Crypto investors lost nearly $4 billion to hackers in 2022

Last year marked the worst year ever for cryptocurrency hacking, according to Chainalysis’ latest analysis.

Cryptocurrency hackers stole $3.8 billion in 2022, according to the blockchain analytics firm’s report — up from $3.3 billion in 2021. October had the most crypto hacks in a single month with $775.7 million stolen in 32 separate attacks, according to the study.

Here’s a look at the most popular strategies cyberthieves use, as well as how you can protect yourself.

Decentralized financial protocols, known as DeFi protocols, accounted for roughly 82%, or $3.1 billion, of all crypto stolen by hackers in 2022, according to the report

DeFi protocols contain a series of codes that determine how virtual currency can be spent on a blockchain network. Take smart contracts for example. These digital contracts are the main underlying technologies that make crypto transactions possible. Smart contracts operate according to “if/then” commands; if X, do Y.

In DeFi, smart contracts are publicly visible sets of instructions that allow users to borrow, lend, or transact without an intermediary. When a user meets the terms and conditions of the smart contract, the transaction occurs automatically, similar to a vending machine.

The majority of the digital funds were stolen from cross-chain bridge applications, according to the report. This software allows users to transfer their cryptocurrency between different blockchains.

Cross-chain bridges can be an attractive target for hackers because when users deposit their digital coins into smart contracts to be transferred to another blockchain, the smart contracts become something of a centralized warehouse.

“A more desirable honey pot could hardly be imagined,” Chainalysis said in its report. “If a bridge gets big enough, any flaw in its underlying smart contract code or other potential weak point is almost certain to be found and exploited by bad actors.”

You should thoroughly research and investigate the software you use to transfer or store your virtual currency.

There are virtual wallets that can safely store your crypto and secure it against online attacks, Max Krupyshev, co-founder and head of crypto payment ecosystem CoinsPaid, told CNBC Make It. However, it’s important to first determine which type of wallet makes sense for you.

When it comes to curbing cryptohacking, many problems stem from a lack of security, David Schwed, CEO of blockchain cybersecurity firm Halborn, said in the report.

“The DeFi community is generally not demanding better security – they want to go to high yield protocols,” he says. “But these incentives lead to problems down the road.”

Instead, DeFi developers would be smart to borrow security strategies used by traditional financial institutions to better protect their platforms. These include testing protocols with simulated attacks, closely monitoring the blockchain for suspicious activity, and building processes that will stop transactions if suspicious activity is detected, says Schwed.

“DeFi protocols will greatly benefit from adopting better security for the ecosystem to grow, thrive and ultimately penetrate the mainstream,” Chainalysis’ report states.

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