Posted on January 30, 2019 at 2:59 PM
The crypto industry has a vast variety of problems that still persist, even after 10 years of their existence. While most problems revolve around the technical or legal side of things, such as scalability issues and lack of regulations, there is also a large issue of online crimes.
Crypto-related crimes grew in frequency immediately after the crypto boom of late 2017, and the effects were felt throughout 2018. In a single year, hackers, scammers, and other cybercriminals managed to steal over $1.7 billion in different cryptocurrencies. The majority of this amount (around $1 billion) was stolen from crypto exchanges, according to the recent CipherTrace Cryptocurrency Intelligence report.
Crypto crimes persisted even after the market crash, and they actually continued to grow throughout the year, as the prices plummeted. The report also claims that 2018 has seen seven times the number of coins that were stolen in 2016 and 3.6 times more than what was stolen in 2017.
Even so, CipherTrace’s CEO, Dave Jevans, points out that the numbers mentioned in their report only include the stolen amount that the company managed to validate. In other words, the actual amount is likely even larger. The report indicates that the risks involved in dealing with cryptocurrencies go far from simply losing money due to a price drop or bad investments. As a result, securing the crypto space might be the first and biggest challenge that needs to be dealt with.
Cryptocurrencies attracted the hackers and investors alike
Due to the nature of cryptocurrencies, it is relatively easy for hackers to take advantage of investors and steal their coins. One of the reasons behind this is the fact that crypto is still in the early part of its history, meaning that most of the trading aspects are still rough around the edges. This also means that most investors have yet to learn how to properly secure their coins, while hackers have much more experience with online security, as well as methods of bypassing it.
Next, the price boom in late 2017 allowed both, hackers and investors, to realize that there is money to be made in the crypto industry. New threats such as cryptojacking emerged, and there are likely numerous devices around the world that are mining cryptocurrencies right now without their owners knowing about it.
The lack of security within crypto exchanges also played a part, but the phishing attacks cannot be prevented by exchanges. If the investor loses their login credentials by clicking on the malicious link in an email and trying to log into a fake exchange website, their funds are as good as gone. There are also reports of potential inside jobs within exchanges which allowed hackers to access supposedly secure wallets.
Then, there are new methods such as the so-called SIM-swapping, that allows hackers to steal the victims’ credentials by taking over their phones. This was reported as one of the largest threats to wallets and exchanges in 2018.
Finally, there were countless ICO scams in 2017 and 2018 that stole nearly $750 million from investors who were still trying to invest in any project without much thought, hoping to see massive returns that were promised to them as soon as possible.
Another report published by Chainalysis confirmed these findings, but it also indicates that most of the crimes in 2018 were carried out by only two organized groups. Chainalysis’ Chief Economist, Philip Gradwell, confirmed this by saying that the company’s study of patterns indicated that large, sophisticated hacking groups were behind most of the incidents.
According to the report, these two groups stole $1 billion through numerous smaller hacks that resulted in an average theft of $90 million per hack. Hackers then moved the funds through a network of exchanges, personal wallets, and alike. After that, they waited for an estimated period of 40 days until the situation calms down, and then they would cash out.
The two groups also use different strategies, with the first one being more complex and sophisticated. This group also tends to put additional effort into hiding their tracks, mostly by moving the stolen coins up to 15,000 times before finally cashing out. The other group is believed to be smaller and less sophisticated, with their focus being on the money and not on clever ways of evading detection. Even so, this group also moves the funds at least 5,000 times, on average.
What awaits in the future?
Financial regulators are aware of the hacking problem, and demand for security and protection of online funds is one of the most concerning issues that they are trying to deal with. The US SEC Chairman, Jay Clayton, stated that there is a concerning lack of market surveillance. This is one of the reasons why the SEC does not feel comfortable with providing approval for Bitcoin ETFs.
It is also one of the biggest reasons why institutional investors remain skeptical of crypto, and why they are not willing to enter the space just yet. For now, the coin security remains a difficult battle. While solutions are likely to be found at some point, there is still a long way to go until then, and hacking attacks in 2019 are expected to continue, which is something that crypto investors need to be aware of and stay vigilant during their investment and trading decisions.