- FTX, the world’s second largest cryptocurrency exchange, is the latest victim of hackers who stole more than $600 million worth cryptocurrencies.
- A report by Moody’s suggests that the crypto ecosystem’s design is what makes it so vulnerable to cyber risks.
- Overall, hackers have stolen over $3 billion worth cryptocurrencies in 2022 so far.
The cryptocurrency world is currently in the eye of a storm. The world’s second largest cryptocurrency exchange, FTX recently turned a victim to hackers who stole over $600 million worth of cryptocurrencies.
A report by Moody’s suggests that the crypto ecosystem’s design is what makes it so vulnerable to cyber risks.
“We think that digital finance is especially vulnerable to cyber risk because of its extensive reliance on automated and novel software and applications, thereby allowing criminals to avail themselves of multiple strategies to steal funds,” said a Moody’s report on decentralised finance and digital assets.
According to blockchain analytics company
Chainalysis, cryptocurrency hackers have stolen over $3 billion so far in 2022.
“High cyber risk harms the ecosystem because it weakens businesses’ credit quality, impedes widespread consumer adoption and increases financing costs,” the report said.
DeFi protocols are hackers’ favourites now
At the centre of these hacks is DeFi, or decentralised finance, which uses smart contracts to offer financial instruments to customers. According to Chainalysis, DeFi protocols have gotten the attention of hackers, contributing to a vast majority of hacks in this year.
From nearly 5% in 2018, DeFi protocols now account for over 90% of the hacks in 2022.
“DeFi applications can hold large amounts of crypto assets, making them attractive targets for theft, and are subject to specific vulnerabilities. Bridges, solutions that allow users to move digital assets between blockchains, are DeFi’s weakest link,” said the Moody’s report.
The automated nature of digital finance – allowing users to execute smart contracts and programmes based on a set of predetermined rules – also makes it vulnerable to hacks. Unresolved bugs and the open-source nature of these protocols makes it easy for hackers to identify vulnerability and exploit them.
As much as 49% of total hacks in the first half of the year have been around vulnerabilities and exploits.
“Due in part to its value and size, the crypto market has been an attractive target for malicious hackers. Despite the recent crypto market downturn, which has reduced the funds available for theft, cyberattacks show no signs of abating,” the report added.
Amongst the few practices that can help the crypto ecosystem in tackling cyber risks include security audits, bug bounty programmes, and incident response teams to deal with any security breaches in an agile manner, the Moody’s report said.