May 27, 2019
In this story, we have analyzed the money lost due to crypto hacks, the volume of hacks, the region with the maximum amount of money lost due to hacks, and how can it be solved. It is a fact that cryptocurrencies have opened a new channel for trading, which has been a haven for traders due to the volatility. The exchanges, wallets, and marketplaces involved in trading have benefitted the most as they levy charges such as maker fee, taker fee, deposit fee, and withdrawal fees. However, in spite of having high fees, they lack digital infrastructure security, which has led to hacks and cryptocurrencies being stolen.
One of the primary reasons for such hacks is the lack of the involvement of a central authority, which means there is no clear guidance on the security checks that need to be in place. The exchanges have been evolving in terms of technology and digital security by themselves, but the hackers are outwitting them. Two of the areas that exchanges are strengthening are KYC processes and account monitoring; exchanges are implementing encryption techniques to guard against fraud and account tampering. The chart below shows the number of exchange hacks that took place between 2011 and 2019, along with the value of losses incurred:
Note: The data consists of crypto exchanges, wallets, and marketplace.
The number of hacks consistently increased alongside the growing popularity of cryptocurrencies. A total of 62 hacks have been made on crypto exchanges, wallets, and marketplaces around the world, which has amounted to a loss of $2.71 billion from 2011 to 2019.
The trend started in 2014 when a total of six hacks resulted in the loss of $521.68 million for crypto exchanges, wallets, and marketplaces.
In the last two years, the total number of hacks that occurred on exchanges, marketplaces, and wallets were 25, which resulted in a loss of $1.26 billion.
In 2019, between January and April, a total of eight hacks have been recorded which resulted in the loss of $729.03 million for the cryptocurrency ecosystem; according to our estimates, the number of hacks will increase to 16, resulting in a loss of approximately $1 billion.
Japan leads the chart in the total volume of fraudulent transactions for a country, accounting for $920.03 million from four transactions over the years. Mt. Gox (crypto exchange) and Coincheck (crypto wallet) had collectively lost $860 million in 2014 and 2018, respectively.
In Singapore, a total of five hacks were recorded from 2011 to 2019. Fraudulent transactions in the country resulted in the loss of $507.31 million.
Other major economies that were affected by fraudulent transactions are the United Kingdom ($337.3 million), Canada ($265.3 million), and South Korea ($181.39 million).
Another interesting observation based on the data is that the United States of America tops the chart with the total number of hacks (10 hacks), but the value lost due to these fraudulent transactions accounted to a relatively paltry sum of $13.25 million.
Based on our analysis and the trends we’re witnessing over the years, the volume of fraudulent transactions seems to be increasing significantly and might cross $1 billion in 2019. Crypto companies are implementing new technologies to strengthen their digital walls, but even the slightest gap could lead to the loss of a huge amount.
The need for the increase in security of cryptocurrencies has led to the origin of innovative FinTech companies such as Merkle Science and CipherTrace. Merkle Science provides its clients with features such as tracing the source of funds, compliance reporting, transaction monitoring to detect suspicious transaction activity & high-risk accounts through automated detection algorithms, and also enabling them to create custom alerts to detect any malicious activity. CipherTrace, on the other hand, provides features such as AML compliance through its APIs, financial investigations, and its Blockchain Threat Intel feature to detect and reveal crypto asset risks & compliance monitoring for government & auditors.
There is a rise in growth of crypto hacks in both volume and value across geographies; crypto exchanges, wallets, and marketplaces are putting measures in place to combat the fraudulent attacks. However, an additional security system deployed by innovative FinTech companies, such as the ones mentioned above, can hopefully beat the threat posed by hackers – this will also help in increasing the trust of stakeholders participating in the cryptocurrency space.