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In the largest cryptocurrency heist ever, hackers stole US$6.3billion (A$9.2 billion) last month from cryptocurrency exchange Binance, with North Korea suspected to be responsible. Binance responded quickly, freezing about half of the funds and suspending withdrawals, and has since covered all customer losses. 

This swift action saved its user base and kept losses in the broader crypto market relatively minor. However, the broader industry’s response raises more questions than it answers about crypto’s main tenet of “decentralisation”.

Unlike a traditional currency or security, many cryptocurrencies like Bitcoin are not controlled by an issuing government or central bank, but rather by an underlying cryptographic code and algorithms. Many early adopters were drawn to this decentralised element. But since the industry has grown to more than US$2 trillion, it finds itself caught between its first principles and the demands of a maturing market. 

“Crypto was originally designed to bypass all of the intermediaries and the central banks and that sort of stuff, so you’ve got to take the good with the bad,” Jeremy Britton of crypto trading fund, Boston Trading, told Crikey.

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“Everybody wants the Wall Street money to come in, but institutional money brings institutional problems and institutional behaviour.”

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The FBI blamed the October 29 hack on a North Korean group known as TraderTraitor, a claim North Korea denies. The FBI had also pinned TraderTraitor as responsible for last year’s high-profile US$1.5 billion hack of another crypto exchange, ByBit.

Immediately after the Binance heist, the hackers split the stolen billions over thousands of digital wallets. This was done using  “cross-chain swap” services, which effectively helped launder the digital assets. They are a legitimate service that allows users to transfer digital assets — faster and with less cost — between different blockchains, such as Bitcoin or Ethereum. These services can also make funds more difficult to track.

One service, THORchain, processed more than US$46 million in stolen funds within 72 hours of the heist, and continued processing after FBI requests to stop. THORchain doesn’t do this for free, and collected more than US$200,000 in transaction fees connected to the hack. The platform also faced criticism after earning millions in processing fees from stolen funds in last year’s ByBit hack.

Herein lies the central tension of the crypto industry: the privacy and ownership of decentralised assets versus the convenience and backing of centralised platforms like Binance.

THORchain is a decentralised platform, apparently run by transparent algorithmic protocols — i.e. there’s no top-down governance calling the shots. By comparison, Binance is a centralised exchange with full custody over its users’ assets. Despite many hardcore crypto believers feeling this defeats the point of the technology, the platform remains immensely popular: a 2024 survey found more than half of all crypto investors use it as their primary exchange.

“Fundamentally, this is what crypto was created for: decentralisation,” Sydel Sierra from Digital Wealth Group told Crikey. “Critics were saying that [THORchain] should be ashamed of themselves,” Sierra continued. “[But] decentralised chains don’t have control over those [funds], and this has been the perfect example of it.”

THORchain did actually pause access to 10 blockchains, including Bitcoin and Ethereum, at the same time as the Binance hack, dramatically slowing down the hackers’ ability to mix their ill-gotten funds. Critics point to this as proof the decentralised service has more control over its network than it is suggesting.

But as co-founder Chad Barraford told a podcast recently, “The protocol has no ability to censor individual transactions or wallets — the code doesn’t even really exist to begin with.”

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In the weeks since the hack, analysts report the funds have now been split across more than 20,000 wallets over at least 65,000 transactions. That equates to a new wallet every 30 seconds and a transaction every 10 seconds, leading to speculation that the hackers are using AI agents to move the funds. 

The hackers are also creating their own memecoins to further disguise the stolen assets. Usually associated with a joke or meme, such as Doge or even $TRUMP, these near-worthless tokens are extremely cheap to produce and can be made in basically limitless quantities. These new tokens can spring up more quickly than they can be tracked down, and are just added to the never-ending list of junk coins that few people will ever buy.

The hackers didn’t make off with the full bounty, with Binance able to coordinate the freezing of about US$2.85 billion in stablecoins as soon as the heist was detected. These stablecoins are cryptocurrencies pegged to the US dollar and issued by a centralised company that maintains control over them. It was this centralised control that ultimately saved them from theft, but it’s also been a red flag for others who think if you don’t have ultimate control over your assets, you may as well not be in crypto.

Decentralised cryptos like Bitcoin and Ethereum can’t be frozen like this, and so the hackers made off with billions of them. Despite this, Bitcoin and the entire crypto market remained relatively stable in the wake of the theft. Bitcoin lost just over 6% immediately after the October 29 hack, while Binance’s native token, BNB, lost just 8%. 

Since the sudden resignation of Nvidia boss Jensen Huang, however, Bitcoin has lost a further 10%. Even so, this is still a far cry from the crypto crashes of the past.

“This comes to market maturation, doesn’t it? This market has really held the floor.” Sierra said.

“If this happened back in 2017 or even 2021, the entire crypto industry would have just been crushed.”