The recent security breach at WazirX, resulting in the theft of over $230 million, has sent shockwaves through the Indian cryptocurrency market, prompting a reassessment of security measures across the industry. The heist, which compromised 45% of WazirX’s crypto assets, has highlighted significant vulnerabilities and spurred other crypto exchanges to enhance protections for customers’ wallets and funds.
In response to the breach, several exchanges are introducing programs to safeguard customer assets, including compensatory funds to settle accounts affected by cyberattacks. Despite these measures, experts warn that incorporating traditional insurance for crypto assets remains a significant challenge due to regulatory uncertainties and the complex nature of digital asset classification.
The incident has intensified scrutiny on WazirX, which has been under investigation since 2022 over its ownership dispute with Binance and previous raids by the Enforcement Directorate. The security breach has exacerbated the firm’s troubles, leading to a public blame game between WazirX and its wallet service provider, Liminal Custody, each accusing the other of responsibility for the hack.
The breach has also prompted legal backlash from WazirX users, many of whom were unaffected by the hack but now face the prospect of having 45% of their assets locked under a proposed recovery plan. This strategy, designed to distribute losses among users and rebuild the business, has sparked legal challenges and widespread dissatisfaction among investors.
Lack of insurance
The lack of mandatory insurance provisions and regulatory clarity has further compounded the industry’s woes. The absence of clear guidelines for the classification and insurance of virtual digital assets (VDAs) has made it difficult for insurance companies to underwrite policies for crypto exchanges. This regulatory gap leaves exchanges and their customers vulnerable to cyberattacks and thefts.
Industry experts emphasise the urgent need for comprehensive regulation to protect users and provide a stable framework for the crypto sector. The Indian government’s stance on cryptocurrency has been ambiguous, with previous draft regulations proposing a ban, but no definitive actions have been taken since.
As the industry grapples with the aftermath of the WazirX heist, the focus is on improving security practices and seeking regulatory clarity to prevent future incidents. Until then, the Indian crypto market remains on high alert, with users and exchanges navigating a precarious landscape fraught with risks and uncertainties.
