CASE STUDY | Bitcoin Settlement Network, Liquid, Hit by Over $300 Million Exploit

Liquid Network, a Bitcoin-based settlement network used by cryptocurrency exchanges, halted new transactions after about $320 million worth of bitcoin was withdrawn from its federation wallet in a security exploit.

Around 4,000 of the 4,200 bitcoin held in the wallet were taken by individuals describing themselves as ‘white-hat hackers’, according to Liquid Network.

The network, launched by Blockstream in 2018 and overseen by a federation of more than 80 exchanges, infrastructure firms, and asset managers said it was working to restore normal operations.

The incident did not involve a compromised private key. Instead, the funds were moved through SideSwap, an authorised platform used to facilitate transactions on Liquid.

Blockstream said the exploit was linked to a software bug in Elements, the open-source technology underpinning Liquid. SideSwap said it could not distinguish bitcoin created through the bug from legitimate funds and therefore treated the assets in the same way.

The incident highlights the security risks facing crypto infrastructure as exchanges increasingly rely on blockchain networks and settlement layers to move large amounts of digital assets.

Liquid has not said when transactions will resume or whether the withdrawn bitcoin will be returned.

CASE STUDY | Bitcoin Payment Infrastructure Hit by Exploit Targeting Lightning Nodes

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