2022, the year of crypto cleansing. From scams to unsustainable business models, this year saw the market shake out the bad actors and shine a light on the parts of the industry that need improvement. More than $3 billion was outright stolen in 125 hacks, according to Chainalysis, in addition to the billions of dollars lost due to the failure of the Terra stablecoin and the failures of the crypto financial firms Celsius Network, Voyager Digital, and FTX Trading. The list goes on…
So, as we begin 2023, let's take a look at 2022's biggest crypto hacks & collapses and what we can learn from them.
FTX - $7 billion
The demise of the FTX cryptocurrency exchange represents a watershed moment for the industry due in large part to its scale and significance. It was viewed as a secure space for those entering the crypto space because of it’s one million subscribers.
But that idea was squashed when it was reported that FTX allegedly lent customer money to Alameda Research, a sibling company, who then utilised it to place hazardous leveraged bets. Its own house token, FTT, which peaked at $80 in 2021 before falling to little over $1 this week, was packed onto its balance sheet.
There is more than $7 billion in lost FTX funds from 7.6m accounts. John Ray III, FTX’s current CEO who was brought in to restructure the company called it “really old-fashioned embezzlement”, and noted that FTX was “just taking money from customers, and using it for your own purpose… There were no corporate controls, no corporate oversight, no independent board. The owners, business and senior management had virtual control of all the accounts and could move money or assets as they desired, undetected by customers.”
RONIN NETWORK - $625 million
In the biggest heist of the year, over half a billion dollars worth of Ether and USDC was stolen from the Ronin Network, a blockchain that supports the non-fungible-token-based video game Axie Infinity. According to Ronin, the attackers were able to hack nodes, the computers that process network transactions. The activity went unnoticed until a user was unable to withdraw funds and filed a report.
BINANCE SMART CHAIN - $110 million
The BNB Smart Chain (BSC), a blockchain network that supports smart contracts and decentralized applications was halted in October 2022, after an exploit was discovered that drained $100 million in crypto from the platform. According to analysts and on-chain data, the hackers successfully exploited a bug in the bridge’s verified proofs that allowed them to forge approval messages and deposit the funds into their account. They were able to mint 2 billion BNB tokens as they attempted to drain the bridge of $560 million, but the hackers only successfully removed $110 million off-chain. The attack on the Binance Smart Chain network highlighted weaknesses in decentralized finance, or DeFi, where transactions are controlled by code.
LESSONS LEARNT
So what can we learn from all of the major hacks, scams and collapses of 2022?
Your assets are NOT safe on an exchange or in experimental projects/contracts. Unfortunately, as the cryptocurrency industry grows, these places are increasingly becoming targets for elaborate hack and scams. It's a highly-rewarding activity; therefore it pays for ever-increasing time and effort spent on plotting hacks. Even if an exchange/protocol follows all the safety guidelines, they will forever be in an arms race with criminals.
When you store your assets on an exchange, specifically, you rely on them to keep it safe. The problem is, exchanges are not cybersecurity enterprises. They run financial marketplaces first, and experience has shown they can’t guarantee top-notch security.
A SAFE ALTERNATIVE
There is one sure way to keep your assets safe: hardware wallets. These devices allow you to retain the ownership of your private key, while also making it easy to trade with a wide range of cryptocurrencies when you safely connect to a computer. By securely switching between the functionality of hot and cold wallets, you can rest assured that your crypto wealth is in your hands, even if you lose the device.
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