Cybersecurity is a key element in the cryptocurrency ecosystem, as bad actors continue to find loopholes and ways to hack into crypto projects.
According to a report by cybersecurity firm, CertiK, over $2 billion worth of various cryptocurrencies has been lost in the first half of 2022.
Based on the report, 2022 saw more hacks and exploits than previous years and became the most expensive year for Web3 by far.
From our analysis of that and several other reports produced in 2021 and 2022, we have identified the most common ways that bad actors used to steal from people.
These are not scams but clever ways that hackers use to steal cryptocurrencies. The following are the 4 types of hacks in crypto that you need to be aware of:
- Flash Loan Attacks
- Rug Pulls
- Exploit Attacks
1.) Flash Loan Attacks
Flash loans are a type of loan in crypto whereby the borrower takes a loan without giving collateral.
In place of collateral, the borrower has a tight window within which to act quickly and return the loan. If they fail to return funds before the short window of time, the loan is invalidated.
Users can get such loans on platforms such as Aave. The primary use of these loans is by day crypto traders who want to quickly raise large capital to go in on an opportunity, return the loan, and keep profits.
Bad actors take advantage of this situation by using borrowed funds to buy a large amount of a crypto asset on a given exchange, triggering a sell-off. This artificially drops the price on that particular exchange, at least until the loan repayment window closes.
During this time, the attackers snap up the now undervalued crypto asset and sell it at another exchange that is maintaining normal market prices.
Phishing is a type of cryptocurrency scam that involves tricking victims into giving up their private keys or personal information.
The attacker typically masquerades as a legitimate entity or person to gain the trust of the victim. Once the victim has been scammed, the attacker then uses their information to steal their cryptocurrency funds.
A phishing attack usually starts with an attacker sending out a mass email or message to potential victims. It will often look like it is from a legitimate source such as a wallet or cryptocurrency exchange.
The message almost always contains a link that leads to a fake website that looks identical to the real one. Once the victim clicks on the link and inputs their login information, the attacker uses it to access their account.
3.) Rug Pulls
Rug pulls refer to cases in which developers build out what appear to be legitimate cryptocurrency projects, meaning that they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities before taking investors’ money and disappearing.
According to the Chainalysis 2022 Crypto Crime Report, Rug Pulls have emerged as the go-to scam of the DeFi ecosystem accounting for 37% of all cryptocurrency scam revenue in 2021 versus just 1% in 2020.
Rug pulls are most commonly seen in DeFi whereby investors buy tokens that seem to be on their way up before the developers drain the funds from wallets.
4.) Hacks and Exploits
Hackers are criminals who break into computer networks with malicious intent.
They may use malware, steal passwords, or exploit code as it’s written for self-serving or maybe ideological reasons.
In crypto, hackers break into crypto applications and steal millions of funds. The largest-ever crypto hack measured in fiat dollars came after hackers gained control over a majority of the cryptographic keys securing a play-to-earn game’s cross-chain bridge.