NiceHash halts reimbursing Bitcoins

Endy Callahan

Two years have already passed since the biggest hack of the cloud mining service, but there are still many dark spots in this story. How was the service hacked? Why did customers get only half of the bitcoins back after six months? Was the Nicehash project originally fraudulent?

The Slovenian-based cloud mining service Nicehash has stopped repayments to users who lost their funds during a hacker attack on the marketplace. There is still a lot of ambiguity. Such cloud services became popular in the midst of the cryptocurrency boom, in the second half of 2017. Unfortunately, Nicehash has not managed to stay on the market, and the platform’s clients still cannot get their crypto assets back.

The biggest hack into the cloud mining service

The NiceHash mining marketplace became notorious in December 2017. As a result of the hacking damage, the platform lost $60 million in bitcoins. The company promised to return their digital coins to customers immediately. At that moment, the cryptocurrency industry was just developing, and cybercriminals resorted to the most common method of stealing cryptocurrency. We all know that at the turn of the second decade of the XXI century scammers have significantly improved the token theft schemes. 

The article "19-Year-Old SIM-swapper from US stole more than a million dollars in cryptocurrency" tells how crooks may act nowadays.

So how was the hacker attack on NiceHash in December 2017 done? Attackers have directly hacked into users’ wallets on the platform. Afterwards, they have transferred all bitcoins to another wallet.

The users waited for at least five hours till the service reacted, after which the company's management made an official statement about the incident.

The comments of NiceHash were as follows:

  • The criminals took advantage of the vulnerability of the service.
  • The exact amount of losses incurred is being calculated.
  • The administration of the platform has initiated an investigation.
  • The service will be restored, and the gaps in the system are to be fixed.

Only half of the bitcoins were returned to Nicehash users

In February 2018, the cloud marketplace launched a program to recover the Bitcoins stolen by cybercriminals. Every month the affected customers of Nicehash were credited with a part of BTC. Six months later, the platform reported: more than half of the stolen assets was returned. According to media reports, the Slovenian company has transferred 2820 BTC to the accounts of the affected customers. In fact, by August 2018 the rate of the leading cryptocurrency went down to $6100, though at the time of the hack, bitcoin was traded at $16000.

NiceHash management claimed that the assets were being recovered from the platform's reserves. Meanwhile, law enforcers continued looking for hackers.

End of the story?

At the end of December 2019, Nicehash announced it was suspending compensation program. Mining marketplace claims that 82% of the debt had been recovered by that time. All transfers to customers were made in bitcoins.

The reason for the repayment program suspension is claimed to be funds shortage. The company's statement mentions the "need to preserve cash flows," without which the mining business could no longer function. In addition, the compensation program was subject to taxation, which brought about additional costs.

NiceHash recognized that it was unable to meet its obligations to affected users. However, the company does not rule out that the reparations program could be rolled out again in 2020. This requires further development of the cryptocurrency market.

NiceHash - exit-scam?

The news about the suspension of payments to the victims of the hacker attack on the service has once again beaded the crypto community. The statement of NiceHash brought about extremely negative reactions among users. They started making assumptions about the project’s exit-scam again. The exit-scam is a kind of a fraudulent scheme, where the company or project in some way collects the money, and afterwards its management and organizers subsequently disappear. Of course, they neglect all obligations and promises made previously. The key feature of this kind of fraud is that the company remains active.

The NiceHash founder's backround does not bring hope to those wishing to get full repayment from the service. The FBI has accused Matyash Shkoryants of fraudulent activities carried out through the darknet marketplace. According to Decrypt portal, the founder of the company was involved in extortion and fraud in the banking sector.

According to the FBI, Shkoryants, as early as 2015, was selling information obtained as a result of cyberattacks on one of the darknet websites. The entrepreneur is also suspected of hacking into bank accounts in order to obtain personal information. Earlier, in 2013, Shkoryants was tried and sentenced to four years and ten months in prison for creating malware.

Lessons to miners

NiceHash is not the only cloud mining service, though it can be taken as a dramatic example It is vitally important to be careful when selecting a mining marketplace to avoid becoming a victim of scammers or hackers. There is huge risk of losing digital coins, and everyone should decide whether to trust the third-party service or independently control the mining process.

The criteria for choosing a reliable mining marketplace may be as follows:

  • Complete information about the company. The service should indicate the location of data centers, quantity and types of equipment, name the project team. Official registration is desirable.
  • Wide choice of cryptocurrencies for mining. Availability of pools is a prerequisite for the service efficiency. Multicurrency coin mining allows combining and extending some control over the mining process.
  • Quick funds withdrawal. Some services allow you to withdraw digital coins hourly, others once a month. Clearly, the second approach is preferable.
  • Good background of company management. The story of NiceHash shows that the service founder has a big impact. Even in case the hack of the platform is not associated with its leader, it would be useful to pay attention to such coincidence.