Hackers and scams have been prevalent since the inception of crypto, but just how successful have they been and how have they evolved their tactics?
In 2008, the Federal Trade Commission recorded identity theft at the top complaint submitted by U.S. consumers. Now, these complaints have grown 20% higher and many involve mobile devices. Cybercrime is a booming criminal industry raking in nearly $1.5 trillion each year globally. You might also remember that in 2008 the Bitcoin Whitepaper was released, effectively creating a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution". Given the total market cap of cryptocurrencies was over $130.3 billion as of March 1st, 2019, it's no surprise that crypto assets are subject to the same kinds of attacks we've seen in the early days of mobile banking.
Hackers and scams have been prevalent since the inception of crypto, but just how successful have they been and how have they evolved their tactics? Research shows that in 2018 alone over $1.7 billion in cryptocurrency was stolen by hackers, which was more than triple that in the previous year. Of that number, "$950 million was stolen from exchanges and wallet providers while the other $725 million was taken through "inside jobs," including fraudulent ICOs, exit scams, staged exchange hacks, and Ponzi schemes" according to blockchain intelligence company Ciphertrace. Let's examine the evolution of crypto-jacking and derive lessons to protect ourselves moving forward.
From 2011 to today there have been numerous headlines about hacks and scam in the crypto industry. Each of the following is an example of crypto-jacking in recent history that highlights various tactics used by hackers and fraudsters.
From 2011 to today there have been numerous headlines about hacks and scam in the crypto industry
One of the first major cryptocurrency heists was the Mt. Gox hack, where $30,000 in Bitcoin was stolen. The computer of an auditor of the exchange was compromised by attackers who proceeded to manipulate the price of bitcoin on the exchange to one cent. The attackers then stole the private keys of Mt. Gox clients that were stored in hot wallets (wallets that are connected to the internet) and transfer out the Bitcoins at an artificially reduced price.
In 2012, the Bitcoin Savings and Trust investment fund shuts down and is determined to be a fraudulent Ponzi Scheme a year later having robbed is investors of an equivalent to $2.8 million. In 2016, the culprit was sentenced 18 months in prison for a classic scam in an emerging medium of exchange.
As cryptocurrencies became more mainstream, one Bloomberg anchor had a bitcoin gift card stolen directly from live TV after the anchor displayed a close up of the digital QR code used to claim the coins. All it took was a quick-witted viewer to whip out a phone and beat the newscasters to the punch.
Yet again Mt. Gox is hacked, this time losing a total of 650,000 BTC. Unable to recover from the loss, all trading was stopped and the exchange filed for bankruptcy. The attacker was never identified, leaving other exchange vulnerable to attack.
Thousands of Dark Web users see $12 million in Bitcoin disappear during the Evolution Marketplace exit scam. Deceitful folks eager to capitalize on the hype of the crypto movement are reaching all corners of the deep web.
It's not just Bitcoin, any cryptocurrency and altcoins can be stolen without proper protection. In 2016, $60 million was lost in The DAO Attack. The DAO (Decentralized Autonomous Organization) is built on Ethereum that runs via a series of smart contracts and is governed by member voting. The purpose of The DAO was to collectively fund member projects, but instead, much of the funds were drained in code attack that exposed a loophole to allow the attacker to siphon out funds into a "child DAO". The thief was never caught.
In an effort to bring price stability to cryptocurrencies, Tether released a coin that pegged one-to-one to the USD across exchanges, platforms, and wallets. In 2017 Tether announced the transfer of nearly $31 million to an unauthorized wallet. They also announced, however, that the stolen tokens would not be redeemable.
Last year brought an onslaught of hacks targeted at exchanges. At the turn of the year, the price of Bitcoin skyrocketed and the popularity of crypto assets was at an all-time high. In the prior year, many exchanges and wallet providers all over the world raced to capture market share of crypto users, but many lacked necessary security measures and hackers became more savvy and determined. One such example is the Japanese crypto-exchange Coincheck which lost a whopping $400 million worth of crypto coins.
Already early on in 2019, we see an interesting case in which QuadrigaCX, Canada's biggest cryptocurrency exchange, lost $150 million worth of crypto supposedly due to the death of the founder, who was the only person who knew the private keys. However, there are have been uncertainties raised about the case: did the founder fake his death? Is this a case of fraud? Or did poor contingency planning cause the funds to be simply inaccessible?
Despite more awareness about security, hackers outwitted operators, and some operators outwitted customers to commit fraud. From these examples over the last few years, we can examine some common ways crypto has been stolen and outright lost:
- THEFT: Traditional methods such as phishing, extortion, or fraud could subject you to identity theft.
- HACKS: A critical detail about a coordinated heist from is that most of the incidents regarding stolen crypto have a common theme: the digital assets were kept in exchanges.
- DEFECTS: Having your digital assets stolen is not the only way to lose money in the crypto world. Technical errors could cause funds to be locked up forever.
It is estimated that 20% of Bitcoin's supply is unrecoverable. The hard truth is there have always been and always will be thieves after your wealth, the only difference is theft now happens mostly in the digital space. Cybersecurity threats are on the rise and crypto owners are prime targets.
Although there are new solutions emerging, there will be tradeoffs between security standards and ease of use. Additionally, there are a few security fundamentals that will always hold true, ever when using offline wallets.
Crypto is going to continue to be targeted, so if you want to HODL your crypto assets for the long run, it is imperative to adopt pro-active preventative measures. Firstly, don't leave your crypto anywhere that is connected to the internet. Second, don't trust centralized authorities (even if you don't believe them to be a hostile actor) with custody of your coins.
Instead, use common sense and apply basic security principles like a backup to a digital vault.
Hardware wallets are also a great option, but remember to keep track of it and choose memorable yet hard to guess PIN. Backup your private keys and recovery phrases — always.
We routinely store our cryptocurrency assets, for day-to-day use, in hardware/software wallets or in a centralized, online account. However, both of these approaches have significant weaknesses. In the case of wallets, if the owner loses the device, she risks permanent loss of all the assets. Wallet vendors provide 12/24-word passphrases as means of "last resort" backup. Owners store these passphrases as pieces of paper — sometimes in a bank safe deposit box, sometimes in a sock drawer. That is a pretty odd medium to use for the highest level of security for digital money. This approach not only shifts the risk of attack on keys into the recovery phrase, but it is also subject to a whole new set of risks — earthquakes, burglaries, mudslides and fires to mention a few factors in California alone. The paper passphrase, unfortunately, becomes an unacceptably risky single point of failure.
In the case of centralized online accounts, all of the account holders are at catastrophic risk when dedicated criminal hacker organizations target the online storage providers, which was the case with MtGox (2014), Bitstamp (2015), Bitfinex (2016) and Coincheck (2018). The delegation leaves users without direct ownership of their funds, negates one of the key principles of crypto assets and effectively forces users to fully trust a centralized storage vendor. That relegates crypto assets to same outdated setup as the legacy banking system.
As cryptocurrency investors start to invest in more and more coins, the number of accounts and wallets needed will also increase. Given the threat landscape, protecting cryptocurrency, whether for the short term or the long haul, is critical. A better solution is needed to prevent more high-profile hacks and the subsequent loss of assets — some of it irretrievably. Learn more about how Vault12 is changing the risk landscape with its digital custody app — now available (beta) vault12.com/getapp.
First published at vault12.com/blog.
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Inheritance and self-custody for CryptocurrencyVault12 Explainer
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Vault12 Digital Inheritance is the first solution to offer a simple, direct, and secure way to ensure cryptocurrency, NFTs and other Web3 digital assets can be inherited by future generations.
Digital Inheritance enables investors to designate an individual or a mobile device as a guardian that will inherit their entire portfolio of digital assets inside a secure digital Vault once the time comes, eliminating undue risk and the need to continually update an inventory or issue updated instructions which result in privacy leakage.
Designed to be used alongside traditional hardware, software, and online wallets, Vault12 helps cryptocurrency owners, professional crypto traders, and high-net-worth investors safeguard their digital assets without storing anything in the cloud or in fact, any one single location. This increases protection and decreases the risks of loss.
(Note: The Vault12 app is not a crypto wallet and does not hold cryptocurrency. It is a Vault that safeguards your wallet seed phrase and private keys, associated files for NFTs, and digital art).
The Vault12 app helps you self-custody, backup, and provide legacy inheritance for all your web3 digital assets, including NFTs, wallet seed phrases, secrets like keys, PIN codes, DAO project keys, and digital art.
Whether your digital art is suitable for a phone, or represents much higher resolution multimedia, make sure that you have backed up a copy in case the resource link is disrupted in the future. Digital art can easily be added to the Vault either via the mobile app or via the desktop utility. Once you have stored your artwork in your Vault, it will also benefit from inheritance once you activate that in your app.
As a creator you can use Vault12 to safeguard not just your NFT and crypto wallets, but also original digital artwork. Project creators will always have to deal with multiple wallets - inventory, treasury as well as future royalty wallets.
Vault12 safeguards your project assets, increasing protection and decreasing the risks of loss, whilst ensuring that everything is ready to go to be passed onto future generations, when the need arises.