IOTA Foundation to Rewind Blockchain Following $1.6 Million Hack

February 19, 2020 / by Crypto.IQ

As deep dived in a previous article on Crypto.IQ, the IOTA Trinity wallet was compromised, and the IOTA Foundation shut down the entire network via the coordinator until the problem could be resolved. Now the IOTA Foundation has released a 3 step plan to fix the situation, although it involves rewinding the blockchain, which is a major violation of immutability.

Step 1 of the plan is that a new version of IOTA’s Trinity wallet has been released. Users are urged to download this wallet and change their password, and to change the password of any other online accounts which use the same password.

Step 2 is to migrate funds to a new wallet with different seeds, since old seeds could be compromised.

Step 3 is a snapshot will be taken of the IOTA network from before the hack, and any transactions involving compromised wallets will be rewound. A 3rd party service will then perform a know your customer (KYC) identification process to return stolen funds.

Aside from the fact that this is a major breach of immutability, since in general crypto transactions are not supposed to be reversed, there is also the possibility that IOTA users who do not upgrade their Trinity wallet and change their seed will get hacked once the network comes back online.

Further, it appears the IOTA network will be down for many more days, during which time no one can cash out their IOTA or send transactions. An announcement has yet to be made regarding when IOTA will come back online.

Overall, this is one of the worst crypto disasters in history. There is no comparable case where a top ranking cryptocurrency had its wallets compromised and had to shutdown the network for an extended period of time.