Crypto Hack Losses Surpass $2 Billion As Crimes Change Amid Market Decline
Crypto-related crimes have changed with this year’s market downturn, according to a report the report Chainalysis from the blockchain analytics company.
The report found that crypto lost to hacks in 2022 is on the rise, with more than $202 million stolen in the past two weeks in addition to the $1.9 billion in investor funds lost through the end of July, up 37% from last year.
As this rise in crypto-hacks focused on the industry’s decentralized finance — or DeFi — the value of cryptocurrencies fell by about 50% in the first half of the year.
On the other hand, money lost to scam projects and the darknet market declined along with the broader market.
“No longer an option, the industry must prioritize cyber security. Every day it seems like there is at least one DeFi protocol [a hacker] has exploited,” said Kim Grauer, director of research at Chainalysis.
In particular, cryptographic bridges that allow users to transfer cryptocurrencies from one blockchain to another have shown high rates of security vulnerabilities to hackers, accounting for the bulk of major thefts.
Notable bridge hacks include Nomad ($190 million) earlier this month, Harmony ($100 million) in June, Ronin ($625 million) in March and Wormhole ($326 million) in early February.
Of the $1.9 billion stolen from DeFi protocols this year, hackers affiliated with North Korea, such as the Lazarus Group, are estimated to be responsible for more than half of the total.
Grauer suggests that more auditing of software codes, industry standardization of how projects are managed and how funds are managed, and better investor education and outreach to improve due diligence processes could help address these vulnerabilities for the industry.
“It’s easy to forget, but a few years ago we were at the lower extremes of centralized hacking. We thought it was an insurmountable industry problem,” explains Grauer.
Changpeng Zhao, founder and CEO of leading crypto exchange Binance, has touted the DeFi hack as a growing pain point for the emerging segment, telling Yahoo Finance two weeks ago that his company is investing “billions of dollars” in security.
Additionally, Zhao said that more crypto regulation “could help reduce the outbreak [hacks] and introducing more transparency in the market.”
Chainalysis’ report also shows the value captured by crypto scam projects and darknet markets from January to July.
Illegal volumes for darknet markets were down 43% compared to this time last year. Much of this decline is related to the closing of the Hyrdra market on April 5.
According to the report, highly correlated with the decline in crypto asset prices, frauds fell to $1.6 billion, a 65% decline.
Industry sources also told Yahoo Finance that the shift is likely due to how the market downturn has concentrated remaining investor interest on better-screened projects.
“We’re seeing more development backed by big companies like Binance Labs and Avalanche Labs or venture firms, which means [DeFi project] It will go through a longer review process by several skilled teams,” said LP, founder and CEO of the DeFi protocol rating app. RugDoc.io.
As a result, LP said the recent rise in hacking follows a trend of greater specialization with more means to protect. “Although the volume of petty fraud is lower, you are now seeing some elite groups that can pull off big projects for huge sums of money, sometimes backed by the state,” LP said.
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