According to Chainalysis, hackers consume cryptocurrency of $1.3 billion from exchanges, platforms, and private entities in the first three months of 2022. A staggering 97 percent of this was stolen from DeFi platforms. This is an increase from 72 percent in 2021 and only 30 percent in 2020.
At this rate, hackers will have to consume cryptocurrency of $5.2 billion by 2022, up from $3.2 billion in 2021.
And, with DeFi emerging as their primary target, expect these platforms to be heavily targeted for the rest of the year and beyond.
What is DeFi? Decentralized finance refers to blockchain applications that eliminate the need for middlemen in financial products and services such as loans, savings, and swaps. People prefer to trust “the code” with their money rather than a middleman such as a bank or fintech firm. DeFi essentially employs blockchain technology to unlock value that traditional finance is unable to. It has high rewards, but it also has a lot of risks.
Bug hunters: Many cryptocurrency “hacks” are simply security breaches in which hackers gain access to victims’ private keys. That’s more akin to picking someone’s pocket than it is to actual hacking.
The most serious DeFi thefts, on the other hand, are the result of more sophisticated attacks that target specific bugs in software that hackers spend hours debugging. DeFi’s belief in decentralization and transparency makes their job easier, as most such apps are open source.
Because DeFi protocols transfer funds without the intervention of a central authority, it is critical for users to be able to inspect the underlying code in order to trust the protocol.
However, hackers take advantage of this openness, scouring scripts for flaws and turning DeFi’s greatest strength against itself.
Following the money: DeFi is still in its infancy, but it has grown rapidly in recent years. According to DeFi Llama data, the sector currently has over $210 billion in digital assets coursing through its veins.
That figure is expected to be around $1 billion in June 2020.
Hackers have figured it out just as quickly. According to Chainalysis’ report, DeFi protocols were involved in seven of the ten largest crypto thefts from January 2021 to March 2022. There are only three targeted centralized exchanges.
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