Forex in this article
Already stolen $ 1.3 billion in cryptocurrencies in the first quarter of 2022
Theft switches to DeFi platforms
Insufficient security of the code and lack of risk analysis by investors as reasons
Every year, the analysis company Chainalysis publishes “Crypto Crime Report” – a report on the crime situation in the crypto universe. The current “Crypto Crime Report 2022” shows that crime in this area has reached a new record high. In 2021, about $ 14 billion in cryptocurrencies were transferred to illegal addresses, more than ever before. The amount stolen through fraud – such as so-called “rug pulls”, where developers collect funds from their victims for alleged projects via tokens and then disappear without a trace – increased by 82 percent compared to the previous year to 7.8 billion US dollars, while crypto thefts – for example. through successful hacks – increased by as much as 516 percent to $ 3.2 billion. The trend towards more cryptocurrencies continues this year: according to “SC Media”, $ 1.3 billion in cryptocurrencies were stolen in the first quarter of 2022 alone.
Hackers are increasingly targeting DeFi platforms
The nature of cryptocurrency theft has changed over time. According to Chainalysis, centralized crypto exchanges were the main targets for thieves in 2019 and 2020, but now the vast majority of coins are stolen by hacking DeFi platforms. Of the about $ 3.2 billion in cryptocurrencies last year, 72 percent came from DeFi protocols, according to the blockchain analytics firm. According to “SC Media”, 97 percent of the cryptocurrencies in the first quarter of 2022 were on DeFi platforms.
“There are a few things that make DeFi projects more vulnerable to hackers,” explained Kim Grauer, research director at Chainalysis, according to the MIT Technology Review. “The code is open source. Anyone can look at it and search for errors. In our opinion, this is a major problem that centralized crypto exchanges do not have,” the expert continued. Thus, the main characteristic of DeFi systems, namely their transparency and open source code, becomes their biggest problem.
In addition, more and more crypto companies are being set up, so the industry is growing very fast. According to the “MIT Technology Review”, the focus is primarily on establishing a business quickly, and safety is often overlooked. Poorly managed teams using open source software are widespread in the crypto economy. Hackers would know it and take advantage of it.
Johnny Lyu, CEO of the crypto exchange KuCoin, also blamed “Forbes India” for defective code as the main reason for the increasing number of hacks on DeFi platforms. “The reason why DeFi protocols are increasingly being hacked is because of the code they are based on. The majority of hacker attacks occur due to vulnerabilities in the code for the smart contracts that hackers exploit to gain access. to the users’ means, “says Lyu. “The decentralized nature of DeFi platforms makes them even more vulnerable to attack, as hackers target certain flaws in the software packages, which are highly transparent as the programs are open source,” the KuCoin chief said.
Investors take – sometimes deliberately – major risks if analyzes are lacking
According to the “MIT Technology Review”, another reason why the crypto industry has to constantly report on new successful thefts is that investors often do not or only insufficiently analyze the risks of their investments. “There are so many opportunities for new businesses to get online that people are investing at an unprecedented rate and pouring money into platforms that are not particularly well-structured or managed,” Chainalysis’ Kim Grauer said, according to the magazine. In addition, it is a common investment strategy to invest in maybe 50 different protocols and tokens and hope that one of them will take off. According to Grauer, it is almost impossible to carefully examine each of these investments in advance. Investors therefore take a very high risk – and in many cases they are even aware of it, the expert believes. ‘People are now embedding in their investment strategy a kind of acceptance of the risk that they may be hacked or that everything may go to zero,’ said the research director.
In fact, according to the MIT Technology Review, investors affected by a cryptocurrency rarely get their money back. In the meantime, the authorities wanted new tracking tools at their disposal, but their ability to secure and return the funds was very limited due to the inherent characteristics of the cryptosystem.
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