$1.9 billion in crypto stolen in 2022 as North Korea targets cross-chain bridges

Even as crypto investors have been looking at heavy losses due to devaluation of digital currencies, a report by blockchain analysis firm Chainalysis has said that losses arising from cryptocurrency hacks jumped nearly 60% in the first seven months of 2022 to $1.9 billion.

This rise was propelled mostly by a surge in funds stolen from decentralised finance (DeFi) protocols. DeFi applications, many of which run on the Ethereum blockchain, are financial platforms that enable crypto-denominated lending outside of traditional banks, reported Reuters.

Cross-chain bridges easy targets: DeFi protocols, especially cross-chain bridges used to transfer tokens across blockchains, have emerged as one of crypto's weakest links after several large hacks this year. Because such protocols rely on open-source code, criminals can easily find bugs or other vulnerabilities to exploit, Chainalysis said.

Why are cross-chain bridges vulnerable? According to a report in the CNBC, the vulnerability of bridges can be traced in part to sloppy engineering. The hack on Harmony's Horizon bridge was possible because of the limited number of validators that were required for approving transactions and  with Ronin, hackers only needed to convince five out of nine validators on the network to hand over their private keys to gain access to the crypto assets, reported CNBC.

"It's possible that protocols' incentives to reach the market and grow quickly lead to lapses in security best practices," Bloomberg reported quoting Chainalysis.

North Korean connection: According to Chainalysis, North Korea-affiliated groups have stolen approximately $1 billion of cryptocurrency from DeFi protocols so far this year. Almost half of the stolen funds can be attributed to hacking units like Lazarus Group, which is affiliated to North Korea.

How the scammers operate: Scammers may impersonate legitimate businesses and offer fraudulent crypto coins or tokens. "Scams are down primarily because of the crypto downturn, but also because of the many law enforcement wins taken against scammers and the product solutions that exchanges can use to fight scamming," said Kim Grauer, Chainalysis' director of research, in an email to Reuters.

Crypto crash: Cryptocurrencies market capitalization is now at $1.1 trillion, down more than 50% from around $2.35 trillion at the beginning of the year. Bitcoin so far this year has slumped roughly 48%.

The meltdowns in the last one year have erased tens of billions of dollars of investors' assets and people have become very reluctant in putting their money in the crypto market.