Hacking New Year - Crypto Edition

The crypto world 'welcomed' the new year with the first major incident of 2022 when crypto[.]com hack was confirmed by its CEO over night. It was estimated that $15 million of Ether was stolen from 400 customers’ accounts through the attack. This comes as a string of major hacks had hit major crypto exchanges in 2021 as detailed by Chainalysis, the blockchain data platform, in its recent blog and reported by Wired, a large number of these funds stolen had been the work of North Korean hackers. Crypto currencies are favored by hackers due to their anonymous nature. This means that the stolen funds can be hard to trace and converting them into fiat currencies is easy. Closer to this region in Hong Kong, we have observed a similar trends, such as:

1. The rise of new blockchains (eg.: Avalanche, Harmony, Fantom...etc.) introduced a huge adoption of use of DeFi protocols, crypto theft from DeFi protocols is climbing quickly recently. Which increases the complexity to track stolen funds due to the use of additional DEX and crosschain bridges/exchanges before funds get consolidated into mixed Bitcoin or Ether. These stolen funds will likely get converted to Ether, mixed and then transferred to Ethereum blockchain through a bridging service for another layer of mixing. Similarly, funds can also be cross-chain transferred using services like ELK Finance. Both above scenarios might significantly increase difficulty of tracing/investigating the stolen funds.

2. We also noticed there were cases in Hong Kong where stolen crypto-assets were possibly laundered in the city. In one case the perpetrators used stolen identities to register for CEX accounts and used those accounts to convert the stolen funds into fiat and transferred to hackers' controlled bank accounts. In another some agents used shell companies to trade the stolen funds for the purpose to launder and eventually convert & transfer the funds to the hackers’ accounts in fiat.

The crypto[.]com incident so early in the year shows what’s to come in 2022 and the size of the heist will only get larger with the surge in crypto’s values.