Cryptocurrencies have been in the news a lot lately, and for all the wrong reasons. Hackers have been busy stealing millions of dollars worth of cryptocurrencies from exchanges and individual investors. In this blog post, we will take a closer look at the current state of crypto hacking and explore why DeFi is most at risk.
If digital assets stolen in hacks this October continue on their current trajectory, the month will end up being the worst one yet–highlighting dangers involved with decentralized finance.
So far this month, $718 million has been stolen from 11 hacks of decentralized finance protocols, according to Chainalysis, a crypto intelligence firm.
“At this rate, 2022 will likely surpass 2021 as the biggest year for hacking on record. So far, hackers have grossed over $3 billion dollars across 125 hacks,” the firm said in a Twitter thread.
1/ After four hacks yesterday, October is now the biggest month in the biggest year ever for hacking activity, with more than half the month still to go. So far this month, $718 million has been stolen from #DeFi protocols across 11 different hacks. pic.twitter.com/emz36f6gpK
— Chainalysis (@chainalysis) October 12, 2022
They also noted that. In 2021, digital thieves had a big year stealing $3.2 billion worth of cryptocurrency. However in 2022, they’re shaping up to steal even more.
In the first quarter of this year, Hackers have stolen a combined $1.3 billion from exchanges, platforms, and private entities– with victims in DeFi accounting for a disproportional amount.
Decentralized Finance, or “DeFi”, alludes to economic services that don’t require central authorities. Rather than depending on brokers or conformity exchanges, the mechanisms rely on smart contracts like those provided by Ethereum or other blockchain systems.
In recent weeks, DeFi platforms or protocols – especially those called bridges that let users send crypto and information between different blockchains – have been commonly hacked. One of the most hacks happened to a blockchain network bridge run by Binance, which is the world’s biggest cryptocurrency exchange. The hackers stole more than $100 million.
Three bridges have been breached this month by hackers, according to Chainalysis, accounting for more than 80% of losses this month and two-thirds of 2022’s total.
Going after DeFi platforms marks a relatively recent trend in crypto.
In the past, centralized exchanges—which are run by a company, such as Coinbase Global (ticker: COIN) or Binance—have been targeted by hackers. Major hacks on centralized exchanges in crypto’s history include attacks on Mt. Gox in 2011 and 2014, and the exploitation of a vulnerability at the Japanese exchange Coincheck in 2018. Salona and other coins have been heavily targeted as well.
“Crypto custody and security practices by centralized exchanges have improved over the years limiting potential attack vectors,” Stephane Ouellette, the CEO of crypto derivatives broker FRNT Financial, said in a note Friday.
“DeFi proponents argue that the sub-sector will eventually develop more robust security which will lower the prevalence of hacks, similarly to how centralized exchanges responded to cyber risks over time,” Ouellette added. “However, given the unique technical nature of DeFi, it is unclear if the sub-sector will be able to minimize the occurrence of hacks to the extent centralized exchanges have.”