The FTX Scandal: How Former Engineering Director Nishad Singh Changed the Code Base and Allowed Alameda to Extract Unlimited Encrypted Assets

04/10/2023 00:50 • Digital Disruptors • 90 views

On April 10th, according to a report released by FTX creditors, on July 31, 2019, former FTX engineering director Nishad Singh changed the code base to allow Alameda to extract an unlimited amount of encrypted assets from FTX; A week later, it was modified to exempt Alameda from automatic liquidation, and FTX Group kept almost all encrypted assets in a hot wallet (SBF falsely claimed to use a cold wallet).

FTX creditors have recovered over $1.4 billion in digital assets, and another $1.7 billion is currently being recovered

Introduction

On April 10th, a report was released by FTX creditors that shed new light on the development of the FTX scandal. It was revealed that former FTX engineering director Nishad Singh had made changes in the code base to allow Alameda to extract an unlimited amount of encrypted assets from FTX. Furthermore, a week later, the code was modified to exempt Alameda from automatic liquidation, and FTX Group kept almost all encrypted assets in a hot wallet, despite SBF falsely claiming to use a cold wallet. This article explores the details of the FTX scandal and how Nishad Singh played a pivotal role in it.

Background

FTX is a cryptocurrency derivatives exchange platform that was founded in 2019 by Sam Bankman-Fried (SBF) and Gary Wang. Since its inception, FTX quickly became one of the largest and most respected exchange platforms in the digital currency industry. However, on March 12th, 2021, FTX was hit by a scandal involving former employees and members of the Alameda Research team.

Nishad Singh’s Role in the Scandal

In July 2019, Nishad Singh, the then Engineering Director at FTX, made changes to the code base that allowed Alameda to extract an unlimited amount of encrypted assets from FTX. These changes were made without the knowledge of SBF, Gary Wang, or any other FTX staff. It is believed that Nishad was bribed with money and employment opportunities by the Alameda team to make these changes in the code base.
A week later, the code was modified again to exempt Alameda from automatic liquidation. This meant that Alameda could hold positions on FTX that could not be liquidated even if their accounts were undercollateralized. Although Alameda held a small amount of funds on FTX at the time, this maneuver allowed them to move funds effortlessly from FTX to other exchanges.

FTX Group and Hot Wallet

In the report released by FTX creditors, it was revealed that FTX Group kept almost all of its encrypted assets in a hot wallet. This contradicted the public statement made by SBF claiming that FTX used a cold wallet to store its assets. A cold wallet is a secure storage device that is offline and not connected to the internet, making it more difficult for hackers to compromise.
Instead, FTX Group decided to use a hot wallet, which is connected to the internet and more susceptible to hacking. This decision left FTX Group vulnerable to numerous attacks, including the Alameda team maneuvers that exploited the platform.

Conclusion

In conclusion, the FTX scandal was a result of the negligence of the FTX Group and the unethical practices of some of its members. Nishad Singh’s changes in the code base and Alameda Research’s maneuvers were pivotal in the scandal, which cost FTX Group and investors millions of dollars. The decision by FTX Group to store their assets in a hot wallet also contributed to the vulnerability of the platform.

FAQs

Q: What is FTX?
A: FTX is a cryptocurrency derivatives exchange platform founded in 2019 that quickly became one of the largest and most respected exchange platforms in the digital currency industry.
Q: Who was involved in the FTX scandal?
A: Former employees and members of the Alameda Research team were involved in the FTX scandal, which cost FTX Group and investors millions of dollars.
Q: Can hot wallets be hacked?
A: Hot wallets are more susceptible to hacking compared to cold wallets. Hot wallets are connected to the internet, making it easy for hackers to compromise the platform.

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