AnChain.AI CEO explains crypto hack, Tornado Cash, and emerging Web3 security sector

AnChain.Al Co-Founder & CEO Victor Fang joins Yahoo Finance Live to break down the significance of the crypto.com hack, what this means for the future of the cryptocurrency market, the rise of Tornado Cash, and preventative steps one can take to protect themselves from hacks.

Video transcript

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BRAD SMITH: Welcome back to "Yahoo Finance Live," everyone. Crypto hack attack. Bad actors were able to launder $15 million worth of Ethereum from a major crypto exchange using a service called Tornado Cash. And our next guest is here to explain how Tornado Cash works and the steps investors can take to protect themselves. That's part of our "Crypto Corner" segment presented by tastyworks.

And with us today, we've got Victor Fang, who is the AnChain.AI co-founder and CEO. We've also got Yahoo Finance's own David Hollerith joining us now. Let's dive right in, in the interest of time here. Victor, I want to go to you first here. Help us break down the significance of this Crypto.com hack that took place and the significance that it places, once again, around security within the space too.

VICTOR FANG: Absolutely. Thanks for having me here. So, yeah, Crypto.com got hacked, right, and then $15 million being sent to Tornado Cash and other mixers a few days ago. And, I mean, we've been following these incident and I think it's probably related to the two-factor authentication hack. It is not on the blockchain. I want to highlight is not on the blockchain or smart currency or anything like that, but it's actually on the internet cybersecurity of the countermeasure that that company probably have done poorly. And this is actually all related to this emerging sector in cybersecurity called the Web3 Security. And Web3 Security is all around protecting crypto, smart contract, your NFTs, and all blockchain digital assets.

DAVID HOLLERITH: Yeah, so, Victor, can you try to explain--

VICTOR FANG: Yeah, and--

DAVID HOLLERITH: Can you explain what a mixing service is just to give our audience a little more context?

VICTOR FANG: Absolutely. So, so far, there are three different kinds of major mixing services, right? So I link the layer one, for example, Monero, Zcash, and another one is those UTX0-based mix things, like Wasabi, CoinJoin Wallet, and all that. And this one we're seeing here is actually the Tornado Cash, which we think is actually the latest cool technology being deployed in this space.

So it's all enabled by a smart contract and it's also using one of the original cryptography algorithm called zero-knowledge proof, which actually is very hard to crack. So this is actually the nature of the Tornado Cash, how it was implemented. And now it's operating and it's being implemented and open sourced in Solidity, which is the most popular smart contract language and it can literally be deploying all other Solidity-based blockchains.

DAVID HOLLERITH: Yeah. And Victor you've been monitoring Tornado Cash for the past year. Can you just sort of tell us a little bit more about the popularity of the service and how it's used more generally? And I know it's not all criminal activity.

VICTOR FANG: Absolutely. You are right. So, I would want to highlight that privacy is not criminal activity. Like, for example, some of us use the Chrome Incognito mode, right? That's not a criminal activity. But what we have being seeing, right, at least this Tornado Cash, it was being followed for about like one year now, right? So, yeah, I mean, the hacker turns out to be exploiting this technology a lot, right, like what you are seeing a few days ago Crypto.com, right?

And the data, right, we've been following the activity on the blockchain for a while. And last year alone, Tornado Cash has been-- they make about over $10 billion of crypto being transacted there, right? And it's actually a 600% year-over-year growth, so it's gaining a lot of popularity. And I think that number I just shared with you-- $10 billion-- is only on Ethereum blockchain. And like I said before, authority-based blockchains can actually, literally just take the call and deploy and then start the infrastructure there. So that number will go up this year, no surprise.

AKIKO FUJITA: Victor, with that said, certainly a lot of investors wondering about the security here. What do you tell investors what they can do-- the steps they can take-- to protect themselves in light of the latest hack?

VICTOR FANG: Yeah, great question. So I think Web3 Security, it's an emerging trend in this $200 billion cybersecurity sector, right? And so most of the clients, right come to AnChain.AI looking for help when they got hacked. And we are turning to an incident response and blockchain forensics service like that. And actually, we are actually very glad to see a lot of them actually now realize that, whoa, it's actually we should invest in the preventative countermeasures for their crypto assets, right?

So, yeah, to most of us, right? So, individual investors and all that, preventative is actually way more important than post-incident, right? So when you're seeing all these hacks in the news, it is already too late, and there's only very few things we could do if it's already hacked. But preventative-- for example, the first one I would recommend is invest in a hardware wallet, OK? Don't store series assets in browser or like a software kind of wallet.

The second one, beware of phishing attack. It's actually possible to spoof the email. You can fake it always sending from Crypto.com, right? And I guess this is probably what happened, right? Social engineering and all that. And those may actually bypass your 2FA. So it's a human error, basically. And that happen all the time in the cybersecurity domain. This is not a surprise.

The third one is to, if you invest in NFT or any smart contract assets, right, so you make sure it's being audited by top-tier experts like us, right? Because that's actually one of the key component of Web3 Security. You need to make sure that it's actually secure on the smart contract side. And lastly, when you've got hacked and all that, it's actually not the end of world. We are here to help.

AKIKO FUJITA: All good takeaways there. Victor, it's good to have you on today. Victor Fang, An.Chain.AI co-founder and CEO and our very own David Hollerith joining in on the conversation.