The first quarter of 2021 saw a drastic reduction in the number of successful cryptocurrency hacks, according to a report published by blockchain security firm CipherTrace. However, experts warn that the trend may be a “temporary reprieve,” as cybercriminals are constantly evolving their tactics to stay one step ahead of security measures.
The CipherTrace report revealed that losses from cryptocurrency hacks and frauds in Q1 2021 fell by nearly 75% compared to the previous quarter, dropping from $1.9 billion to $432 million. The number of reported incidents also dropped from 113 to 23, the lowest number since Q2 2017.
While these numbers may seem like a positive development, CipherTrace has warned that the reprieve may not be long-lasting. In fact, the report states that the decline in incidents is likely due to a shift in tactics by cybercriminals towards more lucrative targets, such as decentralized finance (DeFi) platforms.
DeFi platforms are essentially financial applications built on top of blockchain technology that allow users to conduct transactions without the need for traditional financial intermediaries. These platforms have seen a meteoric rise in popularity over the last year, with the total value locked in DeFi protocols growing from a little over $1 billion in July 2020 to over $87 billion in May 2021. This growth has made DeFi platforms attractive targets for hackers looking to steal cryptocurrency.
Indeed, CipherTrace’s report notes that DeFi platforms accounted for 45% of cryptocurrency hacks and frauds in Q1 2021, despite representing only 14% of the total transaction volume. This suggests that security measures on DeFi platforms are not keeping pace with the growth of the sector, leaving users vulnerable to attacks.
One reason for the lack of robust security measures on DeFi platforms is that they are largely unregulated. While traditional financial institutions are subject to strict regulations aimed at preventing financial crimes, such as money laundering and terrorism financing, DeFi platforms operate in a largely unregulated space.
This lack of regulation allows DeFi platforms to move quickly and innovate rapidly, but it also means that they are more vulnerable to attack. Without regulatory oversight, it is up to individual users to take responsibility for their own security. However, many users may not have the technical knowledge or resources to do so effectively.
CipherTrace’s report also highlights the rise of ransomware attacks targeting cryptocurrency wallets. Ransomware is a type of malware that encrypts a victim’s data and demands payment in exchange for the decryption key. In recent years, cybercriminals have begun targeting cryptocurrency wallets with ransomware attacks, essentially holding users’ funds hostage until a ransom is paid.
The report notes that ransomware attacks on cryptocurrency wallets increased by 231% in Q1 2021 compared to the previous quarter. This trend is particularly concerning, as it suggests that cybercriminals are becoming more sophisticated in their tactics.
So, what can be done to prevent cryptocurrency hacks and frauds? One solution is for DeFi platforms to improve their security measures. This could include implementing stronger authentication protocols, conducting regular security audits, and investing in advanced encryption technologies.
Another solution is for regulators to take a more active role in overseeing the cryptocurrency industry. While regulation may stifle innovation to some extent, it could also help to protect users from malicious actors. Regulation could also give DeFi platforms the confidence to invest in better security measures, knowing that they are meeting minimum standards set by regulators.
Ultimately, preventing cryptocurrency hacks and frauds will require a joint effort from all stakeholders, including DeFi platforms, users, and regulators. The decline in incidents in Q1 2021 is a welcome development, but it should not be taken as a sign that the danger has passed. Cybercriminals are constantly evolving their tactics, and the cryptocurrency industry must be equally vigilant in its efforts to protect users from harm.
The crypto community has been warned not to become complacent despite a significant decline in crypto hacks during the first quarter of 2023. According to TRM Labs, the amount stolen through crypto hacks in Q1 2023 was “less than any other quarter in 2022”. However, it warned the decrease was most likely a “temporary reprieve rather than a long-term trend”. The average hack size also dropped nearly 65% compared to the prior year period. TRM Labs noted this slowdown was most likely due to the sanctioning of cryptocurrency mixer Tornado Cash by the US Treasury and the arrest and charge of Mango Markets’ exploiter Avraham Eisenberg.
2022 was the largest year for crypto hacking in history, with an estimated $3.8bn stolen. While the drop in crypto hacks during Q1 2023 is promising news, it is important to note that this may be a temporary reprieve. History shows that crypto hacks decreased significantly in Q3 2022 just before turning 2022 into a record year for crypto hacking in Q4. Therefore, there is no guarantee that the decline in crypto hacks will continue into the future.
In January, blockchain security firm Certik warned that it does not anticipate a respite in exploits, flash loans or exit scams. Certik noted the likelihood of further attempts from hackers targeting bridges in 2023. Bridges accounted for six of the 10 largest exploits in 2022, which saw around $1.4bn stolen. Therefore, the current lull in crypto hacks should not lead to complacency. Crypto users must remain vigilant and take all necessary steps to protect their assets.
Crypto hacks often target decentralized finance (DeFi) protocols, which are vulnerable to hacking. Experts suggest that DeFi protocols can improve security by incorporating democratic and decentralised governance models to manage security challenges. Decentralisation can help to mitigate risk by ensuring that no single entity, including developers, has the power to make decisions that compromise the security of the protocol.
The crypto community can also take steps to protect their assets by avoiding keeping large amounts of cryptocurrencies in hot wallets, which are connected to the internet and therefore more vulnerable to hacking. Instead, they should use cold wallets, which are not connected to the internet and offer a higher level of security. Crypto users should also use multi-factor authentication and regularly update their passwords to protect their accounts from hacking.
In conclusion, the decline in crypto hacks during Q1 2023 is a positive development. However, experts warn that the crypto community should remain vigilant and take all necessary steps to protect their assets. The threat of crypto hacking remains a significant concern, especially as hackers become more sophisticated and target new vulnerabilities. Crypto users should take steps to protect their assets and avoid complacency to ensure the long-term security of the crypto ecosystem.
