The value of cryptocurrency stolen hit a record $3.8 billion in 2022 as hacking activity remained rampant, a study from Chainalysis has shown.
The figure is up more than 15 per cent compared with the $3.3 billion recorded in 2021, and an almost eightfold increase from 2020's $500 million, the New York-based blockchain company said on Wednesday.
Decentralised finance (DeFi), which experts say is a more secure way of managing financial transactions because it relies on blockchain, was the primary target of hackers in 2022, the trend having grown steadily in the past four years due to its popularity, the report said.
DeFi protocols victimised in 2022 accounted for more than 82 per cent of all cryptocurrencies stolen, up from about 73 per cent the year before, resulting in losses of about $3.1 billion, it said.
“DeFi is one of the fastest-growing, most compelling areas of the cryptocurrency ecosystem, largely due to its transparency," said Kim Grauer, director of research at Chainalysis.
"But that same transparency is also what makes DeFi so vulnerable — hackers can scan DeFi code for vulnerabilities and strike at the perfect time to maximise their theft.”
The cryptocurrency industry has endured a period of continued price declines since last year. Its market capitalisation peaked at more than $3 trillion in November 2021, but has since declined; as of Thursday, it stood at about $1.1 trillion — a plunge of almost two thirds — according to data from CoinMarketCap.
Last year was one of the most tumultuous in cryptocurrency history, with the implosion of several large crypto companies including Celsius, Three Arrows Capital and, most prominently, FTX, which filed for bankruptcy on November 11.
The downfall of the exchange, once valued at $32 billion, rocked the entire industry, dealing a blow to those making a case for the viability of digital currencies and attracting more scrutiny from regulators on how they handle user assets.
Job losses have added to the industry's woes. Last month, Coinbase, one of the world's biggest crypto platforms, said it was slashing 20 per cent of its workforce, its third round of cuts in eight months.
In 2022, stolen assets and hacking activity see-sawed on a monthly basis, with March and October logging the highest values yet at $732.4 million and $775.7 million, respectively, the Chainalysis study said.
Illicit activity in March was driven in large part by the heist at the mobile game Axie Infinity, while October's value, which logged 32 attacks, grew because of the hacks on BNB Chain and Mango Markets.
The Axie Infinity heist was linked to hackers connected to North Korea, who continued to grow their illegal activity, driving cryptocurrency theft activity in 2022.
They were able to steal about $1.65 billion to shatter their own record for the highest value of digital assets stolen in a year, Chainalysis said.
That is an almost fourfold jump from the $429 million recorded in 2021 and significantly larger than the previous high of $522 million in 2018, it said.
This activity is lucrative: for perspective, the isolated country's total exports were $151 million in 2021, according to data from Trading Economics.
"So, it isn’t a stretch to say that cryptocurrency hacking is a sizeable chunk of the nation’s economy," Chainalysis said.
After DeFi, centralised services were the second most targeted platform by crypto criminals, but by a large margin, it said.
Centralised platforms — those through which digital assets are bought and sold through a third party — were the biggest targets until 2020, but significantly declined, beginning last year, as the popularity of DeFi exploded, the study showed.
Private platforms, token protocols and personal wallets now hold very marginal shares in the crypto hacking pie, it said.
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