Sharp Drop in Crypto Hacks in Q1 2023 Not Expected to Last

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Cryptocurrency fraud, Finance and banking, Fraud management and cybercrime

US law enforcement and regulatory action likely led to 70% drop in hacks Rashmi Ramesh (rashmiramesh_) • May 23, 2023

Law enforcement and regulatory actions over the past year in the United States have most likely deterred hackers from stealing cryptocurrency, making the amount stolen in the first quarter of the year the lowest per compared to each of the four quarters of 2022.

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Hackers hijacked $400 million worth of cryptocurrency in 40 hacks in the first three months of 2023, TRM Labs said. The amount of funds stolen in the first quarter of 2023 is 70% lower and the average size of hack has increased to $10.5 million from $30 million year-over-year.

By comparison, hackers stole $4 billion in 2022.

Sanctions against Tornado Cash and lawsuits against Mango Markets hacker Avraham Eisenberg likely provided “temporary discouragement to would-be attackers,” the company said.

Hackers have “widely” used the cryptocurrency mixer to launder virtual currency worth $7 billion since the launch of Tornado Cash in 2019. Tornado Cash’s popular customer base included the Lazarus Group linked to the North Korea, which used the service to hide the flow of stolen funds from the $600 million Axie. Infinity hack and $100 million Harmony Bridge attack.

“The US government’s use of sanctions against crypto targets may have increased the potential costs of carrying out such attacks and made it more difficult to launder profits,” TRM Labs said.

Mango Markets hacker Eisenberg negotiated with the decentralized finance platform to return some of the $116 million he stole if the exchange did not pursue legal action against him – a popular tactic among hackers cryptocurrency in 2022. But in December, two months after the attack, US authorities arrested Eisenberg. The SEC accused him of violating anti-fraud and market manipulation provisions of securities laws, and Mango Markets sued him for $47 million in damages. “Avraham’s lawsuits may have signaled to potential abusers that even a victim’s agreement not to sue may not confer protection,” TRM Labs said.

Recovery of stolen funds

Victims of crypto-hacks recovered more than half of stolen funds in the first quarter, TRM Labs said. Several of these cases involved the hacker stealing funds and negotiating with the hacked company for a “white hat bounty” and a promise that they would not be prosecuted for their crime. Companies paying the premium included Horizon, Poly Network, Euler Finance, Sentiment, Allbridge and Fei Protocol.

There could be a number of factors behind this trend, Ari Redbord, head of legal and government affairs at TRM Labs, told Information Security Media Group. Wider implementation of AML standards makes it harder for malicious hackers to embezzle stolen funds, and the widespread tracing and tracking of stolen funds by law enforcement and Twitter sleuths using open source tools are the main reasons for this.

“After a hack, the world is literally watching, making it harder to move and exit funds,” Redbord said.

The growth of “white hat” hackers could play a critical role in the ecosystem as it develops, he said. “Right now, many DeFi services lack really strong cyber controls, and hackers could help build it. The bounties offered are essentially their compensation,” he said.

A respite unlikely to last

The implementation of anti-money laundering standards by virtual asset service providers, increased efforts by law enforcement and regulators to prosecute bad actors, and the growing sophistication of blockchain intelligence tools may have contributed to the decline in piracy. But the trend should not last.

This slowdown, TRM Labs said, is “most likely a temporary reprieve rather than a long-term trend.”

A few “few” large-scale attacks can result in a dramatic change in the total amount stolen. Just 10 hacks in 2022 accounted for 75% of the total amount stolen during the year, TRM Labs said. Individual quarterly numbers also offer “poor predictions” for a one-year trend, the company said. Q1 2023 figures reflect Q3 2022 figures. Q4 2022 hacks turned 2022 into a banner year for crypto hacks.

“It’s hard to say if the downward trend will last. One or two big Ronin attacks and we’re back to 2022 numbers,” said Redbord, who is also an ISMG contributor.

But law enforcement is leveraging the traceability and immutability of blockchain to track criminal transactions and add more friction to the laundering process, he said. “As tools and training improve and become more widespread, this is a trend that is likely to continue.”

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