Crypto’s Weakest Link: Why SMS Authentication Is Failing a Billion-Dollar Industry

SMS-based multi-factor authentication (MFA) is increasingly being identified as a security weakness in cryptocurrency platforms, according to Geoff Schomburgk, vice president for Asia Pacific and Japan at Yubico, in comments emailed to Crypto News Australia.

Many crypto exchanges and wallets still rely on SMS one-time passcodes to verify logins. Attackers can hijack a user’s phone number through SIM swapping, a process that transfers the number to a new SIM card under their control. 

Once completed, they can receive authentication codes and reset account credentials. Phishing attacks further increase risk by tricking users into entering these codes on fake websites, allowing real-time account takeovers.

This exposure is more severe in crypto than in traditional finance. Blockchain transactions are final and cannot be reversed, making stolen funds difficult or impossible to recover. There is no central authority to undo fraudulent transfers, so account security acts as the primary safeguard.

Read more: North Korean Fake Dev Ring Nets Millions as Crypto Firms Face Rising Insider Threat

The Scale and Methods Are Evolving 

And this is because phishing kits are widely available, and compromised credentials are traded online. AI tools are also being used to automate social engineering, making scams more convincing and easier to execute. 

In November 2025, the Australian Cyber Security Centre reported a case where criminals impersonated police by referencing official cybercrime reports, persuading victims to transfer cryptocurrency to attacker-controlled accounts.

SMS-based MFA does not prevent these attacks. Codes are transmitted over networks that can be intercepted, and they remain valid long enough to be reused. Because they are human-readable, they can be easily relayed to attackers during phishing attempts.

Alternative authentication methods based on public-key cryptography are being implemented. These systems tie login credentials to a specific device and legitimate domain, removing shared secrets such as passwords and SMS codes. Passkeys allow users to authenticate without entering information that can be stolen.

Hardware security keys provide additional protection by storing credentials on tamper-resistant devices. They only authenticate with verified websites, blocking access even if a user interacts with a malicious page.

More institutional investors and regulated entities are entering the crypto market, so it’s natural that expectations for security controls increase, placing pressure on platforms to move away from SMS-based systems.

Related: Bitcoin Holds Firm Despite $271M Sell-Off From Long-Term Whales

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