Hello everyone and welcome back to the Cognixia podcast. Every week, we dig up a new topic from emerging digital technologies and share insights, ideas, information, stories, and more. We strive to inspire our listeners to learn new things and update their repertoire of skills to stay relevant and continue growing in their careers.
During 2020-21, investors lost about $12 billion from Decentralized Finance platforms due to theft and fraud. That is a lot of money to lose in just two years, isn’t it? And, the numbers are increasing each year.
Decentralized Finance platforms are usually unregulated, which is what makes them so innovative and offer a huge scope for innovation. No bank and no government is monitoring every transaction. But this is also the reason why these platforms are risky, there is no investor protection.
Cryptocurrency originally enticed everyone with the promise of blockchain. Blockchain was said to be secure, un-hackable, and whatnot. But the reality today stands far from that.
One thing we know and understand is cryptocurrency is not like your cash, it has no notes and coins. And yet, we hear reports of cryptocurrency being stolen every few days. So, how does something so complex and touted to be almost un-hackable, get stolen?
There are a couple of different ways they can happen but some methods are more common than others. So, let me take you through some of the commonly used means to steal cryptocurrency. This is not a Masterclass in how to steal cryptocurrency, of course, hahahaa, but more of an awareness of what is happening in the crypto world and understanding it better.
One way cryptocurrency gets stolen is through exchange hacks. See, blockchain itself is almost unhackable, no doubt about that. However, since currency exchanges are decentralized, they are vulnerable to hacks. Remember about four years back, the trading platform Bitmart had announced that they had suffered a large-scale security breach and their losses came to the tune of $196 million? So, when your exchange is hacked, you can lose your cryptocurrency. Is there a way to safeguard against this? Well, one thing to do is to store your crypto assets in an offline hardware wallet, often called cold storage. Instead of offline, you can also store it in an online digital storage format called a hot wallet. A hot wallet would be connected to the internet, so while it is accessible easily anytime, anywhere, it is also accessible to hackers and thieves. Also, sign up for Personal Theft Protection so your transactions can be monitored for any unauthorized usage and ensure the safety of your funds.
Another common way cryptocurrency gets stolen is through exit scams. In an exit scam, fraudulent cryptocurrency promoters raise money from investors during an Initial Coin Offering or ICO and then disappear with the investor’s money. This is quite akin to what could happen in the real world with stock exchanges, fraudulent scripts, etc. although SEBI has tightened the procedures for stock exchanges and listing considerably over the years. An Initial Coin Offering is also like an Initial Public Offering or IPO. An example of the exit scam is the Squid Game token which sold bout 70 million tokens totaling $11.9 million. When the value of these tokens collapsed, investors lost all their money. A type of exit scam is also the Rug Pull. Here, instead of a fraudulent promoter, the developer of the crypto abandons the project and leaves with all the investor’s funds. You can see why several seasoned cryptocurrency investors steer clear of Initial Coin Offerings. Better safe than sorry, right? However, if you do plan to invest in an ICO, then do thorough research about the ICO you are investing in.
Phishing attacks are another way cryptocurrency gets stolen. For example, a while back the Decentralized Finance platform bZx discovered millions of investor funds as well as the company’s own team wallet had been stolen by a hacker after the platform received a series of notifications that looked suspicious. Turns out, one of the developers at bZx had opened the attachment of a phishing email causing a security breach. The attachment contained malware, as phishing emails usually do, and the moment the file was opened, a script ran on the computer, comprising the entire mnemonic wallet phrase. The total amount stolen came down to the tune of $55 million. So, irrespective of whether you invest in cryptocurrency or not, do not open emails and attachments from email addresses you do not recognize or that looks even remotely suspicious.
Now, all crypto accounts have either a password or a passkey to help the user log into their accounts and trade and carry the crypto in their crypto wallets. A lot of people have a habit of storing their login credentials in their email inboxes or on the cloud, where hackers can easily access it and steal all your crypto without you ever realizing it. With phishing emails or using malware through any means, a user’s keystroke movements can be scanned by hackers, enabling them to figure out and steal the passkey or password. To avoid falling victim to this, always ensure that your private key is backed up securely. Don’t leave login credentials in places like email inboxes, WhatsApp inboxes, messengers, cloud folders, etc. where they can easily fall into the hands of hackers.
Yet another and quite common way cryptocurrency gets stolen is when your device gets hacked. Hacking and cloning mobile phones are commonly used by scammers to steal real money as well as cryptocurrency. Remember the time when Algo Capital’s CTO’s phone had gotten hacked, leading to the company losing over $2 million in cryptocurrency and ALGO tokens? This theft is more common for smaller investors since they generally won’t have as much security as larger investors. SIM swaps are also deployed for this kind of theft. To avoid this, always enable two-factor or multi-factor authentication for all your crypto accounts. Also, invest in good reliable anti-virus software and keep it always updated. Again, do not open any suspicious emails, messages, attachments, links, etc.
These are just some methods used by hackers and thieves to steal your cryptocurrency. However, the list is by no means exhaustive. As technology evolves, so do the tricks and techniques used by these unscrupulous elements. But always remember, technology can only be as smart as we are. The onus to maintain safety and secure our money is in our hands, so there is no other way than always being vigilant. If anything seems suspicious or too good to be true, it probably is. Always weigh the risks, do your research, be in control of your security, and be mindful of your actions.
With that, we come to the end of this week’s episode of the Cognixia podcast. We will be back again next week with another interesting and exciting new episode. Hope you enjoyed listening to us today. Don’t forget to leave a review on whichever platform you are listening to us on, it would be very helpful for us.
See you next week, until then, happy learning!
