DEFI is the next front for hackers in their battle against crypto
Decentralised finance is the next front that hackers are attacking in their battle against cryptocurrencies.
Decentralized blockchain applications such as EtherDelta, which describes itself as a peer-to-peer trading platform for cryptocoins and tokens of Ethereum (ETH) projects have been hacked forcing them to close down. The decentralized crypto exchange was breached by unknown attackers who stole significant amounts of funds from users’ wallets on Dec 21st 2018 so far over $1 million has been reported stolen with more expected to follow suit.
Amidst the surge of cryptocurrency theft, a new P2P platform emerged as one of the biggest thefts in history.
Last week’s heist on Poly Network started with an ambitious idea: to create an exchange that would be safe from cybercriminals and other vulnerabilities present at traditional exchanges. But decentralised finance platforms are growing rapidly throughout Europe, Asia Pacific (APAC), South America, North America and Africa; hackers have noticed too—and they’re targeting this sector now more than ever before! The recent incident highlights how peer-to-peer blockchain technology cannot fully protect individuals’ assets yet despite their best efforts to build secure financial networks for users worldwide
After the unusual ending to Poly Network’s saga, fast-emerging risks are now apparent in crypto. This is because an estimated $80 billion or more of cryptocurrency investments can be found on these platforms. These emerging risks come from interviews with industry executives, lawyers and analysts who show that DeFi sites allow users to lend, borrow and save – usually in cryptocurrencies – while bypassing traditional gatekeepers such as banks and exchanges.
But the heist at Poly Network – previously a little-known site – has underscored how vulnerable DeFi sites can be to crime. Would-be robbers are often able to exploit bugs in open source code used by these types of services, and with regulation still somewhat patchy there is usually not much recourse for victims should this happen.
These previous cyber heists, such as the one on Mt. Gox in 2014 and Coincheck last year have made centralised exchanges a primary target for crypto hackers because of their vulnerabilities to attack.
DeFi platforms are emerging as a more secure way to trade digital assets. With the onus of security at major exchanges such as Coinbase Global Inc, less-secure venues have been pushed out and smaller exchanges can’t compete with their level of standardization that makes them safer places for trading.
Crypto firms are struggling to keep up with the growing number of thefts and fraudulent activities in 2019, according to data released by CipherTrace. The total amount stolen since January is $474 million.
The rise of decentralized finance (DeFi) is helping the industry collectively swell in value. DeFi Pulse, a data provider focused on projects built around this type of technology, reports that total funds held at such sites are now more than $80 billion compared to just $6 million one year ago—a staggering jump in volume.
“There is a widening security risk gap between old, battle-tested DeFi protocols and new, untested ones,” said Rune Christensen. He was the former head of MakerDAO which developed high profile decentralized finance applications like Dai Protocols that are used to create stable coins.
The ongoing debacle with DFi (decentralized finance) companies like Poly Network shows that we need greater regulation to make sure this industry can thrive, and it doesn’t look like the DeFi community will ever be able to self-regulate itself.
According to Tim Swanson of Clearmatics, the average day in DeFi world is “just an unfortunate situation.”
“The industry likes to congratulate itself by claiming it resides on transparent systems, but it has repeatedly shown it is incapable of policing itself.”