it — it was a test. And he was like, yeah, no problem, where do you want to send it? And I said, I thought I had port blocking turned on, and he said, hang on, let me look at my notes. And there isn’t a field for this, it’s buried in a series of notes from different customer reps. And he said, oh, that’s right, this happened to you before. Oh wow, you have a high security level. Oh shoot, someone should have put that up at the top of the note. I said, Oh great, so it’s just random. If I get the right person, I can port my number then, and he was like, no, of course not. I thought, this doesn’t sound like security to me.” (Verizon declined to discuss the cases of any individual customers.)

The hackers have a multitude of avenues to obtain personal information. Waterhouse’s hacker initially texted him pretending to be a friend and claimed he was writing a blog post about Waterhouse and his wife and needed to know where they met — information necessary to answer a security question. The hacker of the Coinbase executive tried messaging other execs to change his email password. One hacker told his target that he called up an online retailer up, pretended to be him and said he wasn’t sure what address and number he had on file in order to obtain those pieces of information, which he then used with the telco. (Totally plausible but not true in this case: the retailer hasn’t had any contact with anyone claiming to be this customer for more than a year.)

A number of hackers have gone after the true target’s loved ones either to get access to their phone number or just to hijack the loved one’s account and then extort the target. For instance, Pierce had taken the extra security measure of not having his phone in his name but in the name of a woman with whom he has a personal relationship. On December 9, a man pretending to be Pierce called T-Mobile, requesting her account number. She had a password on the account that the caller is required to give before anyone can gain access to the account, but she says T-Mobile told her the representative forgot to take this step. On the 13th, someone impersonating Pierce called T-Mobile, gave the account holder’s name and the last four of her Social Security Number and ported Pierce’s number to Sprint.

The hacker went after the phone number of Shrem’s fiance. Last July, while he was on the phone with her, she said she noticed her Gmail account wasn’t working, and then within minutes, her phone went dead. Shrem tried to log into her laptop, a Mac, but it said that the device had been reported stolen and had been wiped — the hacker had likely reset her iCloud password via SMS code and then reported it stolen and had it remotely wiped. The hacker then texted Shrem, posing as her, asking for 50 bitcoins.

Source: forbes

About the author

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Kamil Arli

Editor of DigitalReview.co. Digital Media Consultant

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