Let’s face it - cryptocurrency has taken over the world by storm and doesn’t seem to be going anywhere anytime soon. Its popularity is mainly due to the fact that digital currency isn’t controlled by any financial institution, i.e., there is no middleman for transactions.
Yet although decentralized finance (DeFi) has lots of benefits, immunity to malicious hacks isn’t one of them. Both individual users and digital currency exchanges can be subject to scams and various cyber attacks.
And there are two ways to fight this problem: hack prevention and hack mitigation. In this article, I’ll take a look at both of them and offer some advice on how to secure your cryptocurrency.
Types of cryptocurrency hacks
First of all, let’s take a look at all the wonderful ways you can lose your hard-earned (or hard-mined) cryptocurrency.
There is no shortage of phishing scams in the world of cryptocurrency. In short, phishing is a type of social engineering attack used to steal personal information like credit card details, contact info, and - you’ve guessed it - crypto wallet private keys.
The worst thing is that phishing scams become more and more sophisticated. In some cases, it’s extremely difficult to differentiate between a genuine and a fake email.
For example, you might get an email that impersonates a trustworthy organization and contains a link to a website where you are asked to enter your private key. Sometimes, users report emails that threaten to socially compromise them unless they give their private key info to the sender.
Exchange and wallet hacks
Even though crypto wallets and exchanges implement a lot of hack prevention methods, they are far from immune to hacking.
One of the bigger wallet hacks took place in June, 2020, when a hacker leaked customer information from Ledger, a popular crypto wallet. As many as 272,000 customers were affected, having their names, emails, and phone numbers leaked on Raidforum. Luckily, no payment information was exposed - however, it was reported that the stolen emails had been used in phishing scams.
Crypto rug pulls
In the world of DeFi, a “rug pull” is a sudden loss of the liquidity pool - a collection of funds locked in a smart contract. In simpler terms, this means that crypto developers run away with all the money they got from their investors, never to be seen again.
One of the most recent scandals of such kind is the DeFi100 scam. On May 22, 2021, a cryptic message appeared on the official website of DeFi100, stating: “We scammed you guys, and you can’t do s**t about it.”
It was speculated that the developers stole $32 million in investor funds. Luckily, the company later announced on Twitter that their page was hacked, and that no losses took place.
There are all kinds of viruses that can do a lot of damage both to your funds and your device. For example, mining malware uses the system resources of your computer or smartphone to mine bitcoin and other types of cryptocurrency.
Another type of malware that causes lots of trouble is one that changes addresses in the Windows clipboard to hackers’ addresses. As it’s hard to notice such changes, many users have sent money to fraudulent accounts.
Crypto hack prevention: the most common methods
When it comes to cryptocurrency, hack prevention mainly revolves around protecting your private key that you use to access your funds. Unfortunately, a 100% foolproof method of preventing a hack doesn’t exist - not yet.
Still, taking appropriate measures will greatly reduce your risk of losing your precious cryptocurrency. Let’s take a look at what you can do to protect your funds.
Also referred to as a cold wallet or offline wallet, a physical wallet is one of the safest ways to store your cryptocurrency. It is a small, specifically designed device that holds your funds and is not connected to the internet.
Physical wallets are really comfortable to carry around wherever you go, and the only time you connect one to the internet is when you want to make a transaction.
However, here comes the first problem: once you connect your cold wallet to the internet, it instantly becomes vulnerable. You see, it’s possible to hack the computer used for crypto transactions, and then draining your account becomes a piece of cake.
The second problem with physical wallets comes from simple human negligence. As each cold wallet has its own private key (which lets you decrypt it), losing this key results in the permanent loss of your funds.
If you’re still not sure about using a cold wallet or just find it downright inconvenient, you can stick to the regular hot wallets, also known as online wallets. However, you should do a lot of research to make sure you choose a high-profile wallet that has such perks as insurance.
The right insurance policy will make sure that your money is refunded in the event of a third-party hack, theft, or the loss of your key. However, in some cases, the total losses exceed the possible insurance recoveries.
Even seemingly simple cybersecurity measures can greatly reduce the risk of getting hacked. As your cryptocurrency key is just yet another piece of personal information, the same security methods apply here.
Using a reputable antivirus solution may prevent threats like ransomware, keyloggers, and cryptojacking. Also, getting a good password manager (with 2FA authentication) will allow you to securely store your credentials.
It also comes without saying that you shouldn’t click on suspicious links in emails or open unknown attachments - this is a very common way of getting personal information out of you.
Hack mitigation - a new way of protecting your funds
Even though there are lots of different ways to prevent crypto hacks, none of them is 100% foolproof. It’s just the grim reality - no matter how protected you seem, hackers can always find new and unexpected ways to hack your account.
That’s where hack mitigation comes into play. Basically, it’s a method to undo an attack that’s already occurred or mitigating the damage done. One way of mitigation consists of freezing and reversing a fraudulent transaction.
Unfortunately, hack mitigation doesn’t get as much attention as it should. The crypto sphere is in dire need of services similar to escrow, but the nature of crypto makes this difficult to implement. As a result, it seems that scammed crypto owners are left to deal with their problems on their own.
Preventing a hack sounds easier: using the right wallet, protecting your private key, implementing the right cyber security measures, and similar actions are pretty straightforward.
Meanwhile, hack mitigation requires thinking outside the box. That’s why there aren’t lots of online tools to help you get your money back. Even worse - there is a general consensus that once your cryptocurrency exits your account, there’s no way of ever getting it back.
However, some hack mitigation strategies have made their way onto the market.
Lossless - a revolutionary tool for hack mitigation
A new tool called Lossless has just been launched, and it’s about to make the lives of crypto enthusiasts much easier.
Based on a set of hack identification parameters, the Lossless protocol freezes fraudulent transactions, giving you the chance of getting your funds back to your account.
In essence, it’s simply a piece of code that token creators insert into their token. Using it, Lossless is able to immediately take action once suspicious behaviour is detected.
So here’s how Lossless deals with cryptocurrency hacks:
- A hack-spotting bot detects a fraudulent transaction
- The affected address gets instantly frozen
- The Lossless committee, the company, and the token creator evaluate the threat and the transaction is reversed
All of this is possible thanks to the community of white hat hackers who create hack-spotting bots. And the best thing - everyone can become a part of this community.
It’s also cool that successful efforts are always rewarded, as the person who first spots a fraudulent transaction gets an incentive. In this way, the bots are always evolving, becoming able to spot even the most intricate frauds.
Lossless was inspired by an already-existing loss mitigation model created by Tether. However, it took it to the next level by letting anyone participate in the hack detection process and having three independent parties evaluate the situation.
Lost funds recovery agencies
Another way of minimizing the damage of crypto hacks and scams has to do with lost funds recovery agencies.
Broker Complaint Alert (BCA), Atrium Forensics, and CipherTrace are websites that help you deal with various types of frauds, including cryptocurrency scams.
Once you realize that you’ve been scammed, you can fill in an online trading complaint form (which requires such info as your name, phone number, email, and country) and the website will match you with an online consultant in a couple business days.
Most of these pages have some useful resources, including a blacklist of crypto brokers who have already scammed the site’s users.
So what’s better - hack prevention or mitigation?
Currently, there is a lack of good hack mitigation tools on the crypto market, which makes prevention the go-to solution for most people. Installing a reputable antivirus tool, avoiding suspicious email attachments, and using a physical wallet are just a few ways to protect your precious cryptocurrency funds.
With that said, hopefully, tools like Lossless are a sign of things to come. We have to come to terms with the idea that sometimes, attacks will happen, and it’s important to find solutions to deal with the consequences. Thankfully, the art of hack mitigation is steadily catching on, letting crypto users feel safer with each passing day.