Cryptocurrency has a security problem it hasn’t been able to shake.
Bad actors stole $1.7 billion worth of cryptocurrencies from investors last year, according to a new report the CipherTrace Cryptocurrency Intelligence published Tuesday. Of that total, roughly $1 billion was taken from exchanges.
Even as prices dropped last year, crimes went up. The plunge in cryptocurrencies meant a lower total value for these stolen coins but the volume of coins stolen in 2018 was 3.6 times higher than it was in 2017, and seven-times what it was in 2016, according to the report.
“These numbers only represent the loot from crypto crimes that CipherTrace can validate; we have little doubt that the true number of crypto asset losses is much larger,” said Dave Jevans, CEO of CipherTrace.
The report underscores massive risks in the new asset class. Aside the reality of losing money as prices erode, the possibility of getting hacked is still one of its biggest challenges to mainstream adoption and acceptance by regulators.
Bitcoin became a household name as it rallied 1,300 percent to almost $20,000 at the end of 2017. Media coverage and a frenzy of buyers followed. But unfortunately, so did hackers. Jevans said they saw a “residual effect” after hackers finally figured out how to scam people, even months after the bubble popped.
Cryptocurrency payments are recorded on an open ledger known as blockchain, meaning they can be seen by anyone. The team at CipherTrace is able to track them but still might not know the anonymous parties that sent or received the money. The firm also scans the black market and criminal forums for data. The firm monitored chat rooms that advocated for targeting crypto and blockchain start-ups that raised mass amounts of money at the height of the price bubble.
“These aren’t street thugs — these are people who have masters degrees in computer science,” Jevans said. “We’re starting to see more organization in the space with professional gangs bankrolling computer scientists.”
In the beginning of the year, exchange hackers dominated the crypto crime scene, but the report showed a rise in “inside jobs” or fraud in the fourth quarter of last year. Something called SIM-swaps, where a hacker takes over a victim’s mobile device to steal credentials, then breaks into wallets or exchanges, was the top threat in 2018, the report said.
In addition to outright thefts, investors lost almost $750 million from threats like “exit scams,” where founders of initial coin offerings simply ran off with the funds they raised. Initial coin offerings, or ICOs, became a popular but controversial way to make money where people to sell “tokens” to fund projects. Many of those were backed by a promise to build a product or software that they never delivered.