How to protect crypto hot wallets from hackers

On August 18, in its security incident update, General Bytes hinted at a hack in which attackers exploited a zero-day vulnerability in the servers of Bitcoin ATMs and managed to defraud investors of their money.

Earlier this month, the Solana token witnessed selling pressure on exchanges after users reported their funds being drained without their knowledge from their “hot” wallets, including Phantom, Slope and TrustWallet. Thousands of Solana investors were hit hard. According to reports, Solana is estimated to have recorded a loss of between $5 million to $8 million.

Solana and General Bytes were another fish in the pond for hackers. According to an analysis, nearly $2 billion in cryptocurrencies have been stolen in hacks so far this year.

In its mid-year cryptocrime update, Chainalysis revealed last week that overall cryptocurrency transaction volume this year for both illicit and legitimate entities is behind 2021 through July. Overall, criminal activity appears to be more resilient in the face of falling prices—illegal volumes are down just 15% year over year, compared to 36% for legal volumes.

According to Chainalysis’ mid-year report, total fraud revenue for 2022 is currently $1.6 billion, down 65% from where it was through the end of July in 2021. The platform cited that the decline appears to be linked to falling prices across different currencies .

Also, the cumulative number of individual transfers to fraud so far in 2022 is the lowest it has been in the last four years.

In Chainalysis views, fewer people are falling for cryptocurrency scams than ever. One reason for this may be that with falling asset prices, cryptocurrency scams – which typically present themselves as passive crypto investment opportunities with huge promised returns – are less tempting to potential victims.

“We also hypothesize that new, inexperienced users who are more likely to fall for scams are less prevalent in the market now that prices are falling, as opposed to when prices are rising and they are drawn in by hype and the promise of quick returns,” the report added.

Also, revenue from the darknet market is also down significantly in 2022 and is currently 43% lower than where it was through last July.

On the other hand, the data showed that through July 2022, $1.9 billion worth of cryptocurrency has been stolen in hacking services, compared to just under $1.2 billion at the same time in 2021.

In its report, Chainalysis said, “this trend does not appear to be reversing anytime soon, with a $190 million hack of cross-chain bridge Nomad and a $5 million hack of several Solana wallets already occurring on the first week in August (none of them are represented on the graph above, as we have chosen 31 July as the cut-off point).

The reason behind the hacks can be attributed to the amazing increase in stolen funds from DeFi protocols – a trend that began in 2021.

“Still, with huge increases in stolen funds, we cannot afford to rest on our laurels. The public and private sectors must continue to work together and hone their ability to combat cryptocurrency-based crime,” the report said.

While hacks are one of those unexpected events that still seem to oscillate as one of the biggest downsides to the cryptocurrency market. As an investor, who has invested in cryptocurrencies, it is important to be alert and cautious while trading and safeguarding your investments in crypto.

How to protect your hot wallets from being tapped by hackers?

Poorvi Sachar, Head, Operations, Tezos India said, “To protect your trading wallets from being tapped by hackers, one should avoid clicking spam links on the internet. It is highly recommended not to share the keys (public/private) with anyone preferably.”

The user must never rely on messages initiated from outside while participating in exchanges. Sachar suggests using cold wallets instead of hot wallets to protect your keys.

Cold wallets are less risky and the information stays with the customers. Cold wallets are offline, meaning they do not require internet services. They are hardware wallets in the form of a physical medium that reduce the chance of data leaks and theft, among other things – even if the user shares their details with someone else.

Meanwhile, hot wallets are connected to the internet and are part of cryptocurrency exchanges — therefore, they are more vulnerable to cyber hacks.

“Social media hacking is rampant and its appealing deals can get the user into a fix. Disconnect wallets on suspicious dApps and always revoke permissions after transaction. The wallet message should look familiar to those who have used it before. Extreme care should be taken during any transaction,” Sachar added.

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