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In March of this year, hackers carried out one of the largest crypto heists of all time. It joined a growing list of cryptocurrency security breaches, such as the theft last August of more than $600 million in cryptocurrency from the Poly Network program. Roughly $3.2 billion worth of crypto was stolen in 2021, a 516% increase from the previous year. One factor driving it: Hackers are exploiting the five-fold growth in the past year of the decentralized finance, or DeFi space, where algorithms handle all transactions and there is no human interaction between parties.
Some $2.2 billion of funds were stolen from DeFi projects, an increase of 1,330% since 2020. For holders of digital assets, secure storage technology remains crucial. Holders use a unique private key, a long password to access their crypto. Keys, and thus cryptocurrencies, can be stored in online or mobile wallets, which allow quick access but offer the least secure method of storing cryptocurrency. A more secure alternative uses a device that is not connected to the Internet, known as cold storage. Options include physical USB devices, offline computers, or sophisticated hardware wallets, small USB-like devices.
But other specialized third-party services even protect customers’ crypto assets, for example by keeping private keys in vaults protected by human guards or systems that use facial recognition and fingerprints. Scams, ransomware, and theft increased 79% in dollar terms last year. But despite that, transactions involving illicit addresses actually represented an all-time low of just 0.15 percent of total crypto trading volume in 2021. And law enforcement and regulators have gotten better at fighting crime. related to cryptocurrencies.
But cybercriminals are increasingly using their own high-tech tools and techniques to evade detection. One is chain hopping, hopping between different cryptocurrencies, often in rapid succession. Another involves the use of cups or mixers, third-party services that mix illicit funds with clean crypto before redistributing them. About 15 percent of all proceeds of crime were diverted through mixers in 2021. But mixers can be eliminated more and more. And hiding large amounts of funds through mixers can be difficult for criminals. Meanwhile, regulators and law enforcement agencies are increasingly cracking down on illicit transactions.
In March, for example, the UK’s National Crime Agency called for regulation of decentralized crypto mixes, while European Union lawmakers backed stricter traceability rules for cryptocurrency transfers. Change is expected. But in an industry where participants are used to moving fast, the onus to keep up will remain with regulators.