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 were lost in the first half of 2022.
According to the report, 2022 saw more hacks and exploits than previous years and became by far the most expensive year for Web3.
From our analysis of this and several other reports produced in 2021 and 2022, we have identified the most common methods bad actors used to steal from people.
These are not scams, but rather clever ways hackers use to steal cryptocurrencies. The following are the 4 types of hacks in crypto you need to know:
- Attacks on Flash Loans
- carpet pulls
- exploit attacks
1.) Flash Loan Attacks
Flash loans are a type of loan in crypto where the borrower takes out a loan without posting any collateral.
Instead of collateral, the borrower has a tight window of opportunity to act quickly and return the loan. If they don’t return the money within the short window of time, the loan will be void.
Users can get such loans on platforms like Aave. The main uses of these loans are daytime crypto traders who want to raise large capital quickly for an opportunity to repay 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 specific exchange, triggering a sell-off. This artificially lowers the price on that particular exchange, at least until the loan repayment window closes.
During this time, the attackers snag the now undervalued crypto asset and sell it on another exchange that maintains normal market prices.
Phishing is a type of cryptocurrency scam in which victims are tricked into revealing their private keys or personal information.
The attacker usually impersonates a legitimate entity or person to gain the victim’s trust. Once the victim has been scammed, the attacker uses their information to steal their cryptocurrency funds.
A phishing attack typically begins with an attacker sending a bulk email or message to potential victims. It often looks like it came from a legitimate source like a wallet or cryptocurrency exchange.
The message almost always includes a link that leads to a fake website that looks identical to the real one. Once the victim clicks the link and enters their credentials, the attacker uses them to access their account.
3.) Carpet pulls
Rug pulls refer to cases where developers set up seemingly legitimate cryptocurrency projects, meaning they do more than just set up wallets to obtain cryptocurrencies for e.g. fraudulent investment opportunities, before taking investors’ money and disappearing.
According to Chainalysis 2022 Crypto Crime Report, rug pulls have emerged as the most popular scam of the DeFi ecosystem, accounting for 37% of all cryptocurrency fraud revenues in 2021, up from just 1% in 2020.
Rug pulls are most commonly seen in DeFi, with investors buying tokens that appear to be on the way up before developers pull the funds out of wallets.
4.) Hacks and exploits
Hackers are criminals who break into computer networks with malicious intent.
They can use malware, steal passwords, or exploit code while it was written for selfish or perhaps ideological reasons.
In crypto, hackers break into crypto applications and steal millions of funds. The biggest crypto hack to date, measured in fiat dollars, came after hackers gained control of much of the cryptographic keys securing a play-to-earn game’s cross-chain bridge.