A new scandal has arrived in the world of cryptocurrencies. This time, involving the Cypher Protocol, a decentralized project based on the Solana blockchain. One of its main developers, known by the pseudonym “Hoak”, publicly admitted to stealing more than $300,000 from the reimbursement fund intended to compensate users affected by a previous attack. Once again, questions about security and trust in cryptocurrency projects are on the table.
The confession
That Tuesday, Hoak published a statement on the social media platform X (formerly known as Twitter), confessing to the theft of funds from Cypher Protocol. In his statement titled “My statement on the situation”, he claimed that the accusations are true. His words were: “I took the funds and gambled them away. I didn’t run away with it, nor did anyone else.” Hoak expressed deep remorse for his actions, attributing his behaviour to untreated psychological issues, including severe gambling addiction.
This is the culmination of what snowballed into a crippling gambling addiction and probably multiple other psychological factors that went by unchecked for too long.
Hoak recognized that his actions harmed not only himself, but also colleagues and close friends, undermining trust in the Cypher Protocol. The theft is a devastating blow to the project, which was already struggling to recover from a previous hack that resulted in the loss of a million dollars in August 2023. Having managed to freeze approximately $600,000 of the stolen assets, CYPHER was working to reimburse affected users. However, the revelation of internal theft undermined these efforts.
Another key Cypher Protocol contributor, known as “Barrett”, discovered that Hoak had made 36 unauthorized withdrawals from the reimbursement fund over several months. Barrett, in a post on X, expressed his sadness and disappointment. “I never thought this would be a possibility, having a core contributor who stayed on after the exploit to try and rebuild the project be the one who rugged funds from the redemption contract.”
The consequences
The theft was discovered when a user reported that they were unable to withdraw funds from their reimbursement wallet. When asked about the problem, Hoak initially stated that he would “take care of the issue”, but he never fulfilled his promise. Barrett, after checking, provided detailed information to police and collaborated with well-known blockchain investigator “ZachXBT”, who had obtained Hoak’s personal data during the investigation into the August 2023 hack. ZachXBT promised to share this information with authorities as necessary.
Hoak’s gambling addition is an example of how the volatile casino-like nature of cryptocurrency trading can attract individuals like him, with gambling-related mental health issues. A study conducted in the United Kingdom in 2023 revealed that people with gambling concerns are almost five times more likely to own cryptocurrencies compared to the general citizen. In the UK, 0.7% of the adult population were identified as problem players, according to the study. This incident reignites discussion about the need for greater awareness and support for those struggling with gambling addiction within the cryptocurrency community.
The future of the Cypher Protocol
The path ahead for Cypher Protocol remains uncertain. The team proposed many preventative measures, including stricter security audits, better internal controls, and reducing the anonymity of cryptocurrency project founders. These measures are important to restore user confidence and prevent future incidents of theft and misuse of funds. Hoak, for his part, has stated his intention to face legal consequences for his actions, acknowledging that he will likely face a prison sentence.
I currently have no energy left whatsoever and considering no one is going to want anything to do with me after all this, I believe there’s no way forward and it’s actually over for me.
This new scandal serves as a reminder of the complexities and risks associated with the world of cryptocurrencies. In 2023, hackers stole a total of 1.1 billion dollars from DeFi protocols. And even though it is a drop of 63.7% compared to the previous year, the numbers are still very high and show the vulnerability of the sector. It highlights the importance of transparency and security in the industry.
In the United Kingdom, it was announced new regulations to strengthen security and consumer protection rules in activities related to crypto assets. In the US, the Biden administration has launched a plan to mitigate the risks associated with cryptocurrencies, including creating a regulatory framework to develop digital assets securely and responsibly.
