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Cryptocurrencies have existed for over 15 years, yet the sector still suffers from significant security issues. Month after month, millions of dollars are stolen in hacks that could have been prevented by addressing critical flaws that leave investors exposed.
Figures indicate that more than $200 million was stolen from crypto exchanges and DeFi protocols in the first three months of this year alone. Notably, 85% of these stolen funds were based on Ethereum. Estimates show that $473 million has been lost to hacks and rug pulls so far in 2024 across 108 incidents.
DeFi platforms tend to be more susceptible to exploits than centralized platforms, while hacks are more common than fraud. In May, Ethereum and BNB Chain were the most targeted networks, representing 62% of total losses.
“Fool me once, shame on you. Fool me twice, shame on me.”
The crypto industry has been fooled 108 times in just five months, indicating a significant problem. Cybercriminals become more opportunistic in bull markets, and traditional security measures are inadequate for the digital assets sector. A radical rethink of infrastructure design is urgently needed.
The Problem with Crypto Addresses
Currently, crypto owners often rely on long alphanumeric addresses when sending funds, which poses multiple problems. These addresses can be difficult to enter manually, and the slightest typo can result in irretrievable funds. Furthermore, many users, even experienced ones, fail to understand the security implications.
There have been numerous incidents where users have lost substantial amounts of digital assets through impersonation or phishing attacks. One notorious example is Inferno Drainer, a scam-as-a-service that operated for 12 months. Victims believed they were interacting with legitimate crypto brands and were enticed into connecting their wallets, leading to fraudulent transfers.
The lesson is clear: if it can happen to them, it can happen to anyone. The industry needs to focus on user-centric design. Making crypto addresses a thing of the past and replacing them with human-readable alternatives is a crucial first step.
Sending funds to a name rather than an indecipherable string of characters is transformative from a security standpoint. It also reduces friction in crypto payments and makes it easier to onboard new users. This infrastructure would be further reinforced by automated address computation in the background.
Custody systems can also use send-to-name infrastructure to prevent phishing attacks by making it harder to spoof businesses. Attackers would be unable to steal usernames and passwords, preventing unauthorized withdrawals of centrally held funds.
Tackling Other Pain Points
Eliminating crypto addresses is just the first step. The industry must also address the broken state of cross-chain integration. Each blockchain ecosystem has its preferred wallet, making the movement of wealth between networks convoluted and inefficient.
Bridges have attempted to connect chains, but they have proven to be vulnerable to exploits. The Ronin Network hack in March 2022, which resulted in $625 million in ETH and USDC being stolen, is a prime example. The bridge was secured by just nine validators, and the attackers managed to get the five signatures required to start making mass withdrawals.
A rethink is also needed in the DeFi space, where a lack of know-your-customer (KYC) checks or proof of identity makes it a haven for money launderers. Attackers can act with impunity, knowing they’ll remain anonymous. However, it is possible to ramp up security and prevent breaches without compromising user privacy.
Every passing day brings us closer to the next big hack that could ruin lives and further damage the industry’s reputation. For crypto to earn its status as a legitimate financial system, change is needed now.
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Michal Pospieszalski
Michal “Mehow” Pospieszalski is a seasoned tech leader with a track record of pioneering innovative solutions in the crypto world. As the CTO and co-founder of SwissFortress and CEO, co-founder, and co-inventor of MatterFi, Michal combines visionary strategy with hands-on tech expertise, propelling both companies towards defining the future of digital asset management.
