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China Among Top Locations for Crypto Exchange Breaches, $7.6 bln Stolen So Far

About $7.6 bln worth of cryptocurrrencies has so far been stolen – $2.8 bln through security breaches and $4.8 bln in scams – since 2011, according to a new Crystal Blockchain finding, and China is among the top common locations for exchange security breaches. Also on the list of countries where entities have suffered 113 security breach attacks and 23 fraudulent schemes in total over the period are the US, UK, Japan and South Korea.

While the US is the first for the number of reported incidents taken against its entities – US-based crypto services have been targeted by bad actors a total of 13 times since the beginning of the blockchain ecosystem’s existence – China tops the chart in terms of value. According to the report, China is on top by a wide margin and is mostly due to the PlusToken Ponzi scheme (2019) at $2.9 billion, along with the WoToken scam (2020) that was connected to the PlusToken scheme at $1 billion.

“Over the last few years, major fraudulent acts utilizing cryptocurrencies have brought a lot of unfavorable attention to the crypto community, the Chinese PlusToken Ponzi scheme is an example of this,” the report says. “The platform administrators closed down the operation in June 2019, and the culprits abandoned the project, taking approximately $2.9 billion in cryptocurrencies (BTC, ETH and EOS) with them. Six of the 109 individuals arrested in connection with the scheme have since been charged by the Chinese authorities.”

Hack attacks to continue
With the rising prices of top cryptocurrencies like Bitcoin – at its second highest price point ever ($16,760) as at this writing – there are indications that their adoption is becoming mainstream as millions of new users are reportedly entering the market every year despite the complexity of crypto infrastructure that overwhelms new and existing users. The recent entry of PayPal into the cryptocurrency market is considered to be a true indication of mainstream adoption.

The crypto market is experiencing rapid growth and is expected to continue growing considering the increase in the number of internet users which, going by recent trends, is projected to double from 3 billion to 6 billion in the next three years as many underserved markets could open up to cryptocurrencies as they seek alternatives to the traditional world of financial services. The Crystal Blockchain team expects the market growth to translate to more hack attacks even as they cite the utilizing of a security breach in the internal security systems of a cryptocurrency exchange, resulting in the illegal gaining of access to the hot wallets of these cryptocurrency services, as the most notable type of cyber-terrorist attack. Their report states:

“Over the next couple of months and years, due to the fact that the number of blockchains keeps growing, and the methods and technologies utilized by illegal hackers continue to become more sophisticated and advanced, we can assume that the number of hack attacks will also continue to grow.”

As cryptocurrency adoption continues to grow, they add, it will be imperative that anyone involved in crypto compliance and regulation has the tools to hand to visualize and analyze interactions between the largest publicly operating Virtual Asset Service Providers (VASPS) most of which are said not to have yet been able “to develop sufficiently reliable security systems to minimize security breaches on their platforms.”

Exchanges in US, Singapore, and UK have most KYC deficiencies
A related analysis of the KYC (Know Your Customer) processes of over 800 crypto exchanges from over 80 countries by blockchain analytics firm CipherTrace shows that 56% of VASPs around the world have weak or porous KYC with Europe having the highest count of VASPs with deficient procedures. The analysis shows that 60% of the top 10 worst KYC countries in the world are in Europe, 20% are in Latin America and the Caribbean, and the remaining 20% are in APAC countries. The US, Singapore, and the UK lead by countries to demonstrate the ease and volume of potential off-ramps for money launderers.

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