Navigating the dynamic landscape of the crypto industry, we explore the crucial role of security, education, and regulation in mitigating escalating crypto scams. How can these new-age digital assets, despite their rapid evolution and growth, can be protected from the increasing threats posed by bad actors?
The amount of money stolen by criminals in the cryptocurrency world has gone up a lot in the past two years. Even so, people who specialize in online security aren’t worried. They say that new technology often gets taken advantage of when it’s first introduced.
CertiK, the blockchain security company, published a report about online security in 2022. According to the report, wrongdoers stole more than $3.7 billion from Web3 technologies last year. This was a huge jump – 189% more than the $1.8 billion stolen in 2021.
In another report about the first three months of 2023, CertiK said that hackers got their hands on over $320 million.
You can also watch the key findings in the 2022 Certik report on their YouTube channel: https://youtu.be/lWZscaMAR0s
While this is worrying tech developers and investors, it’s also a normal phenomenon. The more projects and technologies are launched, the more there will be people who will search for ways to misuse that technology. This is because new stuff often has weaknesses and opportunities for misuse.
We’ve seen this pattern before, from the beginning of the internet to the spread of email and, most recently, with the introduction of blockchain and digital money.
At the same time, we need to remember that the crypto industry is still new. Some people in the industry are more interested in growing and creating new things than they are in making sure everything is secure. This could be why we’re seeing so many thefts.
Statista, a company that collects data, offers data that may anticipate more growth in the crypto industry. According to their report, the cryptocurrency market is projected to reach US$37.87 bn in 2023. The number of cryptocurrency users is expected to reach 994.30 million by 2027.
Why are there so many scams in crypto?
The fast growth in the number of users and earnings in the crypto industry, along with its new ideas, may lead to more misuse. In the end, we must remember that blockchain technology and smart contracts, which is the infrastructure for digital currencies, are very complicated.
This complexity can lead to weak security spots that talented hackers can misuse. Because digital currencies have real value and can be exchanged for fiat money in many parts of the world, they’re tempting for hackers who can quickly take and possibly cash in the stolen digital money.
Here are just of the 2022 crypto thefts:
- DeFi Hack Leaves Users With a $12 Million Loss
- Flash Loan Attack on Euler Finance Drains It of $195 Million
- Hacker Seizes Control of Tornado Cash Governance
In the future, the crypto world will become more secure, and as Web3 gets more mature, there will be fewer successful hacks, misuses, and scams.
However, there will always be a never-ending fight between the wrongdoers and the blockchain security experts, as they both work towards their goals in this constantly changing industry.
But industry leaders see it as a wake-up call for us to double our efforts to secure our funds. And for the financial authorities to oversee these game-changing technologies and make it possible for everyday users to access them safely and responsibly.
Artificial Intelligence – is it secure?
Artificial intelligence (AI) has been a hot topic recently. Some people are talking about how it might change the way we work, while others, like tech entrepreneur Elon Musk, are saying we should be careful about how it’s developed.
We will probably see AI gets used more and more, and it’ll probably face its own security problems, just like Web3 and other new types of technology.
As AI becomes a bigger part of our everyday lives, especially in areas where security is important, like self-driving cars or financial systems, the chance for hacks, misuse, and scams will likely go up.
AI systems can be taken advantage of in several ways, from messing with machine learning algorithms to data tampering and hostile attacks.
Sensitive data can also be accidentally shared from large language models as people interact and share info with AI chat platforms like ChatGPT.
However, as long as there is no immediate money-making opportunity with AI, scammers will probably not start using AI just yet.
But AI can certainly aid any researcher in doing their job, whatever that may be. For instance, AI capabilities may allow for a more advanced set of attack methods. Machine learning can be used by security researchers to check smart contracts to find weak spots more efficiently,
The pain points of the crypto industry
The cryptocurrency industry, being relatively new, is experiencing a number of pain points.
These include:
- Rapid Evolution. The speed at which the industry evolves makes it challenging for security measures and best practices to keep up, leading to vulnerabilities.
- User Knowledge. Users are still learning how to use crypto technologies safely, making them easy targets for exploitation.
- Smart Contracts. Their open and visible nature means that if a contract has a flaw, it can be exploited by anyone, at any time.
- Decentralization. Unlike traditional systems that can add extra layers of security through centralized servers, the decentralized nature of blockchain technologies can expose them to more threats.
However, the industry is continually improving its security practices, with some decentralized finance (DeFi) platforms implementing additional measures such as multi-signature wallets and time locks.
In addition, there’s an increased focus on regulatory scrutiny and user education to reduce future scams and hacks.
Crypto scams get more attention than traditional thefts
But crypto scams represent only a fraction of the total financial scams. The traditional money system continues to set records for losses through malicious actions each year.
Crypto is often highlighted in the news for theft and fraud, but the total losses are actually much less than fraud involving credit cards, automated clearing house transactions, and wire transfers worldwide.
According to the Global Anti Scam Alliance, a nonprofit group dedicated to protecting consumers from financial crime and scams, traditional money lost to scams has been increasing, with $47.8 billion lost in 2020 and $55.3 billion in 2021.
The United Nations estimates that globally, the amount of money laundered around the world in a year is guessed to be 2 – 5% of global GDP, which is about $800 billion – $2 trillion in today’s US dollars. However, since money laundering is done in secret, it’s hard to figure out the total amount of money that’s actually laundered.
What draws so much attention to crypto scams is the very thing that attracted investors in the first place – its transparency.
Crypto transactions happen on the blockchain and are visible to everyone. This transparency can help track stolen funds and may explain why losses in crypto get more attention.
When a major theft occurs, everyone around the world can help track the funds to see exactly where they go. This isn’t possible in traditional financial systems where fund movements happen behind closed doors on private networks.
As more people around the world start using crypto, total losses will probably increase accordingly. However, better education and understanding of cryptocurrencies will ensure this increase isn’t disproportionate to other payment methods.