As we know, in any industry where there is a lot of money, there will be all kinds of frauds and thefts. The digital currency industry is no exception to this rule, and an example of this is the increase in the prevalence of risks related to this industry as a result of the expansion of the adoption of digital currencies.
Today, hacks, scams, attacks, and exploits are more common than ever in this ecosystem, causing irreparable financial damage to users and even crypto institutions.
In this note, written by Andrey Sergeenkov, we discuss the differences between the terms hacking, fraud, attack, and exploitation, and suggest strategies for protecting your assets against them. It doesn’t matter if you are an experienced investor in digital currencies or a new user, in any case, having complete information about these risks and dealing with them can be useful for you.
An overview of the definition of risks associated with digital currencies
Hack: Hacking in crypto means breaking io the system or network. Once inside, hackers can steal data or digital assets or damage the system.
Scam: Fraud involves tricking people io providing sensitive data or private keys to their cryptocurrency wallets or digital assets. Scams in this industry include a wide variety of methods; From phishing emails to rogue money attacks.
Attack: The attack has a wider scope. An attack in the cryptocurrency space can target cryptocurrency systems or networks in order to disrupt or damage them.
Exploit: Exploitation in this industry refers to the improper exploitation of vulnerabilities that often exist in cryptographic software. The purpose of this task is to access assets and unload them from users’ accous.
Now let’s examine the risks we talked about in detail.
1. Hacking in the world of digital currencies
Hacks are common occurrences that we have witnessed since the emergence of digital currencies. Hacking means unauthorized access and theft of digital assets or user information from exchanges or digital currency wallets. Hacking can happen for various reasons such as vulnerabilities in security systems or social engineering techniques or iernal theft.
The consequences of such hacks for exchanges or wallets and their users can be disastrous. Recovering stolen digital assets is often difficult or even impossible. The reputation of an exchange or digital currency wallet provider can be irreparably damaged.
A clear example of this issue, which all old followers of digital currency technology remember, is the hacking of the Mt. Gox exchange in 2014, during which 850,000 bitcoins worth more than 450 million dollars were stolen and led to the bankruptcy of this exchange. This incide caused the general trust in the security of digital currencies to decrease.
How to stay safe from hacks?
Cryptocurrency exchanges and wallets must use strong security protocols, including two-factor autheication and cold or offline storage, to stay safe from hackers. Periodic security assessmes can also help ideify system vulnerabilities.
The responsibility of dealing with hacking is not only on exchanges and providers of digital currency wallets, and users of this industry also have a great responsibility to preve hacking. Most likely, you have heard the famous phrase “without your keys, your digital currency is not yours”. This shows how importa it is to keep private keys secure.
One of the importa strategies to deal with hacks is to keep the private keys in a safe place and not give them to anyone. Also, don’t use the same password for all platforms and don’t store all your digital assets in just one exchange or wallet. Hardware and offline wallets are much more secure.
Regulatory bodies can also play a ceral role in preveing hacking in the digital currency space. By establishing regulations and considering security standards and their implemeation, these institutions can guaraee that digital currency exchanges and wallets adhere to a certain level of accouability and protect their users.
Some rece crypto hacks
Deceralized financial platform Level Finance lost one million dollars of its users’ digital assets some time ago due to a bug in one of its smart coracts. A hacker was able to take advaage of the vulnerability in this DeFi platform to abuse and drain the funds of the said platform. Lull Finance confirmed the incide and assured users that it will investigate the issue further to ideify the cause and ensure it does not happen again.
Another example is Hundred Finance, which lost $7 million in the Optimism platform hack. According to Certik, a hacker manipulated the exchange rate between ERC-20 tokens and HTokens and was able to withdraw more than the tokens he had deposited. Hundred Finance acknowledged the security breach and assured users that it will work closely with the Optimism team to fix the security flaws and recover the stolen funds.
These two eves highlight the risks associated with the DeFi ecosystem and show that this rapidly evolving ecosystem requires more rigorous security measures to protect users and their digital assets.
2. Fraud in the digital currency industry
Scams have become a big problem in the world of digital currencies where we are faced with many unknown characters. Scams often occur through phishing emails or websites.
For example, plans that promise huge profits; But they offer nothing, fake crypto projects, rogue money and fake trading platforms, pyramid and ponzi schemes are all common scams in the cryptocurrency industry that cause users to lose their confideial information or digital assets.
Phishing is used to deceive people. In this method, fraudsters trick people io submitting their login information or private keys to fake websites or emails that look genuine.
Ponzi schemes are crypto projects that promise high returns and profits; But their condition is that new people join to pay the ierest of old members with their payme.
Fake projects offer a worthless token and then disappear with the money people paid for the worthless tokens.
Fake trading platforms also trap users with attractive deals; But after grabbing their digital assets, they run away.
How not to be a victim of fraud?
To avoid scams, just take every action with caution. For example, only use trusted trading platforms and secure cryptocurrency wallets. Do your research before investing and be wary of any offers or messages that sound overly attractive or ask for your personal information.
If the platform or people ask you to deposit money for any reason, don’t do it. Also, keep your private keys in a safe place and do not disclose them to anyone.
Rece scams in the cryptocurrency industry
With the rise in popularity of meme coins like PEPE, many fraudsters have started to take advaage of this situation. Blockchain security firm PeckShield reported that at least 10 memecoin scams were launched in May.
The company has recely ideified several fraudule tokens that siphon project liquidity and make unsuspecting investors fall prey to these projects’ rogue money schemes.
3. Attacks on digital currencies
As cryptocurrencies become more popular, attackers are designing more attacks that threaten critical systems and information in this space. Cyber attacks such as Denial of Service (DoS) attacks and malware and ransomware attacks have become very common.
A DOS attack causes a network or system to become inoperable by overloading it with traffic. These attacks can target cryptocurrency exchanges or platforms and deny users access to digital assets or the ability to perform transactions.
Malware attacks happen by installing malicious software on the system or network, and as a result of this attack, the attacker can gain access to people’s sensitive information and even steal private keys or login information and obtain users’ digital assets worth millions of dollars.
Ransomware attacks involve encrypting system or network files. In this attack, the attacker provides the file decryption key only when the victim pays the requested ransom. These attacks can target cryptocurrency exchanges or wallets and even cut off users’ access to their digital assets uil they are forced to pay a ransom.
How can we be vigila against attacks?
To protect against such attacks, cryptocurrency exchanges and cryptocurrency wallet providers should adopt strong security measures and conduct regular security audits and use cold or offline storage methods to preve cyber threats.
Rece attacks in the field of digital currencies
Last year, a major cyber attack on BTC.com, one of the world’s largest cryptocurrency mining pools, caused the company and its customers to lose a large amou of capital. It should be noted that this pool offers mining options for a wide range of digital assets, including Bitcoin and Litecoin.
The incide happened on December 3, 2022, and the attackers were able to steal approximately $700,000 of customer assets and $2.3 million of company assets.
4. Abuse in the digital currency industry
Exploiting in the world of digital currencies is a special technique that exploits a flaw or vulnerability in the system in an unauthorized manner and allows an attacker to gain unauthorized access to user information or execute malicious code or create other undesirable effects.
This often leads to the theft of the victim’s coins or tokens and causes financial damage. Exploitation may be done in a variety of ways, including software bugs and network attacks, or even human error.
Today, all kinds of abuses in the field of digital currencies are becoming common. Some types of digital currency abuses include flash loan attacks, 51% attacks, and wash transactions.
- Flash loans attacks are carried out by attackers who borrow money to manipulate the cryptocurrency market.
- A 51% attack occurs when an eity or group gains corol of more than 50% of the mining power of a network that uses a proof-of-work mechanism to disrupt the transaction verification process by spending currencies twice.
- Wash trades mean the artificial inflation of the price of tokens that occurs as a result of rapid buying and selling that the trader does with the aim of making a profit when the price increases. The consequences of these abuses range from minor financial damage to great financial damage.
In March 2023, the crypto industry experienced a total of 23 major attacks, which is the second lowest number of attacks compared to 21 in February 2022. The average loss per attack in March was nearly $10 million, a significa increase from February’s average of nearly $1.7 million per attack.
Rece abuses in the digital currency industry
As we said, the most importa example of abuse in March this year was the Euler Finance incide, which resulted in a loss of 200 million dollars. This attack, which occurred on March 13, 2023, is considered the biggest attack this year.
In this attack, an attacker named Jacob exploited the assets borrowed from the flash loan as well as vulnerabilities in Euler pool coracts to drain the funds of 5 financial Euler pools. Since then, Jacob has gradually returned $177 million in stolen funds.
The second major exploit occurred on February 3, 2022; When the stablecoin and lending protocol based on Polygon, BonqDAO and AllianceBlock, faced a two-stage attack with price oracle manipulation. The amou stolen in this abuse was reported as 120 million dollars; However, due to lack of cash, the attacker could only withdraw $1.3 million from it.
The difference between hacking, fraud, attack and abuse
Hacking, fraud, attack and abuse are terms used to describe the risks associated with the world of digital currencies; But there are subtle differences between them that need to be fully understood.
Each of these risks refers to differe types of threats and each of them endangers users’ digital assets in differe ways. As a result, the methods of protecting assets and information and the health of systems and networks against these risks are slightly differe.
Hacking means breaking io a system or network and is often done by exploiting a vulnerability in software or hardware. Hacking may involve methods such as brute force attacks (a type of password cracking attack) or phishing scams.
Once a hacker gains access to a system, they can steal data or digital assets or damage the system. Whereas fraud focuses on tricking people io giving up their sensitive information or digital assets.
Scams are carried out through fake emails that lead to fake platforms to fraudule investme schemes. Exploitation specifically focuses on exploiting software or hardware vulnerabilities to gain unauthorized access or corol of a system or network.
The scope of attacks is wider than hacking and fraud and abuse and includes any action that aims to disrupt, damage and destroy a digital system or network.
It is importa to note that hacking and exploiting are very similar and require technical skills and knowledge; But fraud and attack can be done through social engineering tactics like phishing.
Frequely asked questions
Hacking involves breaking io a system or network and is often done by exploiting a vulnerability in software or hardware.
Fraud refers to tricking people io providing sensitive information or their digital assets.
Any action aimed at disrupting, damaging and destroying a digital system or network is called an attack.
Exploiting means exploiting software or hardware vulnerabilities to gain unauthorized access or corol of a system or network.
The methods of doing each of these things are differe from each other. Hacking and exploitation require technical skills and knowledge; But fraud and attack do not require much technical knowledge. It goes without saying that the range of attacks is wider than hacking and fraud and abuse.
