Since the inception of cryptocurrencies, the crypto industry has been a victim of numerous cyberattacks. Some cryptocurrency exchange platforms have been victims of security breaches that led to the loss of millions and the leaking of sensitive customer data. In addition, many individual accounts are targeted every year resulting in millions worth of cryptocurrency being lost or stolen.
Experts predict that attacks against exchanges in 2022 might remain stable, with smaller exchanges being more likely to experience these attacks. Here, we explore key crypto security trends you should expect this year. Let’s dig in:
More Criminals Targeting Defi
Previously, cryptocurrency exchanges bore the burden of identifying and stopping bad actors in the cryptocurrency trade. However, as the VASP space matured and these exchanges implemented stricter security measures, criminals turn to decentralized finance services.
Decentralized finance emerged as a popular technology in 2020. The technology leverages the decentralization principles of blockchain to enable democratized money, systems, products, etc. DeFi is predicted to form the foundation of the crypto market in 2021. It will likely revolutionize the financial system by providing a decentralized and open-source network that supports the lending, borrowing, buying, and selling of securities.
Experts predict that cryptocurrency attacks will rise with a greater focus on decentralized finance (DeFi) platforms and protocols. This prediction came following a rise in crime related to the DeFi sector in 2020 compared to 2019 and a lack of regulatory clarity. An analysis from Cipher Trace’s 2020 cryptocurrency crime and anti-money laundering report, 45% of all thefts and attacks targeted DeFi. New DeFi platforms and protocols are at a higher risk of attacks, especially if they neglect to perform critical security audits.
According to the analysis, most DeFi projects rely on smart contracts that are usually un-audited and have numerous vulnerabilities that bad actors can manipulate. DeFi protocols lack regulatory compliance, making them accessible to anyone worldwide, making DeFi a possible haven for criminals.
Experts suggest that a diligent approach towards the fast-growing DeFi sector could lead to lower attacks, vulnerabilities, and the adoption of tested, audited, and peer-reviewed code. Decentralized exchanges that rely on smart contracts must take the proper steps to ensure that the smart contracts on which their DeFi platforms and protocols rely are secure.
In a recent article on CyberTalk.org Edwin Doyle, Global Security Strategist, Check Point Software explains, “Being a new but popular industry, it’s natural that hackers are trying to exploit vulnerabilities. Typically, as an industry matures, so does the security posture. We are already seeing signs of this in the DeFi market: developers are paying greater attention to creating test environments for their projects.”
Doyle continues, “However, scalability is still the major focus of most DeFi developers. Also, upgrades like the Ethereum 2.0 upgrade may expose the sector to new vulnerabilities: researchers found that it will be easier to scale attacks, the pay for network security will be lower, and the network security will rely on the price stability of ETH.”
Users are The Weakest Link
Cryptocurrency exchanges and other platforms have a better chance to invest in security in 2021 as the crypto market grows. The price of cryptocurrency is likely to increase, especially after the recent recovery of bitcoin prices from the multi-year slump that has affected the currency.
The growth rise in cryptocurrency prices was mainly due to support from investors who were more willing to hedge against the fluctuation experienced in traditional asset classes. However, the potential growth and rise in cryptocurrency prices are likely to attract more hackers, thefts, and scams. This is evident in the huge financial investments into cryptocurrencies by institutions like JP Morgan and businesses like Tesla.
But as the crypto industry matures, users will become the weakest security link. As with financial engineering, which happens through social engineering attacks on the victims, the same could happen to owners of crypto wallets and platform administrators.
These users are likely to be enticed through appealing “investment” schemes with huge returns leading them to fraudulent platforms.
Users must take care of their private keys when accessing digital currencies. Due to their decentralization and growing popularity, they present an attractive catch for hackers and thieves who are always on the lookout for weaknesses they can exploit.
Regulatory measures are expected to rise in 2022, with regulatory bodies increasing their scrutiny on these currencies. The recent case where SEC brought a lawsuit against Ripple Labs indicates increasing steps to regulate the crypto industry.
As Eleanor Terrett and Charlie Gasparino of Fox Business explain, “Ripple executives had, according to the SEC’s lawsuit, brazenly ignored warnings from the commission that when they sold $1.3 billion worth of XRP, the digital coin used on the Ripple platform, they were violating securities laws because the sales weren’t registered with the commission and disclosures to investors weren’t provided — contrary to mandatory prerequisites for whenever a company sells a security.”
Terrett and Gasparino continue, “XRP was definitely security, in the SEC’s view, just like a stock or a bond, because it was being used to finance the buildout of Ripple’s platform and enrich its top executives. The company could settle with the commission, as most do even if the price is steep: It would have to repurchase $1.3 billion in XRP that the SEC believes was illegal. Or Ripple could fight it out in federal court, a battle SEC staff attorneys were confident they would win. It didn’t seem to matter that SEC action would hammer not just Ripple, but average people who purchased the now suspect XRP digital coin.”
Governments are also developing tools to monitor cryptocurrency transactions for taxation, meaning that customers might soon have to report their gains on their cryptocurrency investments.
Regulatory bodies are focusing on digital currencies and decentralized finance platforms and protocols due to the increased risk of criminals using these unregulated platforms for money laundering. The US Department of Treasury proposed a rule, which would require VASPs and financial institutions engaged in crypto transactions to verify the other party and their domicile.
2021 presents significant milestones in the crypto industry. However, the risk of cyberattacks remains. It demands that users and exchanges take the right security measures to protect their crypto investments and wallets from bad actors who are setting themselves up to take advantage of this maturing industry.
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