Cryptocurrencies have become a permanent fixture in the global financial landscape. Crypto near-instant settlements via blockchain technology has revolutionized payments and value exchange in ways that were only imaginations before now. However, this innovation has come at a cost.
Malicious actors are increasingly targeting crypto projects and platforms to capitalize on the popularity and value of cryptocurrencies and exploit their vulnerabilities for personal gain. Also, they are deploying sophisticated tactics, sometimes combined, to inflict maximum damage on their victims.
In 2022, the Axie Infinity project reportedly lost billions of dollars in the Ronin Bridge attack, which was perpetuated via a phishing attack on the project’s employees.
More recently, attackers breached Ethereum co-founder Vitalik Buterin’s X (formerly Twitter) account via a sim swap attack and promoted a false NFT. Victims suffered losses exceeding $691,000.
Crypto exchanges, which serve as central transaction points, are not left out; in fact, they are hotspots for attacks and lucrative targets for hackers. Recently, HTX (formerly Huobi) was hacked, resulting in the theft of approximately $30 million worth of cryptocurrencies from its exchange wallet, following a similar incident with Poloniex, which suffered a hack draining over $100 million in different cryptocurrencies.
This evolution of crypto hacks has highlighted the urgent need for improved security measures in this dynamic and fast-paced environment. However, to implement adequate security measures, it is crucial to understand the motives behind these actions.
Crypto Hacks Under the Microscope
While there have been instances of “white hat” hackers who aim to spur security fixes by exposing vulnerabilities, most crypto hacks and thefts target personal gain. For example, in November 2023, when Kyberswap, a DEX aggregator, fell victim to exploitation across multiple blockchains, resulting in the theft of $46 million, the hacker demanded complete executive control over the project as a condition for returning the stolen funds. As of December 5, the case is ongoing, and the hacker is dissatisfied with the offered 10% of the $47 million and is not content with the monetary compensation alone.
Crypto hacks may also involve state interests. The Lazarus group is believed to have stolen approximately $3 billion in crypto assets over the past six years, with around $1.7 billion stolen in 2022 alone. The 2023 Crypto Crime Report by Chainalysis reveals that $1.1 billion of this sum resulted from DeFi protocol hacks. The group’s connection with North Korean authorities highlights the possibility of state-sponsored backing for crypto hacks.
Lastly, FTX was hacked on the day it filed for bankruptcy, November 12, 2022, losing about $420 million. The breach was triggered by a swift transfer of the now-bankrupt exchange’s assets to various storage types following its bankruptcy declaration. While the exact motive remains unknown, there are suspicions of insider liquidation. Interestingly, despite the significant loss, this particular hack did not receive adequate attention, maybe due to the strong backlash surrounding FTX’s business fundamentals.
To summarize, there are various motives behind crypto hacks, ranging from personal gain to state and insider interests. Understanding this allows for a better conception of the vulnerabilities in the cryptocurrency landscape and the work required to improve the user and builder experience in this field.
How Can We Mitigate This Growing Risk
Cryptocurrency platforms and projects are responsible for ensuring their primary product/platform code is meticulously designed and security is prioritized in all codes and systems. In an industry that values the ethos of ‘ship fast and break things,’ developers must recognize that swift deployment carries the risk of substantial losses if things go awry. Therefore, underscoring careful design and constructing with security in mind is imperative for establishing a resilient system that safeguards user funds.
Although code audits by entities like Hacken, OpenZeppelin, and PeckShield are commonplace in the crypto space, they haven’t completely thwarted malicious activities due to their treatment as one-time endeavours.
Crypto firms must acknowledge the persistent efforts of hackers and should consistently engage reputable third-party audit firms to ensure ongoing scrutiny. Plus, the results of these audits should be shared with the community to divulge issues and their resolutions.
In addition to engaging third-party systems for scrutiny, projects should implement systems actively monitoring transactions for anomalies and suspicious activities, potentially automating responses to reduce reliance on human intervention.
Early detection of unusually large transactions or multiple transactions to the same address in a short period serves as an initial sign of an attack. Automating responses based on such events can expedite the mitigation process, limiting potential damage in hours or minutes rather than days or weeks.
Beyond monitoring for potential attacks, it is also essential to have a response plan in place. To create a response system, project developers need to map out possible ways an attack could occur and ways to react in such scenarios.
While this is not a fail-safe method, it does the project on some level of preparedness helps to recover faster in the case of a breach. Swift responses, even in the event of fund losses, are essential for preventing further losses and building trust in the protocol’s team.
On another note, users are also responsible for safeguarding their investments. Crypto is meant to be decentralized; thus, using these centralized platforms comes with a huge risk that the users must abide by, even though they may be lucrative for activities like lending and staking.
The best advice for crypto users is to use non-custodial wallets and cold storage options. Though it means their assets are fully in their care, it minimises the avenues through which attackers can access crypto investments.
A crypto investor must also be aware of the tactics used by scammers and the latest trends in their attacks. Understanding how phishing, malware, and clicking on random links can result in investment losses can help make informed decisions when confronted with such situations.
While there’s no universal solution, a combination of recurring audits, active security and operational monitoring, automated incident response systems, and user proactiveness can significantly mitigate this growing risk of asset loss via crypto hacks. Industry-wide adoption of these measures can relegate most of these widespread security incidents to stories of the past.
Final Thoughts
Given the decentralized nature of crypto services, the industry requires a proactive, real-time security approach. Robust security options and operational monitoring of system inter-relationships and the network state are vital for fostering trust and encouraging more people to adopt the technology.
More than just the technological tweaking, a widespread security-first mindset can also act as a deterrent for attackers, as they know that immediate detection awaits them. This form of community-led security monitoring efforts incentivizes vigilance and provides transparency into protocol operational health, ensuring overall ecosystem security.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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