Crypto Exchange Hacks: The Methods Hackers Use and Self-Protection

The Bybit hack is a fresh reminder that even the biggest crypto exchanges remain vulnerable. On February 21, 2024, Bybit, one of the industry’s largest platforms, reported a staggering 401,000 ETH theft—valued at around $1.5 billion. If verified, this would rank among the most devastating breaches in crypto history.

Bybit’s CEO, Ben Zhou, explained that the attack took place during a routine transfer from a cold wallet to a warm wallet, a necessary process for managing liquidity. The attackers manipulated the transaction at the smart contract level, making it appear as though funds were moving to a legitimate address, while in reality, they were being drained into the hackers’ wallet.

Even exchanges with multi-layered security and massive budgets remain targets. This underscores the need for crypto users to understand common hacking techniques and consider alternative, more secure ways to store their assets.

Phishing—The Classic Scam Still Draining Crypto Wallets

Phishing is a long-standing cybercrime method, where fraudsters manipulate users into handing over their exchange logins and private credentials.

They set up convincing clones of real websites or send out fraudulent alerts disguised as official exchange communications. Once a user logs in, the attackers gain instant access to their funds, often leading to devastating losses.

The term “phishing” (from “fishing”) is no coincidence—hackers behave like seasoned fishermen, throwing out deceptive links and fake login pages as bait. When users fall for the trick, the criminals haul in the prize—but instead of fish, it’s stolen digital assets.

Recommended: Persistent Threat: The Issue with Phishing Links

According to CertiK’s dedicated report, phishing scams are becoming more dangerous than ever. Losses in Q3 2024 alone amounted to $753 million, reflecting a 9.5% increase from the previous quarter.

Phishing begins with a simple yet effective trick: convincing the victim to interact with a counterfeit website. Hackers deploy targeted advertising, fake emails posing as exchanges, fraudulent job offers, phony prize giveaways, and malicious apps to execute their attacks.

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Contextual Advertising

Hackers weaponize search engines by buying ad space, making fraudulent crypto exchange websites appear at the top of search results. A user looking for “Binance login” might see a convincing fake ad leading to binnance.com—a domain nearly identical to the real one, but with a small typo. The site looks authentic, but the moment credentials are entered, they’re stolen by scammers.

A striking case: in April 2023, Google Ads reported that phishing sites promoted through its network had led to over $4 million in user losses.

For weeks, Google’s search engine has been flooded with phishing ads, according to ScamSniffer. These ads redirect users to fake websites, where they are tricked into signing a wallet login request, unknowingly handing over access to their crypto funds.

Scammers specifically targeted high-profile DeFi platforms and crypto services, including Zapper.fi, Lido, Stargate, DefiLlama, Orbiter Finance, and Radiant, exploiting trust in well-known brands to steal user credentials.

Emails Disguised as Crypto Exchange Alerts

Crypto scammers frequently send fraudulent emails designed to look like official exchange notifications. The subject line often reads, “Your Account Has Been Restricted!” or “Security Update Required Immediately!”, creating fear-driven urgency.

The email contains a link to a fake website, perfectly replicating the original platform. Scammers also manipulate the sender's email domain to look legitimate—so instead of [email protected], users might receive a message from [email protected].

To increase their success rate, hackers apply psychological pressure, warning users that failure to act immediately could result in losing account access or funds—forcing them into hasty, uninformed decisions.

As phishing scams grow more sophisticated, crypto exchanges have implemented extra security layers to help users recognize fraudulent emails. One of the most effective tools is the anti-phishing code.

Users can set up a unique phrase upon registration, which will appear in every official exchange email. If an email doesn’t contain this pre-set message or has a different one, it’s likely a phishing attempt trying to steal credentials.

Crypto Giveaway Scams

One of the most common phishing tactics is the “free crypto” scam, where fraudsters lure users with fake giveaways. Ads with headlines like “Win 1 BTC instantly!” or “Get $500 in crypto today!” appear on social media, directing victims to a phishing site that steals their credentials.

Scammers often operate through Twitter, Telegram, and other social platforms, setting up fake accounts posing as influencers or major exchanges. The goal? To make their fraudulent giveaways look as real as possible.

Some attackers bypass social media entirely, instead using phishing emails that deliver the scam straight to a user's inbox, making it even harder to spot.

In 2018, Binance users were hit by a phishing attack disguised as a beta testing offer for the exchange’s Windows app. To make it more convincing, scammers offered 0.5 BTC as a reward.

To claim their “reward,” victims had to download a malware-laced app and log in using their Binance credentials. Predictably, this ended in compromised accounts and stolen funds.

Crypto Exchange Vulnerabilities—Smart Contract and API Exploits

Even the most advanced crypto exchanges can be compromised if their smart contracts or APIs contain critical security flaws. These weaknesses can give hackers the ability to withdraw funds illegally or tamper with transactions on exchange wallets.

One of the most exploited vulnerabilities is the Re-entrancy Attack, a loophole that lets an attacker continuously execute a contract function before the previous one completes. A prime example is the 2016 breach of The DAO, where 3.6 million ETH was stolen due to this flaw.

If an exploit like this worked on The DAO, it could just as easily be used to breach exchange wallets, putting billions of dollars at risk.

Another major security loophole is integer overflow and underflow, which occurs when mathematical calculations exceed variable limits. If a smart contract fails to handle these exceptions, it can lead to misallocated funds or contract failures—potentially exposing millions in crypto to theft.

Crypto exchange APIs are also prime targets. Weak implementations can allow hackers to manipulate market prices or execute unauthorized trades. A devastating example took place in 2023, when Bitmart suffered an API breach, leading to a loss of over $200 million.

To stay ahead of these threats, developers must run routine security audits and stress-test vulnerabilities. Crypto users, too, should remain cautious—always verifying the reputation and security track record of any platform before entrusting their funds.

Crypto’s Invisible Enemy: The Risk of Insider Attacks

The biggest security risk for a crypto exchange isn’t always an external hacker—it can be someone inside the company. Employees with privileged access have the potential to steal funds, leak private data, or sabotage internal systems.

Insider attacks can be subtle but devastating. A corrupt employee might access user wallets and conduct unauthorized withdrawals. In some cases, insiders work directly with cybercriminals, providing them with insider access to exchange systems.

Though insider fraud is rarely publicized, the crypto industry has already seen cases of internal leaks, proving that security threats aren’t always external.

On January 13, 2025, more than 7 million email addresses compromised in the 2022 OpenSea data breach were publicly leaked online. The breach was traced back to a Customer.io employee, who handed over OpenSea’s client email list to an unknown third party.

Сheck this out: 7 Million OpenSea User Emails Leaked Online. 

To strengthen internal security, crypto exchanges have ramped up employee monitoring and regular audits. This helps them detect red flags in real time and shut down insider threats before they cause irreparable damage.

To counter insider threats, crypto exchanges now conduct security awareness training for all employees. This initiative helps instill best practices, ensuring staff members are vigilant against scams and less likely to fall victim to social engineering. Without these measures, hackers could exploit employees as weak points in exchange security.

A truly robust security strategy focuses not only on external defenses but also on internal safeguards, minimizing the risk of insider fraud while protecting users from financial harm.

Related: WhiteBIT’s Cybersecurity Tips

Protecting Yourself from Exchange Hacks: What You Need to Know

Exchanges are one of the weakest links in the crypto ecosystem, frequently targeted by hackers due to the sheer volume of funds they hold and persistent security flaws. It’s no coincidence that some of the largest heists in crypto history have taken place on exchanges.

From the Bybit hack to the infamous Mt. Gox disaster in 2014 and the FTX collapse in 2022, history has shown that trusting exchanges with your funds can be a costly mistake.

While no security measure is 100% foolproof, one principle stands above the rest: don’t store your crypto on exchanges. Trading on them is fine, but keeping your funds there means forfeiting control. If a platform is breached, goes under, or freezes accounts, recovering your assets may be impossible.

The golden rule of crypto security? Control over private keys equals control over funds. This is what separates custodial wallets, where a third party holds the keys, from non-custodial wallets, where the user is in complete control.

For those who prioritize security, alternative storage methods are essential, as they dramatically reduce risks of hacks, exchange failures, and asset freezes.

Best ways to secure your crypto holdings:

• Cold Storage (Hardware Wallets) – Ledger, Trezor

These wallets keep your private keys offline, protecting them from remote attacks. Even if your computer is infected, your assets remain secure. The downside? They’re not ideal for frequent transactions and require safe storage of both the device and seed phrase.

• Hot Wallets (Mobile & Web-Based) – MetaMask, Phantom, Trust Wallet

Designed for speed and accessibility, hot wallets allow you to trade, use dApps, and manage NFTs with ease. However, their biggest weakness is security—they are vulnerable to phishing, malware, and hacks. If your device is compromised, so is your wallet.

• Multi-Signature Wallets – Gnosis Safe

These wallets require multiple approvals for transactions, making them highly resistant to unauthorized access. However, they require a complex setup and trusted co-signers. Want to know more? Read our in-depth guide on multi-signature wallets.

Choosing the right storage method depends on your needs. Cold wallets are ideal for long-term security, hot wallets offer ease of use, and multi-signature solutions provide an extra layer of protection.

One essential principle: Always spread your holdings.

If you're holding substantial funds, the best approach is diversification. By distributing assets across multiple exchanges and wallets, you limit potential damage—ensuring that a single breach won’t drain your entire portfolio.