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New Normal: Cryptocurrency Thefts Continue To Rise: Here’s Why news

Already stolen $ 1.3 billion in cryptocurrencies in the first quarter of 2022
The theft is moving to DeFi platforms
Insufficient security of the code and lack of risk analysis by investors as reasons

The analysis firm Chainalysis publishes the “Crypto Crime Report” every year, a report on the criminal situation in the cryptocurrency universe. The current “Crypto Crime Report 2022” shows that crime in this area has reached a new record. In 2021, some 14 billion US dollars in cryptocurrencies were transferred to illegal addresses, more than ever. The amount stolen via fraud – such as so-called “rug pulls”, in which developers raise funds from their victims for alleged token projects and then disappear without a trace – increased 82 percent from the previous year to 7. , 8 billion US dollars, while cryptocurrency thefts, such as through successful hacks, increased by a whopping 516% to 3.2 billion US dollars. The trend towards more cryptocurrency thefts continues in the current year: according to “SC Media”, in the first quarter of 2022 alone 1.3 billion dollars in cryptocurrencies were stolen.

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Hackers are increasingly targeting DeFi platforms

The nature of cryptocurrency theft has changed over time. According to Chainalysis, centralized cryptocurrency exchanges were the main targets of thieves in 2019 and 2020, but now the vast majority of coins are stolen by hacking DeFi platforms. According to the blockchain analytics firm, of the roughly $ 3.2 billion worth of cryptocurrency theft last year, 72% came from DeFi protocols. According to “SC Media”, in the first quarter of 2022, 97% of cryptocurrency thefts took place on DeFi platforms.

“There are some things that make DeFi projects more vulnerable to hackers,” explained Kim Grauer, research director at Chainalysis, according to MIT Technology Review. “The code is open source. Anyone can look at it and look for errors. In our opinion, this is a big problem that centralized cryptocurrency exchanges don’t have,” continued the expert. Therefore, the main feature of DeFi systems, namely their transparency and open source code, becomes their biggest problem.

Also, more and more cryptocurrency companies are being established, so the industry is growing very rapidly. According to the “MIT Technology Review,” the focus is primarily on setting up a business quickly, and security is often overlooked. Poorly managed teams using open source software are rampant in the cryptocurrency economy. Hackers would know and take advantage of it.

Johnny Lyu, CEO of cryptocurrency exchange KuCoin, also attributed faulty code to “Forbes India” as the main reason for the growing number of hacks on DeFi platforms. “The reason DeFi protocols are increasingly being breached is because of the code they are based on. Most hacker attacks occur due to vulnerabilities in smart contract code that hackers exploit to gain access to funds. of the users obtained, “says Lyu. “The decentralized nature of DeFi platforms makes them even more vulnerable to attack as hackers target certain bugs in software packages, which are very transparent as the programs are open-source,” said KuCoin’s CEO.

Investors, sometimes knowingly, take big risks if analysis is lacking

According to “MIT Technology Review,” another reason why the cryptocurrency industry has to constantly report new successful thefts is that investors often do not analyze the risks of their investments at all or do it only insufficiently. “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 aren’t particularly well structured or managed,” said Kim Grauer of Chainalysis, according to the magazine. Furthermore, it is a common investment strategy to invest in perhaps 50 different protocols and tokens and hope that one of them will take off. According to Grauer, it is almost impossible to look into each of these investments in advance. Investors are therefore taking a very high risk – and the expert believes that in many cases they are even aware of it. “People are now building into their investment strategy some sort of risk acceptance that they can be breached or that everything can go to zero,” the research director said.

In fact, according to MIT Technology Review, investors affected by a cryptocurrency theft rarely get their money back. Meanwhile, the authorities would have new tracking tools available, but their options for securing and returning the funds were very limited due to the inherent properties of the cryptographic system.

Financeen.net editorial staff

Image sources: r.classen / Shutterstock.com, Phongphan / Shutterstock.com

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