While the cryptocurrency industry enjoys prolonged selling, the industry is grappling with an increasing number of heists resulting in losses of up to billions of dollars. As a matter of fact, the number of thefts, which increased gradually in parallel with the increasing popularity of the sector, reached its peak in 2022.
A record number of crypto thefts occurred in 2022. So what’s the reason?
In particular, according to data presented by Finbold, the number of cryptocurrency-related heists in 2022 reached 190 as of December 9, representing a 43.93% growth from 132 last year. 38 for the first time in 2018, a record growth of over 320% from the 2017 figure of 9. The lowest number of incidents was recorded with 4 in 2011.
At the same time, the value lost in robberies has varied over the years, with the top ten incidents resulting in a cumulative par value total of $4.28 billion. The March 2022 Ronin Network (Axie Infinity) heist ranks first with $620 million stolen, followed by Poly Network with $610 million. The Binance hack in October 2022 resulted in a loss of $570 million, followed by Coincheck of $532 million.
The recent FTX cryptocurrency exchange crash is in fifth place with $477 million, while the infamous MT Gox event is sixth with $470 million overall.
Increasing number of crypto heists
The record number of robberies in 2022 shows that security issues have persisted since the beginning of the digital currency space. This is why digital currencies stand out as cash cows for hackers, despite the industry entering an expanded bear market.
Indeed, hackers take advantage of the infancy of the cryptocurrency industry to initiate heists, using sophisticated techniques such as using multiple wallets and exchanges to hide their tracks and make them harder to detect. Accordingly, the anonymity and lack of regulation in the cryptocurrency market make it somewhat easier for hackers to operate undetected or tracked.
Historically, cryptocurrency thefts have seen hackers target users’ private keys to gain access to their funds through phishing, keylogging, social engineering or other techniques. It is worth noting that robberies take different vectors, as hackers turn to popular products in space.
For example, as the industry has gained popularity in recent months, the majority of targets have been decentralized finance (DeFi) protocols. Other common attack tools include exploiting blockchain bridges and market manipulation.
New vectors of crypto heists
But theft is taking a new turn, with insiders accused of using centralized platforms for theft. The current bear market has expanded following fraudulent allegations against FTX founder Sam Bankman-Fried. The embattled former CEO was accused of embezzling client funds without following the right criteria. At the same time, the amount lost in the FTX collapse may be higher given that the authorities are still investigating the matter.
Overall, centralized platforms have increased their security levels by including approaches such as implementing strict KYC protocols and adopting anti-money laundering approaches. As a result, they are less attractive to external bad actors.
Interestingly, experts also pointed to the open-source nature of the crypto space, arguing that with the industry’s growing popularity, hackers are increasingly exploiting vulnerabilities. Specifically, hackers try to exploit any code weaknesses to steal funds.
Additionally, due to the anonymous nature of cryptocurrencies, stolen funds are often difficult to track down, making it difficult for victims to be compensated. Remarkably, with the presence of transaction masking features and the channeling of some funds into laundering, tracking becomes a challenge.
However, for the few occasions where clients were compensated with digital assets, there has always been a fear of market destabilization. For example, after creditors reached an agreement to compensate Mt Gox victims, there were fears that the liquidation of a significant amount of digital assets would crash the markets.
Managing the future of crypto heists
As more regulation and official systems are needed in the crypto space, the responsibility lies mostly with investors and certain businesses. Overall, while it is not possible to eliminate the risk of crypto theft, a combination of better security measures, regulatory oversight, and individual awareness stand out as measures to reduce the risk of these attacks and significantly protect investors.
Overall, the increasing number of crypto heists has accelerated the need to make appropriate regulations in different jurisdictions seeking to protect investors. However, most regulators are split between promoting innovation in crypto and protecting investors.