To what extent did the $230 million WazirX hack impact the community of crypto investors in India?

At just 19 years of age, Harsh Gupta was captivated by the lure of cryptocurrency and became an active trader on the Indian cryptocurrency exchange WazirX. Due to being underage, he initially registered an account in his mother’s name before eventually creating his own.

Following a security breach of a WazirX wallet on July 18, Gupta discovered he had approximately ₹60,000 in his WazirX account, with an additional ₹18,000 in the account under his mother’s details.

Despite not being greatly impacted by the cyber-attack, as it represented only a fraction of his total investments, Gupta was disturbed by the significant losses incurred by other users on WazirX. He urgently sought to highlight their predicament.

“A lot of people I know are unable to return to their normal routines. They’re deprived of sleep and can’t eat. They’re trapped in ongoing distress without any assurance regarding the fate of their funds,” Gupta communicated to The Hindu via email. He further expressed, “There’s no justification for WazirX to withhold user funds. Some individuals are in dire straits, unable to afford medical treatment for family members battling cancer.”

Gupta is convinced that the WazirX heist is a fraudulent act. While numerous customers have tried to lodge complaints with the cyber police, he feels these efforts are disregarded by law enforcement agencies.

As one of the foremost cryptocurrency exchanges in India, WazirX hosted over four million crypto users, representing a segment of a larger 16-million user base. The July 18 compromise involved a digital wallet managed in partnership with Liminal. The exchange’s sluggish response to user notifications, its lack of transparency regarding asset loss details, and the indefinite suspension of cryptocurrency withdrawals, invited widespread criticism.

WazirX CEO Nischal Shetty suggested the firm, allegedly acquired by Binance years before, couldn’t compensate users from its earnings. After WazirX users were sent into a state of shock, Binance categorically denied ownership claims, asserting that this internal dispute had no bearing on WazirX’s obligations toward its users.

“The company’s unexpected policy U-turns on delisting certain cryptocurrencies and its failure to maintain open communication have caused me to incur losses of over INR 15 lakhs,” asserted Shiva Kumar Shivaraju, another WazirX user, in a conversation with The Hindu. Shivaraju, a 47-year-old IT consultant and homestay proprietor in Karnataka, reported his issues with WazirX began even before the hacking incident.

He called for improved regulation by the Indian government for the country’s crypto market, through the establishment of a dedicated oversight body.

Bitcoin, the top crypto by market cap, touched a new all-time-high in March 2024 as it crossed $73,000, attracting investors world over
| Photo Credit:
CoinMarketCap

Is history repeating itself?

As disgruntled cryptocurrency investors experience every trader’s worst fear, WazirX presses on with restructuring arrangements in Singapore. The company mentioned its business unit Zettai is exploring a moratorium to grant them additional time and to thwart legal actions from agitated users.

Apprehension spread among WazirX users after the exchange hired Jason Kardachi and George Gwee from Kroll, the same firm involved in the restructuring of Vauld, another crypto platform that halted withdrawals in 2022 due to market turbulence.

In a response to an email sent by The Hindu to the Vauld Action group, an association of Vauld creditors from diverse nations, stated their deep dissatisfaction with Kroll’s approach and the overall restructuring process.

“We, the Vauld creditors, have been persistently misled, hoodwinked, and neglected, with our assets depleted by exorbitant charges. The Vauld arrangement scheme includes creditor-adverse clauses that grant us minimal control, whilst affording maximum authority to both Kroll and Vauld,” expressed numerous Vauld clients in their emails, echoing a shared sentiment.

Some discussed their financial losses and labeled the restructuring process either a ‘disaster’ or a ‘catastrophe’. Complaints emerged about the discrepancies between the recovered funds and the original investment amounts, along with accounts being locked on the platform.

Fearing similar mistreatment, numerous WazirX customers vented their frustration on X (formerly Twitter). As a counter, CEO Shetty expressed Ganesh Chaturthi greetings and advised his followers to rely on divine intervention.

A screenshot of WazirX CEO Nischal Shetty’s post on X
| Photo Credit:
Nischal Shetty on X

Victims unite and govern themselves

The campaign ‘Justice for WazirX Users,’ spearheaded by the X handle @IndiasCrypto, is rallying the affected individuals to lodge a official complaint against both WazirX and CEO Shetty.

The campaign founder, a mariner who also suffered losses from the hack, mentions their collective has a following of 4,500 victims and a Telegram group with 1,800 affected users. Around 60 people have already filed online cyber grievances against WazirX, as stated by them.

“The response from WazirX management has been unsatisfactory. Their approach seems to favour postponing actions over delivering conclusive solutions. The circumstances surrounding the hack spawn various debates regarding its legitimacy or the possibility of insider complicity,” the ‘Justice for WazirX Users’ administrator revealed to The Hindu via a message on X. They also highlighted, “The unnerving aspect is that our destiny is being decided by a foreign legal system.”

The group’s immediate goal includes filing both criminal charges and a Public Interest Litigation in the Supreme Court. Others are considering presenting their cases to the National Consumer Disputes Redressal Commission (NCDRC) with hopes of recovering their funds.

“Yet, the majority of the distressed users are from the middle class and harbor concerns over the intricacies and potential consequences of instigating a police complaint. We’re also exploring alternatives to escalate the matter with concerned entities and regulators to secure a thorough investigation,” the group’s leader added.

Post-hack learnings and regret

WazirX investors, erroneously perceived as sly or dark web associates, are largely individuals who placed their trust in a centralized exchange advertising compliance with Indian regulations.

Mayank Bhatodra, a 33-year-old IT specialist with stock market expertise, has engaged with WazirX since 2019, largely due to the platform’s adherence to KYC protocols and the facilitation of transactions in Indian currency.

Bhatodra expressed his dissatisfaction with WazirX’s decision to lock users’ accounts post-hack.

“In the high-stakes environment of digital currencies, freezing users’ funds for prolonged periods equates to tremendous risk. WazirX should empathize with the suffering its users are enduring and take responsible steps towards a resolution. Our trust was placed in WazirX as an Indian platform, and passing off the accountability is unfair to the users in distress,” he voiced his opinion to The Hindu via email.

What comes next?

Countless questions plague the minds of WazirX users: How exactly was the $230 million misappropriated? Who rightfully owns WazirX? What is the reason behind the freeze on unaffected assets? How long before investors can access their own funds? Why isn’t WazirX offering compensation to its users? Will the fate of WazirX customers mirror that of Vauld’s investors?

Furthermore: Why has the Indian government refrained from aiding investors, while it levies taxes on their cryptocurrency earnings?

As time continues to tick, WazirX revealed on September 26 that the Singapore courts had approved a moratorium for four months. In a market known for rapid price dives that can obliterate billions in market valuation within moments, other traders are active in securing profits or curbing losses, all while WazirX users remain helpless spectators.

WazirX CEO Nischal Shetty has urged his customers to support the company’s legal exercise in Singapore
| Photo Credit:
Nischal Shetty on X

“In the aftermath of the hack, I find myself questioning: Why is WazirX forcing its clientele to soak up the entirety of the losses? For a lot of us already burdened by buying cryptocurrencies at elevated prices, coupled with a volatile market slashing our investment values by over 50%, this scenario is catastrophic for the Indian investors,” Bhatodra pointed out.

Individuals enduring distress or contemplating suicide can find support and counseling through these helplines.