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Cryptocurrency exchange Kraken recently revealed that it had fallen victim to a critical security flaw, resulting in the appropriation of $3 million worth of <a href="https://bitcoinist.com/kraken-ipo-planned-100-million-funding-injection/" target="_blank" rel="noopener ">digital assets </a>by a research team.&nbsp; 
The incident unfolded after the exchange received a bug report through its bug bounty program on June 9 from a self-described security researcher who claimed to have discovered an “extremely critical” bug that allowed him to “artificially inflate” his balance on the platform.&nbsp; 
However, the situation took an unexpected turn when it was discovered that the researcher and their associates had exploited the flaw to withdraw a substantial sum. Kraken has launched a <a href="https://bitcoinist.com/kraken-sees-largest-bitcoin-ethereum-outflows-2017/" target="_blank" rel="noopener ">criminal investigation</a> into the matter and is coordinating with law enforcement agencies to address the incident. 
<h2 id="kraken-faces-extortion-attempt">Kraken Faces Extortion Attempt</h2> 
In a social media <a href="https://x.com/c7five/status/1803403565865771370" target="_blank" rel="noopener nofollow">post</a>, the exchange’s chief security officer, Nick Percoco, said that after receiving the initial bug report, Kraken assembled a cross-functional team to investigate the issue.&nbsp; 
Within minutes, they identified an isolated bug that enabled a malicious attacker to initiate a deposit, receive funds in their account without completing the deposit fully, and effectively create assets in their Kraken account for a limited time.&nbsp; 
The vulnerability was classified as critical, and the team reportedly mitigated the issue within an hour, ensuring it could not recur. The flaw emerged from a recent user experience (UX) change that allowed clients to trade <a href="https://bitcoinist.com/kraken-considers-delisting-tethers-usdt-stablecoin/" target="_blank" rel="noopener ">crypto markets</a> in real time before their assets cleared, a change that had not been thoroughly tested against this specific attack vector. 
Further investigation revealed that three accounts had taken advantage of the flaw within a few days of each other. It is alleged that one of these accounts was linked to an individual claiming to be a security researcher who had discovered the bug and credited their account with a “small amount of crypto” to demonstrate the flaw.&nbsp; 
However, instead of reporting the vulnerability and earning a <a href="https://bitcoinist.com/crypto-kraken-fights-sec-definition-securities/" target="_blank" rel="noopener ">bug bounty </a>reward, this individual disclosed the bug to two associates who fraudulently generated much larger sums. In total, the trio withdrew nearly $3 million from Kraken’s treasuries. 
When Kraken requested the return of the funds, the researchers refused, demanding discussions with their business development team and specifying a speculated amount that the bug could have caused if undisclosed. 
<h2 id="legal-action-against-research-company">Legal Action Against Research Company</h2> 
Percoco further disclosed in its address that Kraken firmly denounced the actions of the research team, considering their behavior as “extortion” rather than legitimate <a href="https://bitcoinist.com/hong-kong-bitcoin-etfs-reach-1-billion-aum-by-2024/" target="_blank" rel="noopener ">white-hat hacking</a>.&nbsp; 
The exchange, which has maintained a Bug Bounty program for almost a decade, emphasized that it has never encountered issues with legitimate researchers and has always followed clear rules, such as not exploiting vulnerabilities beyond what’s necessary for proof, providing a proof of concept, and returning any extracted assets immediately.&nbsp; 
Lastly, the exchange’s chief security officer also stated that Kraken is treating the incident as a criminal matter and is actively cooperating with law enforcement. While the exchange expressed gratitude for the report, it intends to pursue <a href="https://bitcoinist.com/bitcoin-etf-buzz-in-uk-kraken-executive-pushes-for-market-access/" target="_blank" rel="noopener ">legal action</a> against the research firm involved. 
<img loading="lazy" decoding="async" class="size-medium" src="https://www.tradingview.com/x/olfJ5Z2S/" alt="Kraken" width="1815" height="858"> 
Featured image from DALL-E, chart from TradingView.com

Kraken Exposes $3 Million Exploit By Research Team, Launches Criminal Investigation

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