The $1.5 Billion Bybit Security Breach: What Happened?

In February 2025, Bybit, one of the world’s largest cryptocurrency exchanges, suffered a major security breach, resulting in the theft of 401,000 ETH (valued at approximately $1.5 billion). The attack occurred during a cold-to-warm wallet transfer, a routine process meant to ensure liquidity for daily trading.

While cold wallets are highly secure due to their offline nature, the transition to warm wallets introduced a moment of vulnerability. The attackers exploited this window, successfully executing one of the most significant crypto exchange hacks to date.

To understand what went wrong, let’s examine how the attack was carried out and the vulnerabilities it exposed.

How the Attack Was Executed: A Timeline

Blockchain forensic teams investigating the breach discovered that attackers compromised Bybit’s cold wallet multisig signers through a sophisticated combination of phishing, malware, and UI deception. 

The attack unfolded in several key stages:

1. Identifying Key Signers – The hackers first targeted specific individuals responsible for approving large transactions from Bybit’s cold wallet.

2. Device Compromise – Using malware and phishing software, they gained unauthorized access to the signers' devices.

3. UI Manipulation – The signers were presented with a counterfeit interface designed to mimic a trusted multisig wallet provider.

4. Social Engineering Tactics – Believing they were approving a legitimate transaction, the signers unknowingly granted control of Bybit’s cold wallet to the attackers.

This breach wasn't a technical failure of multi-signature security itself. Instead, it was a textbook case of social engineering, where human error allowed attackers to bypass security controls.

With the attack’s execution understood, the key question now is: What security lessons can the industry take from this breach?

Lessons from the Bybit Hack: Custody Security Considerations

The Bybit attack highlights the importance of securing multi-signature processes and reinforcing custody protocols against human error and UI deception. To prevent similar breaches, exchanges must implement multi-layered security measures across all aspects of custody.

1. Addressing Hardware Wallet Limitations with Time Lock Mechanisms

Many wallets struggle to fully parse complex smart contract transactions, leading to blind signing, where users approve transactions without full visibility.

• Key Operation Timelock: Critical contract operations, such as withdrawal whitelist changes, should be subject to a mandatory time delay (e.g., 7-day lock).

• This buffer period allows security teams to review and intervene if unauthorized modifications are detected.

• The time lock can only be lifted after meeting strict conditions, including multi-signature authorization and passing professional security audits.

Custody solutions incorporating these risk mitigation measures, such as those provided by ChainUp, ensure enhanced security for asset management operations.

2. Strengthening Multi-Signature and Multi-Party Computation (MPC) Protocols

While Bybit did have multi-signature security, the attack showed that signers’ end devices were compromised, allowing attackers to manipulate the transaction approval process.

• Time-Lock Trigger Conditions: To prevent immediate unauthorized actions, changes in time-lock  functions should require stringent multi-signature approvals and security audits.

• MPC-Based Security Enhancements: Implementing multi-party computation (MPC) protocols ensures that no single compromised signer can authorize transactions alone.

Custody solutions like ChainUp Custody implement layered approval policies, significantly reducing social engineering risks and unauthorized fund movements.

3. Introducing Independent Risk Controls for Secure Contract Management

The attack succeeded because all signers operated under a single layer of approval, meaning if their devices were compromised, the entire approval process was at risk.

• Data Verification & Hash Comparison: Front-end data validation should rigorously check user inputs, preventing malicious exploitation.

• Secure Rendering & Isolation: Strict rendering techniques such as Content Security Policies (CSPs) and UI isolation ensure that only verified data is displayed, protecting against malicious script injections. Data and UI logic are isolated to prevent tampering, with risky data flagged and blocked before reaching the user interface.

ChainUp’s modern custody solutions integrate these features, reinforcing transaction integrity and UI security.

4. Encrypted Communication & Secure Key Management

One major takeaway from this hack is that private key security must be strengthened to eliminate single points of failure.

• Encrypted Transmission Guarantee: HTTPS encryption ensures all transaction requests remain secure between the front-end and back-end.

• Private Key Sharing & Encrypted Storage: Private keys should be fragmented and encrypted across multiple parties, mitigating single points of failure.

Custody frameworks using these measures, like ChainUp’s advanced custody solutions, help protect institutional assets from coordinated attacks and prevent loss of funds in the future.

The Next Steps: How Is Bybit Recovering the Funds?

The Bybit breach serves as a critical lesson for the industry, but what happens next? While the exchange is working closely with law enforcement, forensic analysts, and blockchain security providers like ChainUp, the reality is that recovering stolen funds remains a difficult and uncertain process.

This hack exposes a larger industry-wide challenge—exchanges need proactive security frameworks rather than reacting after funds are stolen.

To truly prevent future breaches, exchanges must:

• Enhance custody security by integrating time-lock mechanisms and multi-layered authorization.

• Adopt AI-driven monitoring to detect and block suspicious transactions in real time.

• Conduct regular internal security audits, not just on technology but also on human vulnerability to phishing attacks.

With attacks becoming more sophisticated, the crypto industry must shift from passive security to active, real-time defense mechanisms.

ChainUp’s Custody Security Solutions: Institutional-Grade Security and Proactive Risk Mitigation for Exchanges & Funds

To prevent another billion-dollar breach, exchanges must elevate their security standards now—before regulators force compliance.

• Layered Security Architecture: Customizable cold, warm, and hot wallet structures that incorporate strict multi-party approvals for every significant transaction.

• MPC-Enabled Multi-Signature Security: Eliminates single points of failure, ensuring that no single signer compromise can result in unauthorized transactions.

• 24/7 AI-Driven Monitoring: Their custody system integrates real-time threat detection and can flag abnormal transaction behaviors, giving exchanges the time to intervene before significant assets are lost.

• Comprehensive Auditing & Compliance Tools: Regular internal audits to ensure the integrity of wallet structures and preemptively catch vulnerabilities before they can be exploited.

Why Top Exchanges & Funds Choose ChainUp Custody:

✓ ISO 27001 & ISO 27701 certified for institutional compliance.
✓ MPC-secured multi-signature protocols—no single point of failure.
✓ AI-driven fraud detection—real-time alerts for suspicious activity.
✓ Integrated KYT monitoring—blocking transactions tied to stolen funds.
✓ Fully customizable cold, warm, and hot wallet structures for optimal security.

Final Takeaway: Will Your Business Act Before the Next Hack?

The Bybit hack serves as a crucial lesson for exchanges globally—custody security is not just about storing assets offline; it's about securing the transitions between wallets and implementing real-time transaction monitoring. The integration of multi-layered authorization, MPC security, and AI-driven monitoring might have prevented this hack.

By working with ChainUp’s advanced custody solutions, exchanges can secure their platforms, ensure compliance, and mitigate operational risks in a fast-evolving digital asset space. 

Additionally, ChainUp Custody and Know-Your-Transaction (KYT) platform Trustformer have integrated Bybit's blacklisted address API, ensuring that all clients utilizing its custody services will receive comprehensive support in preventing deposits of the stolen assets.

This seamless integration reinforces ChainUp’s commitment to enhancing blockchain security and protecting user assets.

The question now is: Will your business act before the next billion-dollar breach?

Schedule a security assessment today.