In the first three months of 2022, hackers stable $1.3 billion in crypto from exchanges, platforms and private entities. The victims are disproportionately in DeFi.
Chain analysis2022
Considering the millions of dollars at stake and a high pace of innovation based on an open-source architecture, DeFi protocols are a good target for hackers. The DeFi space entered the world with many interesting features and the promise of becoming the future of finance, but new cyber scams also emerged.
In April 2023, Michael Bentley, the co-founder and CEO of Euler Labs, the company behind the Euler Finance protocol, tweeted that the days following the hack were the hardest of his life. In the case of Euler Finance, a flash loan attack occurred.
April 2023 was also not a good month for another DeFi protocol. DEUS Finance lost more than $6 million in a weekend hack that exploited a vulnerability. Blockchain security firm PeckShield stated that the hack targeted DEUS Finance’s stablecoin on the BNB Smart Chain and Arbitrum networks.
Those interested in crypto have also heard other terrifying stories. It seems that everyone who follows crypto is aware of these numbers. While some hacks are related to network vulnerabilities, smart contracts, or market manipulation that ordinary users have no control over, individuals usually fall prey to a number of scams, such as phishing scams, crypto mining scams, and carpet pulls.
Unlike other traditional payment methods, stolen cryptocurrency is not easy to recover. For example, you may notice a strange charge on your credit card or bank account that looks like potential fraud. It became easy to use credit cards as you can dispute a fraud-like charge to get your money back. You just need to contact your credit card company or bank immediately and let them know it’s an unauthorized transaction.
On the other hand, cryptocurrencies do not include built-in consumer protection. Crypto is not covered or insured by government-sponsored programs and regulations aimed at protecting consumers and investors.
Centralized financial systems typically include insurance for a specified amount. For example, the US Federal Deposit Insurance Corporation (FDIC) covers all deposit accounts for a standard amount of $250,000 in case the financial institution becomes insolvent, but this does not include crypto assets.
While decentralized finance has made many mistakes related to traditional financial rights, the issue of insurance and consumer protection remains. Many users trust a number of crypto wallets and relevant exchanges when it comes to financial transactions. However, it is not an easy task to recover funds in the crypto environment.
Additionally, keep in mind that cryptocurrency is a bearer asset. Owning a bearer asset means that the user is the one who owns it. Simply put, whoever owns the private key is considered the owner. This is in contrast to credits which imply that a third party holds your assets for you.
Think of this situation as the difference between shopping with cash and shopping on credit. Unlike buying on credit where the bank moves the money, when you buy groceries with cash you are physically holding that money. Someone can take that money out of your hands, walk away and become the new owner.
With bearer assets, it is difficult to prove ownership. Therefore, stolen or lost private keys make it difficult to successfully complete a recovery process.
Apart from situations where hackers exploit vulnerabilities of a certain technology to steal money or manipulate the market when it comes to individuals, hackers usually use social engineering techniques such as phishing scams or fake emails to gain access. If a transaction goes wrong and your wallet is compromised, it’s essential to act quickly.
Here are the few activities that typical end users may attempt to recover stolen funds:
If you kept your lost funds within a well-known exchange, the platform is likely aware of the hack and has likely begun a recovery process. Since decentralized exchanges and crypto in general are not insured by any government, there is a possibility that not all of your assets will be returned.
However, cyber scams are considered a crime in almost all modern penal codes, so you can also report them to the police. This works for all types of crimes related to the virtual world, from DeFi hacks to NFT scams.
If you’re not sure where to start, hire a recovery expert. Recovery experts are also popularly referred to as crypto hunters. As the name suggests, a crypto hunter is an individual or company that searches for lost or stolen crypto assets on behalf of its clients.
Crypto hunters work with crypto holders and law enforcement to recover misplaced or stolen crypto assets. Experts can also assist in the recovery process of lost private keys and passwords.
However, be careful about hiring experts. Some crypto hunters may themselves be scammers pretending to help you get your money back while simultaneously taking your money. These are secondary scammers posing as legitimate companies in the crypto recovery niche.
Even if it doesn’t mean you get your money back, you may decide to go down the road to litigation. When you report a cybercrime to the police, the police will investigate the case further.
Hiring a lawyer with deep knowledge of crypto scams can file a complaint with the relevant authorities and take legal action. For example, in 2021, BitConnect, a US-based cryptocurrency platform, was shut down by the US SEC for running a Ponzi scheme. The company was held responsible for its fraudulent activities.