Blockchain security companies fight cryptocurrency theft and ransom tracking

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According to Rekt Leaderboard data, cybercriminals have stolen up to $3 billion in investor funds since January through 141 different cryptocurrency exploits, putting 2022 on track to reach the highest level of digital currency misconduct in 2021 . Comparitech’s Cryptocurrency Heists Tracker shows that hackers have stolen approximately $45.5 billion worth of cryptocurrencies since 2011, valued at $7.9 billion today.

Along with the increasing dollar amounts of cryptocurrency thefts, cryptocurrency scams, hacks and exploits, Web3 (a decentralized view of the web that incorporates blockchain technologies and token-based economy) and blockchain-related organizations are becoming bolder and more lucrative for malicious hackers, even if the value of cryptocurrencies stagnates. This month alone, Binance saw its BNB chain drained by $586 million, close to the largest-ever cryptocurrency theft of $624 million from the Ronin network in March 2022.

The threat actors in these and other cases are unlikely to have retained all or even most of the staggering amounts stolen, but in many cases are receiving increasingly handsome “bounties” in return for the return of some or most of the missing funds. Avraham Eisenberg, the man behind a $114 million exploit on Mango Markets in mid-October, was allowed to keep $47 million of his alleged ill-gotten gains in order to return $67 million to the project.

A new generation of cybersecurity companies has emerged

The staggering amount of money being generated by crimes against a range of digital financial segments has no real parallels in the traditional cybersecurity world, which has yet to accumulate the expertise needed to detect, track and remediate security incidents in the blockchain space. One reason traditional cybersecurity professionals are reluctant to devote resources to the digital currency arena is the belief of many top experts that cryptocurrencies are little more than financial fraud, a belief they believe the current cryptocurrency market meltdown has vindicated.

Against this backdrop, a new breed of security companies has emerged, helping Web3 firms tackle chronic crime and helping law enforcement track stolen currency and currency paid to ransomware attackers. And these companies are raising more and more venture capital despite the crypto crash.

Chainalysis, for example, which offers real-time anti-money laundering and cryptocurrency compliance software, has raised hundreds of millions in venture capital across six funding rounds to reach a valuation of $8.6 million. Another top company, cryptocurrency protection firm FireBlocks, has raised nearly $1 billion across five funding rounds to have an $8 billion valuation. Blockchain security firm CertiK has raised over $300 million in eight funding rounds to reach a $2 billion valuation.

“This proliferation of blockchain technology is the continued expansion of the overall attack surface and environment from which attackers will continue to manipulate and extract data,” Richard Seewald, founder and managing partner of Evolution Equity Partners, a major investor in both cybersecurity and Blockchain security company says CSO.

Despite their differences from traditional cybersecurity companies, the new generation of Web3 security companies still rely on the proven strategies of the conventional sector. “While we are in the early days of native blockchain security platform development, the enterprise blockchain security strategy includes the use of traditional security controls and technologically unique controls, including identity and access management, key management, data protection, secure communications, smart contract security, transaction monitoring, Threat intelligence, among other things,” says Seewald.

Blockchain security requires different skills

Still, the nature of the Web3 world, which only partially overlaps the capabilities of traditional cybersecurity companies, requires new approaches to protect against malicious actions. Standard cybersecurity tools are essential in the blockchain world because “you need to understand code, you need to understand malicious code,” Chen Arad, co-founder and COO of crypto-native risk monitoring and market surveillance firm Solidus Labs, a beneficiary of Evolution’s funding, says CSO .

“You also need to understand a token, a smart contract on a blockchain, which is ultimately just code, and if it’s malicious, you need to be able to detect it at scale,” adds Arad. “You have to know if it has the characteristics of a carpet pool [where a developer creates a cryptocurrency or NFT project and then absconds with the funds]which is a combination of cyber and, let’s call it, crypto economics.”

Arad also points to a new generation of crypto-specific threats his company is seeing, “Things like wash trading [where a trader buys and sells the same security] and spoofing and phishing attacks that we know from traditional finance but can happen in new, sophisticated ways in crypto, right down to the bloodiest bits in the fully decentralized part, things like block-level front running [manipulating the process to gain knowledge of upcoming transactions]Rug pools and composability attacks [exploits of Web3’s ability to combine existing components and reassemble them to create new products].”

Mircea Mihaescu, CEO of cryptocurrency risk management firm Coinfirm, tells CSO that he believes blockchain security and cybersecurity share the common trait of being technically complex. “Traditional cybersecurity versus blockchain cybersecurity, they’re very similar on the basics, in the sense that they’re both very technically complicated.”

“People working in the blockchain space need to understand a lot of things, have a very solid computer science background and study a lot,” says Mihaescu. “The number of talented people working with cryptocurrencies and more recently with what is being called Web3 has skyrocketed.”

A new focus is on the prosecution of illegally obtained cryptocurrencies

Web3 security firms are also emerging as key players in helping law enforcement agencies track currencies paid to ransomware attackers. In 2021, the US Department of Justice tracked $2.3 million of the $4.3 million paid by Colonial Pipeline as it moved through at least 23 different electronic accounts owned by the DarkSide ransomware gang . However, the DOJ shared few details about how it accomplished this feat.

Elliptic, which pioneered the use of blockchain analytics for financial crime compliance and received investment from Evolution, recently launched a product called Holistic Screening that automatically and simultaneously screens crime proceeds across all blockchains and cryptocurrency Assets can be traced.

“Blockchain analytics companies like Elliptic track the money when cybercriminals exploit cryptocurrencies,” says Dr. Elliptic co-founder and chief scientist Tom Robinson to CSO. “Our holistic screening and investigation tools are used to track the proceeds from North Korea-performed hacks or ransomware attacks by Russia-affiliated cybercrime groups as they are laundered through various crypto-assets and blockchains.”

The same type of tracing can apply to stolen cryptocurrencies. Mihaescu says his company’s technology “can take a transaction hash of stolen crypto and take it all the way across blockchains, sometimes tens of thousands of addresses, created to hide the path of stolen crypto’s movement to where it stands.” We can show that this is the address and either law enforcement or the attorneys representing the victim can legally attempt to get that money back because we can prove exactly where it ended up.”

Blockchain is here to stay

Contrary to the notion that blockchain and cryptocurrencies are the modern day equivalents of a Ponzi scheme, investors and companies working in the Web3 space believe these technologies are here to stay. “There is no question that crypto is going to stay here one way or another,” says Arad. “We, like most people in this industry, believe this presents an incredible opportunity to make finance more equitable, transparent and accessible.”

Blockchain has the potential to help the unbanked, including “a lot of people in countries like America and Europe who still have access issues,” adds Arad. For many people it is still easier to access a phone than a bank.” But “it has become very clear that all this potential cannot be realized unless we find ways to mitigate the new risks without compromising the performance of the technology.”

“Ultimately, there’s about a trillion dollars in fiat currency in digital assets,” says Mihaescu. “There are 30,000 companies active on blockchains. There are 200 million people who have bought or sold cryptocurrency. So they need protection, and the protection has to go beyond, ‘Oh, that’s cheating’.”

Referring to the multi-billion dollar cryptocurrency exploits the market has seen in recent years, Mihaescu, who comes from a banking background and has served as head of capital markets for the Bank of Montreal, says the traditional financial market is also rampant theft and fraud, but is more closed and hidden in relation to this activity.

“If a hacker successfully breaks into a bank and steals a lot of money there, you don’t see it anywhere,” he says. “This information is not seen. There is this discrepancy in the level of transparency between the two worlds. You don’t see any bank robber stats. You won’t see any bank hacking stats, at least not publicly. Maybe the FBI and the Met [police in the UK], You now her. Most likely they do. They are not known to the general public.”

Copyright © 2022 IDG Communications, Inc.

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