Report: $1.9 Billion Stolen in Crypto Hacks So Far This Year | September 2022
September 2022 | Volume 14, Issue 2
According to the article, a staggering $1.9 billion worth of cryptocurrency was stolen in hacks of various services in the first seven months of this year, marking a 60 percent increase from the same period in the year prior, based on a report recently released from blockchain analysis firm Chainalysis.
The surge comes even as the value of many cryptocurrencies plunged in the first half of this year. The report attributed much of the spike to hacks on decentralized finance protocols. The term refers to services that attempt to replace traditional financial institutions with software that allows users to transact directly with each other via the blockchain, the digital ledger that underpins cryptocurrencies.
Some of the biggest crypto hacks of 2022 were on DeFi protocols, including the $625 million hack of video game Axie Infinity's Ronin network in March. Some of these thefts, including the Axie incident, have since been attributed to hackers associated with North Korea.
DeFi transactions, based mainly on Ethereum blockchain technology, have rapidly exploded in popularity over the past two years. These protocols are "uniquely vulnerable to hacking" thanks to their open-source code, large pools of assets and rapid growth that may have led to a lapse in security best practices, according to Elliptic, a blockchain analysis firm.
"The technology is relatively immature in general. This space has only really emerged just the past couple of years," said Tom Robinson, chief scientist at Elliptic. "Mistakes are being made, mistakes are being learned from, but there's always bugs in software. I think the problem here is that the software is the only thing securing these assets."
Chainalysis warns that the increase in crypto thefts shows no sign of letting up despite the drop in the crypto market. "As long as crypto assets held in DeFi protocol pools and other services have value and are vulnerable, bad actors will try to steal them," according to the report.
Chainalysis points to two recent large-scale DeFi hacks, including the $190 million reportedly stolen from cryptocurrency bridge provider Nomad, which occurred after the data cutoff point for the report.
But there may be at least one silver lining in the report: The amount of money lost in cryptocurrency scams, such as the $2 billion dollar Ponzi scheme carried out by BitConnect founder Satish Kumbhani, was 65% less than the year prior as the falling value of crypto made it a less enticing investment opportunity for potential victims.
Discussion Questions
1. What is cryptocurrency?
Cryptocurrency is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography (typically a blockchain), rather than by a centralized authority (for example, the United States government, the Federal Reserve system, and the Securities and Exchange Commission).
2. As indicated in the article, “(a)n estimated $1 billion has been stolen from DeFi protocols by North Korea-affiliated hackers so far this year, according to the Chainalysis report. These thefts are thought to be part of a broader strategy to help bring in revenue for the North Korean regime as it has largely been cut off from the world. To the extent that North Korea-affiliated hackers have stolen cryptocurrency from U.S. citizens and/or organizations, would this justify the U.S. government’s intervention? Why or why not?
This is an opinion question, so student responses may vary. The United States government does not regulate cryptocurrency in any significant way (at least not yet), and the appeal of cryptocurrency to users has often been the secretive nature of it and the fact that it is not subject to government regulation or control. Your author would find it quite ironic if a cryptocurrency user, who is enamored by the non-regulated nature of cryptocurrency, were to request the involvement of the government in its theft-related recovery. Such a scenario would be the “best of both worlds,” indeed!
3. Is cryptocurrency itself ethical? Is trading in cryptocurrency ethical? Is this article an instance of “those in the shadows” stealing from others “in the shadows?” Explain your response.
This is an opinion question, so student responses may vary. As an adjective, the term “crypto” means “secret or hidden; not publicly admitted.” As a commodity, cryptocurrency itself is neither inherently ethical nor unethical. In the United States and in most other countries in the world, trading in cryptocurrency is currently legal. According to www.fortune.com, cryptocurrency is fully banned in only nine countries (most famously, China; the others are Algeria, Bangladesh, Egypt, Iraq, Morocco, Oman, Qatar, and Tunisia). 42 other countries have either put restrictions on the ability of banks to deal with cryptocurrency or banned cryptocurrency exchanges. Some countries that have banned cryptocurrency claim that it is being used to illegally funnel money; others have argued it could destabilize their financial systems. While the United States is not one of the countries seeking to ban cryptocurrency, it is trying to determine how to better regulate digital currencies. Securities and Exchange Commission Chairperson Gary Gensler has referred to cryptocurrency and the cryptocurrency market as the “Wild West” (https://fortune.com/2022/01/04/crypto-banned-china-other-countries/). In Mr. Gensler’s opinion, there is no reason to treat the cryptocurrency market differently from the rest of the capital markets just because it uses a different technology. Taken at face value, Mr. Gensler’s opinion and comments would seem to indicate that cryptocurrency regulation in the United States is only a matter of time.