Top 10 Crypto Disasters and the Lessons Behind Them

The crypto world has gone through multiple crises, affecting both everyday investors and industry leaders. Scandals, fraud, high-profile bankruptcies, and cyberattacks have become an integral part of the market’s history. Even the most reputable projects and platforms have found themselves at the center of disasters worth billions, revealing the industry's underlying vulnerabilities. 

The Mt. Gox Hack (2011–2014)

In the early 2010s, Japan-based Mt. Gox was the world’s largest Bitcoin exchange, processing up to 70% of all BTC transactions. But from the start, the platform’s architecture contained critical vulnerabilities. 

Problems began as early as 2011, when hackers gained access to user accounts and stole thousands of BTC. The situation even worsened due to poor accounting practices and weak internal controls. For years, the exchange was losing funds, often without realizing it. 

By 2014, it was revealed that 850,000 BTC had gone missing, worth around $450 million at the time. Mt. Gox filed for bankruptcy, leaving tens of thousands of investors without access to their funds. As a result, investigations, lawsuits, and compensation proceedings continue to this day. Former CEO Mark Karpelès has since announced plans to launch a new crypto exchange—more secure and transparent. Believe it?

Lesson: Basic security standards and financial reporting are critical. Decentralization is no safeguard against poor management.

The DAO Hack (2016)

The DAO was one of the first large-scale attempts to create a decentralized autonomous organization governed by smart contracts on the Ethereum blockchain. In 2016, it attracted more than $150 million, making it the largest crowdfunding campaign at the time. 

However, a critical vulnerability in the contract code allowed an attacker to execute a reentrancy attack, enabling repeated withdrawals from the contract. As a result, the hacker drained roughly $55 million in ETH—about a third of the total funds. 

The incident sparked a major debate about intervention in blockchain protocols. Ultimately, it led to a hard fork, splitting the network into Ethereum (ETH) and Ethereum Classic (ETC), with the latter preserving the original chain.

Notably, the lucky attacker was never identified. 

Lesson: Even the most sophisticated technological solutions require extensive testing, rigorous smart contract audits, and reliable mechanisms for swift response to critical failures.

More on DAO challenges: Why DAOs Still Haven’t Gone Mainstream

Bitconnect (2016–2018)

Bitconnect promised investors impressive daily returns of up to 1% through a so-called “trading bot” that allegedly executed automatic arbitrage strategies. Users were encouraged to simply deposit funds and watch their balances grow. 

The project quickly gained momentum: the BCC token rose from a few dollars to over $500, with a market capitalization reaching $2.6 billion. 

However, the model closely resembled a Ponzi scheme. Payouts to early users came from new deposits, and the existence of the trading bot was never verified. 

In January 2018, Bitconnect abruptly shut down, and the token’s price plunged to under $1, leaving tens of thousands of investors across Asia, Europe, and the U.S. with massive losses. The fallout triggered criminal investigations and class-action lawsuits against the project’s founders and promoters. 

Lesson: High-yield promises without a transparent business model are a clear red flag for fraud.

More on the topic: The Largest Financial Pyramids in Cryptocurrency History

Coincheck Hack (2018)

Japanese crypto exchange Coincheck suffered a major security breach, losing 523 million NEM tokens worth over $530 million. 

The funds were stored in a hot wallet without multisig protection or other essential security measures. Following the incident, the exchange suspended operations and fully reimbursed affected users. The hack marked the largest theft of digital assets since 2014 and led to stricter regulatory oversight of Japan’s crypto market. 

Lesson: Hot wallets carry significant risks. Large reserves should be stored in secure cold wallets with robust protection.

Squid Game Token Scam (2021)

Riding the wave of global popularity of the Squid Game series, developers launched the Squid token in October 2021, promoting it as a play-to-earn cryptocurrency tied to upcoming Web3 competitions. 

Within days, the token’s price soared from just a few cents to $2,861. However, shortly after, the developers disappeared, deleting the website and social media accounts. The smart contract was deliberately designed with an anti-dumping mechanism, preventing holders from liquidating their positions.

Panic set in, and the token’s price collapsed to zero, with losses estimated at around $3.36 million and thousands of investors affected.

Lesson: Visual branding, viral momentum, and price spikes do not guarantee legitimacy. Always review tokenomics, exit mechanics, and team transparency before investing.

Ronin Network Hack (2022)

In March 2022, hackers breached Ronin Network, an Ethereum sidechain built by Sky Mavis to support the popular game Axie Infinity. The attackers exploited a vulnerability in the network’s validator mechanism. Out of the nine nodes required to approve transactions, the attackers compromised five, giving them full control and the ability to authorize fund withdrawals. 

As a result, the attackers stole 173,600 ETH and 25.5 million USDC, totaling around $615 million at the time. The breach went undetected for six days until a user failed to withdraw funds. Investigators later linked the attack to North Korea’s Lazarus Group.

Sky Mavis later partnered with Binance and other backers to reimburse users and reinforce the network’s security. Still, the incident severely damaged trust in the project and became the largest DeFi hack on record at the time. 

Lesson: Blockchain bridges are essential but highly vulnerable components. Their security requires thorough audits and a fault-tolerant governance design with layered validator checks.

More on the topic: Axie Infinity was hacked through a fake offer on Linkedin

Terra/LUNA Collapse (2022)

The Terra ecosystem, created by South Korean entrepreneur Do Kwon, positioned itself as a breakthrough in decentralized finance. At its core was the algorithmic stablecoin UST, backed not by fiat reserves but by its native token, LUNA. Smart contracts automatically managed the UST peg to the U.S. dollar. 

In spring 2022, UST lost its peg, triggering a rapid devaluation of LUNA. Within days, its price collapsed, and investor losses reached an estimated $45 billion. The fallout severely impacted not only Terra but also the broader DeFi sector, undermining confidence in algorithmic stablecoins.

Do Kwon soon became the focus of an international criminal investigation. Prosecutors charged him with fraud, securities violations, and misuse of investor funds. In 2023, authorities arrested him in Montenegro for using falsified documents, triggering an extradition battle between the United States and South Korea. 

His case underscored how rapid growth and bold technological claims, without accountability, can lead to systemic failure. 

Lesson: Transparency, oversight, and real reserves are essential for any stablecoin’s long-term stability.

The Collapse of FTX and the Sentencing of Sam Bankman-Fried (2022–2024)

The collapse of crypto exchange FTX in 2022 became one of the most prominent scandals in the industry. Investigators found that the company had improperly transferred billions in customer funds to its affiliated hedge fund, Alameda Research. 

FTX founder Sam Bankman-Fried was convicted of fraud and sentenced to 25 years in prison in 2024. Alameda CEO Caroline Ellison, Bankman-Fried’s associate and former romantic partner, cooperated with authorities and received a significantly lighter sentence (two years behind bars).

Estimates place client losses at $15 billion. While some compensation payments have already begun, full repayment remains a distant prospect. The case has become a symbol of what unchecked control and lack of transparency on centralized platforms can lead to.

Lesson: Brand size and recognition do not guarantee the integrity of founders. Regulatory oversight and audits are essential—even for the industry's biggest players.

More on the most notorious collapse in our article: The Story of “Unlove” That Cost the Crypto World $100 Billion

Bybit Hack (February 2025)

On Feb. 21, 2025, crypto exchange Bybit suffered the largest hack in the industry’s history. Hackers associated with the Lazarus Group stole around 400,000 ETH (roughly $1.5 billion at the time).

The breach exploited a vulnerability in the Safe Wallet infrastructure used by the platform. Malicious code allowed attackers to gain control over cold wallets and withdraw the funds.

Bybit claimed that all customer assets were fully insured and the losses were 100% reimbursed. The exchange also brought in external partners and launched a program to trace the stolen funds.

Lesson: Even technically advanced systems need multilayered security, especially with rising threats from cybercriminals. The good news: Bybit’s leadership handled the crisis effectively and kept the platform steady. 

Coinbase Hack (May 2025)

In May 2025, Coinbase suffered a major data breach caused by internal sabotage. More than 69,000 customers were affected, with compromised data including names, addresses, phone numbers, banking details, and identity documents. 

Hackers gained access through bribed customer support staff and demanded $20 million in crypto, threatening to publish the stolen information. However, Coinbase refused to pay the ransom and instead offered the same amount as a reward for help in tracking down the attackers.

The incident sparked a wave of lawsuits, eroded investor trust, and drew sharp criticism of Coinbase’s internal security practices. Especially concerning was the context: the breach came amid a spike in abductions targeting crypto investors. The release of personal data heightened the physical risk to clients, particularly large asset holders.

Lesson: Not all threats come from outside. Internal access controls, behavioral monitoring, and proactive security protocols are essential safeguards in today’s crypto landscape.

More on the topic: Who’s to Blame? Coinbase Faces Scrutiny Over Data Breach Response

The history of the crypto market shows that behind innovation and rapid growth often lie serious risks. From technical flaws to human error, the causes of loss are many.

These catastrophes serve as a reminder that security, transparency, and a sober view of risk must always come first. Every investor should be both an optimist and a skeptic. Critical thinking is what helps avoid losses and protect capital in this fast-moving but unpredictable world.

For practical tips on protecting your exchange funds, read our article: 8 Commandments for Crypto Exchange Users