Cryptocoin “token swapper” Nomad loses $200 million in coding blunder


Cryptocurrency protocol Nomad (not to be confused with Monad, which is what PowerShell was called when it first came out) describes itself as “an optimistic interoperability protocol that enables secure cross-chain communication,” and promises that it’s a “security-first cross-chain messaging protocol.”

In plain English, it’s supposed to let you swap cryptocurrency tokens of one sort for another, in a trade known in the jargon as bridging.

The service is operated by a company going by the name of Illusory Systems, Inc.

Unfortunately, when it comes to cybersecurity, the word illusory seems to fit rather well.

Indeed, if you visit the Nomad “app page” right now [2022-08-02T14:25Z], you’ll notice that the service is entirely suspended, with the button you’d usually use to trade one cryptotoken for another replaced with the words BRIDGING UNAVAILABLE:

As the company’s Twitter feed notes:

Plainly told, it looks as though numerous persons unknown were able to trigger a series of transactions that paid out an enormous quantity of various cryptocoins, without first paying in an equivalent amount of any other cryptocurrency.

According to cryptocurrency researcher @samczsun, the attackers were able to grab the funds by using what’s known as a replay attack, which is exactly what it sounds like: you simply re-use the data from a previous transaction, but with the original recipient’s account details replaced with your own.

According to @samczsun, a recent update in the Nomad source code inadvertently bypassed the critical test at the point system asked itself, “Has this transaction been approved?”

As long as the transaction data was correctly structured, the transfer would go through…

…so that simply copying an existing transaction, but modifying just the “payee” field, turned out to be the simplest and easiest way to pass muster and drain out funds.

Hanlon’s Razor

As you can probably imagine, not everyone is ready to accept that this was “just a programming blunder”, albeit a dreadfully expensive one, with reports suggesting that about $200,000,000 in cryptotokens were leeched from the system in what @samczsun described as “a frenzied free-for-all”:

Some Twitterati are already using the word rugpull, a pejorative phrase in the cryptocoin world, used to imply that a cryptocurrency hack was some sort of inside job, enabled or carried out on purpose. (To be clear, there’s no evidence to support any of these suggestions.)

But, as a principle known as Hanlon’s Razor jocularly puts it, there is no need to assume malice when incompetence is an alternative explanation.

What to do?

We don’t really know what advice to offer, other than to urge two sorts of caution:

  • Don’t be in a hurry to join the so-called DeFi revolution. Decentralised finance, or Web 3.0, is a vehicle for online trading that aims to escape from the traditional world of highly regulated, centralised financial services. DeFi services aim to allow individuals to trade directly and almost immediately with one another through online payment instructions, often expressed in the form of specialised program code. But without the regulatory frameworks that surround traditional financial insutitions, your chances of recovering any money following blunders (or, for that matter, after insider roguery) is slim. If the company genuinely has no money left because cybercriminals found a loophole and made off with all of it, then bankruptcy is almost inevitable. There is no government recovery fund to provide basic restitution, as there is with mainstream banks in many countries.
  • Watch out for self-styled recovery experts who contact you after a DeFi catastrophe. One of the most common types of comment scam we see on the Naked Security site (we moderate comments both automatically and manually in an effort to stop these getting through) is the “unsolicited funds recovery testimonial”. These comments, usually aimed at articles in which we discuss cryptocoin blunders, pretend that the commenter lost out badly in a cryptocurrency sting, yet recovered most or all of their funds by contacting company X, or individual Y, or social media account Z. These fake adverts for fraudulent money-back services may sound tempting, especially if they claim to offer some sort of “no-win-no-fee” service. The truth is, however, that cryptocoin funds siphoned off in pseudo-anonymous attacks of this sort are rarely recovered, even when law enforcement and the courts are actively involved. Don’t throw good money after bad.

Remember: if it sounds too good to be true, it IS too good to be true.

And that goes for cryptographic and data security promises, just as much as it goes for financial returns.

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