Biggest year ever for crypto hacking - with North Korea the suspected culprit

2022 was the biggest year ever for cryptocurrency hacking, with more than £3.2bn stolen worldwide, according to new research.

October alone saw £629m taken – the most recorded in a single month.

It helped the overall year dwarf 2021’s previous high of £2.7bn, although the total number of hacks fell slightly.

The annual report by Chainalysis, a blockchain analysis firm which sees its data used by governments, banks, and businesses worldwide, says the activity was largely driven by hackers based in North Korea.

Kim Jong Un’s regime has repeatedly been accused of hacking cryptocurrencies to make money and evade international sanctions, even using stolen digital assets to fund its missile programme.

In 2022, Chainalysis says hackers associated with Pyongyang – notably criminal syndicate Lazarus Group – stole an estimated £1.4bn in cryptocurrency assets, breaking their own record.

Researchers have previously linked the group to the regime, though it is not known whether it is part of the government’s own operations or an external hire.

The amount of crypto thought to have been stolen hugely outweighs North Korea’s total annual exports, which latest figures from the Observatory of Economic Complexity put at £115m for 2020.

“It isn’t a stretch to say that cryptocurrency hacking is a sizable chunk of the nation’s economy,” said Chainalysis.

Where was the money stolen from?

The biggest victims of crypto hacks in 2022 were within decentralised finance protocols, which is essentially when investors cut out the middle man – like a bank or exchange – and transfer funds directly between digital wallets.

It’s becoming increasingly popular as it’s considered more transparent, which people are placing more value in following the collapse of major crypto platform FTX.

But according to Chainalysis, these so-called DeFi protocols made up 82.1% of crypto stolen by hackers in 2022, totalling more than £2.5bn.

David Schwed, of blockchain security company Halborn, said DeFi developers should not be afraid of looking to traditional centralised systems for inspiration in making themselves safer to use.

“You don’t need to move as slow as a bank, but you can borrow from what banks do,” he said.

UK’s ‘encouraging’ regulation plans

The report comes as the UK government unveils proposals to regulate crypto, as the market seeks to regain the confidence of investors spooked by an exceptionally volatile period.

Under the plans, which would bring the industry more in line with traditional financial systems, crypto platforms would become responsible for defining the demands that a currency must meet before being admitted for trading.

Exchanges will also be held accountable for safely facilitating transactions and keeping customer assets safe.

Jordan Wain, UK public policy lead at Chainalysis, told Sky News the regulation was welcome.

“It is encouraging to see the prominent thread of consumer protection running through these plans, which evidence a clear intent to tackle potentially abusive behaviours,” he said.

But he warned that tougher rules must not harm the industry’s “potential for innovation and growth”.

The proposals, which come less than a year after Rishi Sunak said he wanted the UK to become a “global crypto asset hub”, will go out for consultation before coming into force.