Crypto Is Losing its War Against Hackers and It’s Time to Act

Cryptocurrencies and hacks have gone hand in hand since the dawn of this industry. And honestly, this doesn’t come as a surprise. As the combined digital asset market capitalization remains over $1.15 trillion, it is a sector with ludicrous opportunities for cybercriminals to exploit.

What should really concern us is that hackers are back and are more hungry than ever. In just Q2 2023, hacks and exploits caused more than $300 million worth of damage. According to Chainalysis, 2022 was the best-ever year for crypto hackers, as the total value hacked reached an all-time high at $3.8 billion, up 15% from 2021's $3.3 billion.

If this trend continues, I think crypto may not survive another scandalous year like 2022. And that's why we must act now so we can prevent the next storm.

The Hackers Are Back

Considering last year's records in stolen assets and recent tendencies like the $27 million CoinEx exploit, we can safely assume that hackers are back. But who said they have ever left the crypto market at all?

From my standpoint, the cryptocurrency market will always remain a prime target for cybercriminals. Due to multiple factors, it simply makes sense for them to carry out attacks against the industry.

First, crypto is becoming more popular among consumers and businesses. Global cryptocurrency ownership is estimated at 420 million people, and institutional investors hold nearly 8% of the total BTC supply.

The market has also demonstrated significant growth potential throughout its history. Six years back, the combined market capitalization was standing only at around $200 billion, which has now increased to $1.17 trillion with a 140.5% CAGR. While this growth rate is enough to catch hackers' attention, the underlying technology's nascent nature and rapid evolution make crypto an even more attractive target.

The lack of regulatory clarity in some jurisdictions is also a problem. Without specific rules and established security standards, protecting crypto users will continue to be an ongoing challenge for digital asset organizations.

The Narrative Is Shifting, Just Not in the Way We Want It to

The trust in the industry took a massive hit last year, as cases like FTX's and Terra's revealed crypto's ever-growing challenges related to the human factor. The lack of regulatory clarity, the rapidly evolving tech, and the risks of centralization make digital asset ecosystems more prone to human error and multiplying its impact on the market.

This human factor is why traders have recently withdrawn $1.5 billion from DeFi protocols following the Curve exploit. Consequently, crypto's narrative is shifting from an ecosystem powered by innovation to a financial wild west with massive risks for investors.

We Need to Act Now

As crypto is at the center of hackers' attention, we need to step up and take action now to protect against their attacks, enhance security, and rebuild trust.

Joining Forces

One way to achieve the above goal is for market players to put a stronger emphasis on joint blockchain alliances and collaborations. By pooling resources and expertise, as well as sharing information about emerging threats, these alliances can collectively work towards strengthening the security measures in place.

Simultaneously, joint initiatives like numerous CEX providers’ Proof of Reserves (PoR) audits following FTX’s collapse could also provide additional benefits. Such a significant improvement in transparency can gradually restore the public’s trust in crypto.

In the next few years, I’d like to see the widespread implementation of robust security standards and protocols initiated by crypto providers. Doing so should enhance market participants’ safety in a similar way as PCI DSS and 3-D Secure did in the financial industry.

Stepping up the Regulatory Game

Regulatory approaches must evolve to keep pace with the rapidly changing crypto landscape.

This is an important task, as regulators are lagging behind even in jurisdictions with more comprehensive frameworks around cryptocurrencies. For instance, 2017’s ICO craze nearly ended when the financial watchdogs of countries like South Korea, China, France, and Australia issued guidance on (or outright banned) token sales.

Besides speedier decisions and a more proactive approach, governments and regulatory bodies should also establish clearer guidelines and standards for the industry's security practices. From my standpoint, achieving these goals will significantly increase the resilience of crypto ecosystems. In turn, this will help market players protect their users more efficiently.

I believe one thing most industry participants can agree on is that regulation has a crucial impact on the market’s security. The growing regulatory scrutiny, including the arrest of Mango Markets’ attacker, is currently being viewed as a potential explanation for the growing trend among hackers to return the funds they stole. Cases like this make for a good reason why regulators must step up their game.

A Multidimensional Approach Benefiting All

To protect digital asset users, it’s not enough to focus on a single aspect (e.g., blockchain alliances) while neglecting the others. While doing so would provide some improvements in security, attackers will continue to exploit the existing shortcomings to maximize their stolen revenue.

Instead, we need to fight hackers and fraudsters on numerous fronts to win the war against them.

That’s why I believe a multidimensional approach should be taken to fortify the crypto ecosystem against hacks and ensure the safety of market participants. The key to achieving this goal is through collaboration among industry players, robust regulations, and increased transparency.