Why Exchange Hacks Persist & How Traders Can Stay Secure

Since late January, the crypto market has been in a phase of consolidation, with Bitcoin struggling to break key resistance levels and investor sentiment turning cautious. Bybit’s hack in late February further intensified concerns, exposing vulnerabilities in Web3 platforms and reinforcing doubts about the security of centralized exchanges. While the industry has endured exchange breaches before, this incident serves as yet another reminder that security risks remain a persistent challenge, prompting traders to reassess their risk management strategies.

Bybit’s Security Failure: The Biggest Loss in History

On February 21, 2025, hackers infiltrated Bybit, one of the largest cryptocurrency exchanges, stealing approximately $1.5 billion in Ether (500,000 ETH). Reports suggest that the attack was orchestrated by the North Korean state-backed Lazarus Group, notorious for large-scale crypto heists.

The attackers exploited a flaw in Bybit’s cold-to-warm wallet transfer mechanism, swiftly executing a premeditated plan to drain assets while obfuscating their movements. Staked Ether tokens were also taken, further complicating potential recovery efforts. Analysts speculate that the breach may have involved compromised private keys or manipulated transaction signing. The hackers reportedly replaced Bybit’s multisignature contract with a malicious version, using blind signature tactics to bypass security protocols.

Bybit CEO Ben Zhou has since attempted to reassure users through regular updates on the investigation, security reinforcements, and recovery measures. However, the sheer scale of the breach raises critical questions about exchange security and how such attacks continue to succeed despite previous warnings.

How the Response Matters: A Case Study from Phemex

Even the most secure exchanges face cyber threats, but how they respond makes a significant difference. Phemex, a hybrid exchange, suffered a sophisticated attack in late January. Rather than downplaying the incident, the team acted swiftly, prioritizing transparency and security enhancements.

CEO Federico Variola assured users that the vast majority of funds were protected and that the exchange would cover all losses. Phemex immediately notified users and provided them with a Merkle Tree Proof-of-Reserves Tool to verify their assets, preventing widespread panic.

Phemex’s swift response to the attack restored user confidence.

The attack, which targeted Phemex’s hot wallet through social engineering on January 23, resulted in an estimated $85 million loss. Despite this, the exchange restored core operations within 24 hours—one of the fastest recoveries in crypto history. Efforts to recover stolen funds were initiated, with stolen assets appearing on other platforms being promptly frozen.

Recognizing the need for stronger defenses, Phemex overhauled its security infrastructure. The team integrated AWS Nitro for chip-level protection and adopted a tiered wallet system to reduce hot wallet exposure. Additional security teams were recruited, and third-party certifications were pursued to ensure ongoing security improvements.

Phemex’s handling of the breach exemplifies how an exchange’s response can shape user confidence. By being transparent, swiftly restoring functionality, and reinforcing security, Phemex reassured its users and minimized panic.

How Users Can Protect Their Assets

While exchanges play a critical role in securing user funds, they are not infallible. Even the most advanced security measures can be compromised, making it essential for traders to take control of their own asset protection strategies. Given the frequency of exchange breaches, traders must take proactive steps to secure their funds. Here are some suggestions for them.

Use Cold Storage for Long-Term Holdings: Hardware wallets and offline storage significantly reduce the risk of hacks since they keep assets disconnected from the internet. Exchanges, being frequent targets of cyberattacks, should only be used for active trading, not for storing long-term holdings.

Enable Strong Security Measures: App-based two-factor authentication (2FA) adds an extra layer of protection against unauthorized access, while SMS-based authentication is vulnerable to SIM-swapping attacks. Strong, unique passwords stored in a password manager help prevent breaches caused by credential leaks.

Diversify Holdings Across Platforms: Spreading funds across multiple exchanges or wallets minimizes the impact of a single-point failure. Decentralized wallets provide additional security by reducing reliance on third parties, which are often targeted by hackers.

Beware of Social Engineering Attacks: Hackers frequently use phishing emails, fake websites, and impersonation tactics to steal credentials. Verifying official communications and double-checking URLs before logging in helps prevent falling victim to these schemes.

Monitor Exchange Proof-of-Reserves & Security Updates: Proof-of-reserves tools allow users to verify an exchange’s asset holdings, reducing the risk of insolvency or mismanagement. Staying updated on security measures helps traders make informed decisions about which platforms to trust.

Withdraw Profits Periodically: Regularly transferring profits to self-custody wallets ensures that earnings remain under the trader’s control. This reduces the risk of losing funds to unexpected exchange failures, hacks, or regulatory actions.

What Security Measures Does CoinEx Have in Place?

Choosing a trustworthy platform is one of the most critical decisions for any crypto trader. With the increasing frequency of exchange breaches, users must consider not only an exchange’s trading features but also its security infrastructure and crisis management strategies. CoinEx, for instance, has established a comprehensive security framework that integrates multiple layers of asset protection.

Cold Storage for Long-Term Holdings

CoinEx uses a multi-layered asset storage system, keeping the majority of user funds in offline cold wallets. This approach reduces the risk of large-scale theft, as hackers would find it nearly impossible to access these assets remotely.

Strong Security Measures

The exchange encourages two-factor authentication (2FA), an essential security step for preventing unauthorized logins. While CoinEx supports app-based 2FA, the effectiveness of this measure still depends on users enabling it. Additionally, the platform employs encryption and DDoS protection, further safeguarding accounts and transactions from attacks.

Enhanced Fund Security with Multi-Signature Protection

CoinEx mitigates risks by using multi-signature protocols for transactions. This ensures that even if a single key is compromised, hackers cannot easily withdraw funds without multiple approvals.

Social Engineering & Phishing Prevention

To counter phishing attempts, CoinEx offers anti-phishing codes that help users verify official communications. This is an important defense against malicious actors impersonating the exchange to steal login credentials.

Users could set up an anti-phishing code in their security settings.

Transparency Through Proof-of-Reserves & Security Updates

CoinEx has implemented a periodic proof-of-reserves, as well as security updates and reassurances regarding its asset management approach. The exchange also maintains 24/7 risk monitoring to detect suspicious activities.

Encouraging Profit Withdrawals & User Control

CoinEx allows users to whitelist withdrawal addresses, ensuring that even if an attacker gains access to an account, withdrawals can only be made to pre-approved destinations. While this doesn’t directly encourage periodic withdrawals, it does enhance fund security for users who choose to keep assets on the platform.

Users could set up a withdrawal whitelist in the API management setting.

Taking Control: A Proactive Approach to Crypto Security

In an industry where security breaches remain a persistent threat, traders must take an active role in safeguarding their assets. Relying solely on exchanges for protection is not enough—security should be approached as a shared responsibility. By implementing strong personal security measures, diversifying asset storage, and staying informed about emerging threats, traders can significantly reduce their risk exposure. The landscape of cryptocurrency is constantly evolving, and with it, so are the tactics of cybercriminals. Only those who remain vigilant, proactive, and adaptable can navigate this space with confidence and minimize potential losses.