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Global crypto hacking incidents surge in 2023 despite a sharp drop in stolen funds

A Chainalysis report reveals a cryptocurrency security paradox. Despite a 54.3% drop in global stolen funds to $1.7 billion in 2023, hacking incidents rose 5.5%, reaching 231 cases.

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A recent report from blockchain research firm Chainalysis has revealed a paradox in the world of cryptocurrency security.

On 24 January, the firm revealed that although the overall amount of stolen cryptocurrency worldwide dropped significantly by 54.3% in 2023, falling to US$1.7 billion (S$2.3 billion) from the previous year, the number of hacking incidents increased by 5.5% during the same period, reaching 231 cased compared to 219 in 2022.

Last year, the firm’s Crypto Crime Report disclosed that 2022 marked the largest year on record for cryptocurrency theft, with a total of US$3.7 billion stolen.

The notable reduction in stolen funds is attributed to a substantial decline in decentralized finance (DeFi) hacking, with hackers stealing just US$1.1 billion from DeFi protocols in 2023, marking a 63.7% decrease from the previous year’s US$3.1 billion.

“Hacks of DeFi protocols largely drove the huge increase in stolen crypto that we saw in 2021 and 2022, with cyber criminals stealing US$3.1 billion in DeFi hacks in 2022.

“But in 2023, hackers stole just US$1.1 billion from DeFi protocols. This amounts to a 63.7 per cent drop in the total value stolen from DeFi platforms year over year,” said Chainalysis.

The report suggests that this decline is mainly due to improvements in smart contract security as DeFi operators become more adept at securing their platforms. Smart contracts are self-executing contracts on the blockchain, with the terms of the agreement directly written into code.

Ms Mar Gimenez-Aguilar, lead security architect and researcher at Web3 and blockchain security firm Halborn, emphasized the positive impact of enhanced security measures on reducing smart contract vulnerabilities.

“If we compare the top 50 hacks by value lost from 2023 with those from previous years, there is a reduction in losses from 47 per cent of the total to 18.2 per cent,” she said.

However, despite the overall improvement in DeFi security, certain incidents stood out, such as the flash loan attack on Euler Finance in March 2023, resulting in approximately US$197 million in losses.

Additionally, July 2023 recorded the highest number of hacks, with 33 incidents, including a theft of US$73.5 million from decentralized exchange and automated market maker Curve Finance.

The report highlighted the emergence of several large exploits in September and November involving both decentralized and centralized platforms, including Mixin Network (US$200 million), CoinEx (US$43 million), Poloniex Exchange (US$130 million), HTX exchange owned by crypto entrepreneur Justin Sun (US$113.3 million), and Kyber Network (US$54.7 million).

North Korea hacked more crypto platforms than ever in 2023, but stole less in total than in 2022

The report also found that North Korea, officially the Democratic People’s Republic of Korea (DPRK) hacked more crypto platforms than ever in 2023, yet the overall stolen value was lower than in 2022.

It mentioned that there has been an increase in North Korea-related hacks in recent years with groups like Kimsuky and Lazarus Group using malicious tactics to acquire large amounts of crypto assets.

While the total value stolen in these hacks decreased from US$1.7 billion in 2022 to just over US$1 billion in 2023, the number of hacks rose to 20 – the highest on record – in a crypto bear market, up from 15 hacks in 2022.

The report findings estimated that “North Korea-linked hackers stole approximately $428.8 million from DeFi platforms in 2023, and also targeted centralized services ($150.0 million stolen), exchanges ($330.9 million), and wallet providers ($127.0 million).”

Chainalysis concluded the report by emphasizing the evolving sophistication and diversity of attacks from hackers.

Simultaneously, it acknowledged the robust response from crypto platforms, stating that prompt action can significantly aid law enforcement agencies in recovering stolen funds.

“When crypto platforms act promptly after exploits, law enforcement agencies will be better equipped to contact exchanges where frozen funds are located, to initiate seizure and contact services through which the funds flowed to gather relevant information about accounts and users,” Chainalysis said.

The report expressed optimism that as security processes continue to improve, the funds stolen from crypto hacks are likely to decline over time.

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