If you are a cryptocurrency user, you might be wondering how safe your funds are in this volatile and unpredictable industry. Well, the good news is that you are not alone, and that the overall losses due to scams, rug pulls, and hacks have decreased significantly in 2023. The bad news is that there are still many challenges and threats that you need to be aware of and protect yourself from.
According to a report by De.Fi, a blockchain security firm, cryptocurrency users experienced losses of nearly $2 billion in 2023, which is a huge amount of money, but also a significant reduction compared to the estimated $4.2 billion losses in 2022. This shows that the industry is becoming more mature and resilient, but also that the attackers are becoming more sophisticated and opportunistic.
So, what are the factors that contributed to this reduction in losses?
And what are the main sources and methods of exploitation that you should watch out for? Let’s take a look at some of the key findings from the report.
Improved Security Protocols: One of the main reasons for the lower losses in 2023 is that many projects and platforms have improved their security protocols and practices, making it harder for hackers to breach their systems. For example, many decentralized applications (DApps) have implemented multi-signature wallets, timelocks, audits, bug bounties, and insurance policies to enhance their security. Additionally, many users have adopted more secure ways of storing their private keys, such as hardware wallets, cold storage, or multisig solutions.
Increased Awareness: Another factor that helped reduce the losses in 2023 is that many users have become more aware of the risks and pitfalls of the cryptocurrency industry, and have learned how to avoid them. For example, many users have learned how to spot and avoid phishing emails, fake websites, impersonators, and malicious links that try to steal their credentials or funds. Moreover, many users have become more cautious and diligent when interacting with new or unknown projects or platforms, and have learned how to do their own research, verify the legitimacy and reputation of the project or platform, and check for red flags such as unrealistic promises, lack of transparency, or poor communication.
Overall Decreased Market Activity: A third factor that influenced the lower losses in 2023 is that the cryptocurrency market experienced a period of low activity and bearish sentiment for most of the year. This means that there were fewer transactions, trades, and investments happening in the industry, which also reduced the opportunities and incentives for attackers to target users or platforms. Some major alternative tokens (altcoins) experienced significant slumps before recovering towards the end of the year when market conditions became more bullish.
Despite the reduction in losses, the cryptocurrency industry remains susceptible to security risks. The $2 billion losses in 2023 do not include the $40 billion lost in the collapses of stablecoin issuer Terraform Labs (TFL), crypto lender Celsius (CEL), and the FTX exchange (FTX). These were some of the biggest shocks and scandals of the year, which exposed the fragility and vulnerability of some of the most popular and trusted platforms in the industry. These incidents also raised questions about the regulatory oversight and compliance of these platforms, as well as their solvency and liquidity.
The recovery rate of funds lost to hacks, scams, and exploits improved significantly in 2023, reaching around 10%, up from just 2% in 2022. This means that some victims were able to recover some or all of their funds through various means such as legal action, negotiation with attackers or intermediaries, or community support. However, this also means that 90% of the funds were still unrecoverable or untraceable.
The report also provides a breakdown of the losses by blockchain platform and exploitation method. Here are some of the highlights:
Blockchain-Specific Losses: Ethereum (ETH) was still the most targeted blockchain platform in 2023, with $1.35 billion lost in approximately 170 incidents. This is partly due to its popularity and dominance in the industry, as well as its complexity and innovation. BNB Chain (BNB) was the second-most targeted platform with $110.12 million lost across 213 incidents. This is mainly due to its rapid growth and adoption in 2023 as a cheaper and faster alternative to Ethereum. zkSync Era (ZK) was a new entrant in 2023 with $5.2 million lost in two incidents. This is a layer-2 scaling solution for Ethereum that aims to improve its throughput and efficiency. Solana (SOL) was another newcomer with a loss of $1 million in a single attack. This is a high-performance blockchain platform that claims to offer low fees and high scalability.
Losses on Centralized Platforms: Centralized platforms such as exchanges or custodial services accounted for approximately $256 million in losses across seven cases. The largest incident was the November attack on Poloniex (POL), which netted $122 million. This was a sophisticated and coordinated attack that exploited a vulnerability in the platform’s withdrawal system, allowing the attackers to withdraw more funds than they had deposited. The other notable incidents were the hacks of KuCoin (KCS), BitMart (BMX), and AscendEX (ASD), which resulted in losses of $45 million, $40 million, and $30 million respectively.
Popular Exploitation Methods: Access Control Exploits were the most damaging method of exploitation in 2023, resulting in losses of over $852 million in 29 instances. This method involves compromising the access or control of a platform or a user’s account or wallet, either through phishing, malware, social engineering, or insider attacks. Flash-Loan Attacks were the second-most cash-generative method of exploitation, leading to $275 million lost over 36 cases. This method involves borrowing large amounts of funds from decentralized lending platforms and using them to manipulate the prices or liquidity of other platforms or tokens, and then repaying the loans with a profit. Exit Scams accounted for $136 million over 263 cases. This method involves launching a fraudulent or unsustainable project or platform and then disappearing with the funds raised from investors or users.
As you can see, the cryptocurrency industry is still a risky and challenging environment, where you need to be vigilant and careful at all times. However, it is also an exciting and rewarding industry, where you can find many opportunities and benefits. The key is to educate yourself, protect yourself, and diversify yourself. And remember, always do your own research before investing or interacting with any project or platform.
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