Kraken vs Certik: A Dispute Over a $3 Million Zero-Day and Bug Bounty Ethics
20 June 2024 at 10:48
Accusations from Kraken
Nick Percoco, Kraken's chief security officer, took to social media platform X (formerly known as Twitter) to accuse an unnamed security research firm of misconduct. According to Percoco, the firm - later revealed to be Certik - breached Kraken’s bug bounty program rules. Instead of adhering to the established protocol of promptly returning extracted funds and fully disclosing bug transaction details, Certik allegedly withheld the $3 million and sought additional compensation, Percoco claimed. Percoco claimed that "the ‘security researcher’ disclosed this bug to two other individuals who they work with who fraudulently generated much larger sums. They ultimately withdrew nearly $3 million from their Kraken accounts. This was from Kraken’s treasuries, not other client assets." He said that after contacting the researchers, instead of returning the funds they "demanded a call with their business development team (i.e. their sales reps) and have not agreed to return any funds until we provide a speculated $ amount that this bug could have caused if they had not disclosed it. This is not white-hat hacking, it is extortion!" Percoco said that in the decade-long history of Kraken’s bug bounty program, the company had never encountered researchers who refused to follow the rules. The program stipulates that any funds extracted during bug identification must be immediately returned and accompanied by a proof of concept. The researchers are also expected to avoid excessive exploitation of identified bugs. The dispute escalated as Certik reportedly failed to return the funds and accused Kraken of being “unreasonable” and unprofessional. Percoco responded that such actions by security researchers revoke their “license to hack” and classify them as criminals.“As a security researcher, your license to “hack” a company is enabled by following the simple rules of the bug bounty program you are participating in. Ignoring those rules and extorting the company revokes your “license to hack”. It makes you, and your company, criminals.”
Certik's Response to Kraken
Following Kraken’s public accusations, Certik disclosed its involvement and countered Kraken’s narrative by accusing the exchange of making unreasonable demands and threatening its employees. Certik claimed Kraken demanded the return of a “mismatched” amount of cryptocurrency within an unfeasible timeframe without providing necessary repayment addresses. The company provided an accounting of its test transactions to support its claims. Certik shared its intent to transfer the funds to an account accessible to Kraken despite the complications in the requested amount and lack of repayment addresses.“Since Kraken has not provided repayment addresses and the requested amount was mismatched, we are transferring the funds based on our records to an account that Kraken will be able to access.” - CertiK
CertiK’s Take on Kraken’s Defense Systems
Certik defended its actions and instead highlighted the inadequacy of Kraken’s defense systems. The firm pointed out that the continuous large withdrawals from different testing accounts, which were part of their testing process, should have been detected by Kraken’s security measures. Certik questioned why Kraken’s purportedly robust defense systems failed to identify such significant anomalies. “According to our testing result: The Kraken exchange failed all these tests, indicating that Kraken’s defense in-depth-system is compromised on multiple fronts. Millions of dollars can be deposited to ANY Kraken account. A huge amount of fabricated crypto (worth more than 1M+ USD) can be withdrawn from the account and converted into valid cryptos. Worse yet, no alerts were triggered during the multi-day testing period. Kraken only responded and locked the test accounts days after we officially reported the incident.” - CertiK The blockchain security firm said the fact behind their white hat operation is that “millions dollars of crypto were minted out of air, and no real Kraken user’s assets were directly involved” in these research activities. The firm also said that the dispute with the cryptocurrency exchange is actually shifting focus away from a more severe security issue at Kraken. “For several days, with many fabricated tokens generated and withdrawn to valid cryptos, no risk control or prevention mechanisms were triggered until reported by CertiK,” it said. “The real question should be why Kraken’s in-depth defense system failed to detect so many test transactions.” Regarding the money siphoned, Certik said, “Continuous large withdrawals from different testing accounts was a part of our testing.” With an aim of transparency, the security firm disclosed details of all testing deposit transactions and the timeline of how the bug bounty saga played out on X. [caption id="attachment_78192" align="aligncenter" width="698"]![Kraken vs CertiK timeline, Kraken, Certik](../themes/icons/grey.gif)