Liquid Network Recovers from Bitcoin Heist with Enhanced Security

The Liquid Network has confirmed that services have resumed over a month after a significant security breach, where hackers withdrew 4,000 bitcoins from its federation wallet, translating to approximately $320 million at the time of the theft. Following negotiations, the majority of the stolen funds have since been returned in a “white hat” operation.

Current Status and Recovery Efforts

In a recent blog post, the Liquid Network announced that it is now entering the final stages of its recovery process, incorporating enhanced security protocols. “The final phase of restoration involves reestablishing the network’s full 1:1 bitcoin backing, followed by the controlled reactivation of Federation peg-outs for authorized PAK key holders,” the update stated.

Details of the Security Breach

In September, hackers exploited an inflation bug within the Liquid sidechain, generating 4,000 LBTC—a token intended to be backed by bitcoin—that did not exist prior to the incident. The attackers were able to convert this fabricated currency into actual, on-chain bitcoin.

Notably, during their interactions with Blockstream, the organization behind Liquid, the hackers referred to themselves as “white hat” actors. However, criticisms emerged over the fact that they retained 15% of the stolen assets, estimated to be valued at around $50 million at current prices.

Negotiations and Threats

Documented communications from the hackers indicated that they criticized Blockstream, labeling the company as “delusional, greedy, and arrogant.” They threatened to expose encrypted messages if they were not compensated with 10% of the bitcoin as an official bounty. “You SHALL pay 10% using your own money as bug bounty or you will cause all your holders a 15% loss for your irresponsibility and stinginess,” they declared.

Recent Developments

Despite the challenges posed by this incident, the Liquid Network has resumed phased swaps, facilitating the trading of stablecoins for bitcoin. Blockstream CEO Adam Back confirmed on X that the swaps are operational once again, signaling a move towards normalcy.

Liquid, a layer-2 solution developed by Blockstream, is designed to efficiently transfer assets that are backed on a 1:1 basis with bitcoin. The recovery efforts aim to ensure the safety and reliability of its services for users.

Ongoing Security Measures

The Liquid Network, in partnership with Blockstream and independent security experts, has reported substantial advancements in fortifying its infrastructure and safeguards. As the network approaches full recovery, it remains committed to ensuring the safety of its users’ assets.