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In March this year hackers carried out one of the biggest cryptocurrency heists of all time. It joined a growing list of cryptocurrency security breaches, such as the theft last August of more than $600mn of cryptocurrencies from the Poly Network programme. Roughly, $3.2bn worth of cryptocurrency was stolen in 2021, a 516 per cent increase over the previous year. One factor driving that - hackers exploiting the five-fold growth last year of the decentralised finance, or DeFi space, where algorithms handle all transactions and there is no human interaction between parties.
Some $2.2bn of funds were stolen from DeFi projects, an increase of 1,330 per cent from 2020. For digital asset holdrs, safe storage technology remains crucial. Holders use a unique, private key, a long password to access their crypto. The keys, and therefore crypto, can be kept in online or mobile wallets, which allow fast access but offer the least secure method of holding crypto. A more secure alternative uses a device that is not connected to the internet, known as cold storage. Options include physical USB devices, offline computers, or sophisticated hardware wallets, small USB-like devices.
But other specialist third-party services even protect customers' crypto assets by, for example, holding private keys in vaults protected by human guards or systems using facial recognition and thumbprints. Scams, ransomware, and theft rose 79 per cent in dollar terms last year. But despite that, transactions involving illicit addresses actually represented an all-time low of just 0.15 per cent of total crypto trade volume in 2021. And law enforcement and regulators have become better at tackling crimes involving cryptocurrencies.
But cybercriminals are increasingly wielding their own high-tech tools and techniques to evade detection. One is chain hopping, jumping between different cryptocurrencies, often in rapid succession. Another involves using tumblers or mixers, third-party services that mix up illicit funds with clean crypto before redistributing them. Around 15 per cent of all proceeds of crime was routed through mixers in 2021. But mixers can increasingly be unpicked. And obscuring large quantities of funds through mixers can be difficult for criminals. Meanwhile, regulators and enforcement agencies are increasingly cracking down on illicit transactions.
In March, for example, the UK's National Crime Agency called for regulation of decentralised crypto mixes, while European Union lawmakers backed tougher traceability rules for transfers of cryptocurrencies. Change is expected. But in an industry where participants are accustomed to moving fast, the onus will remain on regulators to keep up.