The recent $1.5 billion hack of cryptocurrency exchange Bybit has sent shockwaves through the crypto community. If confirmed, it would rank among the largest thefts in the industry's history, allegedly orchestrated by North Korean hackers. This breach raises urgent questions about the security of centralized exchanges (CEXs) and whether investors should continue entrusting them with their digital assets.

As the investigation unfolds, it’s crucial to analyze how this attack happened, how it could have been prevented, and how individual investors can protect themselves from similar threats. While centralized exchanges offer convenience, this incident reinforces a growing truth: self-custody is the safest option for holding crypto assets.

Timeline of the Bybit Hack

1. A Routine Cold Wallet Transfer

Bybit initiated a multisig transfer from its cold wallet to a warm wallet, a standard operational process.

Multisig means that multiple authorized signers (executives or security officers) must approve the transaction before it executes.

2. The Attack Was Already in Motion

The attackers had possibly compromised every multisig signer’s device with malware.

When the signers reviewed the transaction, the UI showed the correct wallet address and a legitimate transaction on the @safe platform (formerly Gnosis Safe, a popular multisig protocol).

3. A Hidden Transaction Manipulation

Behind the scenes, the actual signing request was not for a transfer—it was a request to change the smart contract logic of the ETH cold wallet.

Once all signers approved what they thought was a normal transfer, the hackers gained full control of the ETH cold wallet.

4. Complete Takeover and Theft

With the contract permissions changed, the attackers drained all ETH from the cold wallet. The funds were transferred to an unidentified address, making recovery nearly impossible.

5. Bybit’s Response

The exchange paused the compromised wallet but assured users that all other cold wallets were secure.

Withdrawals remained open, indicating Bybit had backup reserves or alternative wallets unaffected by the hack.

How Did This Hack Happen?

This attack wasn’t a direct breach of Bybit’s infrastructure—it was a targeted, multi-stage compromise of all the individuals responsible for authorizing cold wallet transactions. The hackers most likely:

1. Identified Every Multisig Signer

   • The attackers somehow discovered who at Bybit had signing authority over cold wallet transactions.
   • This could have been done through leaked internal documents, social engineering, or even surveillance.

2. Infected Each Signer’s Device with Malware

   • Every signer’s device was compromised before the transaction request was even made.
   • This suggests a highly coordinated cyberattack involving phishing, trojans, or custom-built malware.you

3. Manipulated the UI to Show a Fake Transaction

   • The hackers altered the transaction details displayed in the multisig signing interface.
   • The signers saw a normal wallet transfer, but in reality, they were approving a smart contract modification.

4. Gained Full Control Over the ETH Cold Wallet

   • By approving the manipulated transaction, the signers unknowingly handed over complete wallet control to the hackers.
   • The attackers then emptied the wallet into an address they controlled.

This method is particularly frightening because it didn’t rely on exploiting smart contract vulnerabilities or brute-force hacking. Instead, it exploited human trust in the multisig system, proving that even decentralized approval mechanisms can be tricked if the signers are compromised.

How This Could Have Been Prevented

This attack challenges long-standing assumptions about cold wallet security. Traditionally, multisig setups were considered the safest way to protect crypto assets, but this breach redefines cold wallet security and highlights several critical failures that could have been avoided.

First, the failure of Bybit’s signers to independently verify the actual transaction details before approval. If the multisig system had enforced out-of-band verification—such as manually confirming transactions through a separate device or network—this attack might have been caught before execution.

Second, the potential compromise of every signer’s device. This indicates a major operational security (OpSec) failure at Bybit. The exchange could have enforced hardware-based security keys, air-gapped transaction signing, or required signers to use dedicated, isolated devices for wallet approvals.

Lastly, Bybit could have implemented stronger safeguards for smart contract modifications. Instead of allowing contract changes through the same multisig process used for transfers, a separate governance mechanism with time-locked execution could have given security teams enough time to detect and reverse unauthorized changes.

Unfortunately, these precautions weren’t in place—or weren’t enough—to stop the attack.

How Can Retail Investors Protect Themselves?

This breach is a harsh reminder that trusting centralized exchanges comes with risks. If Bybit—a top-tier exchange—can be hacked, no exchange is completely safe. Here’s how you can safeguard your crypto holdings:

1. Move Your Crypto to a Self-Custodial Wallet

• Exchanges are honeypots for hackers. Keeping assets on a CEX means you’re at risk of losing everything overnight.
• Use a self-custodial wallet like CoinWallet to store your crypto

2. Use Cold Storage for Long-Term Holdings

• If you’re holding significant crypto investments, use a hardware wallet that remains offline.
• Avoid keeping large sums in hot wallets that are always online and susceptible to attacks.

3. Enable Multi-Factor Authentication (MFA)

• If you must use an exchange, activate 2FA (Two-Factor Authentication) to prevent unauthorized access.
• Use hardware security keys like YubiKey for an added layer of security.

4. Verify All Transactions Before Signing

• For users engaging in DeFi or multisig transactions, always verify the transaction hash manually before signing. Never assume that the UI is showing the correct details.

5. Beware of Malware and Phishing Attacks

• Hackers often use fake wallet updates, phishing emails, or malicious browser extensions to gain access to private keys. Always download wallets and software from official sources only.

By following these practices, you ensure full control over your assets—without relying on third parties.

The Future of Crypto Security: Time to Rethink Custody

The Bybit hack wasn’t just another breach—it was a wake-up call for the entire industry. If an attack of this sophistication can succeed, no centralized exchange is truly safe. This event proves that "not your keys, not your coins" is more than just a mantra—it’s a survival rule in crypto.

For serious investors, the path forward is clear: embrace self-custody. Move funds to hardware wallets, enable strict verification protocols, and stay vigilant against sophisticated attack vectors.

Take Control of Your Crypto Today

Don’t wait for another exchange hack to take action. Switch to a self-custodial wallet now and secure your assets against future threats.