Since the internet boom in the 1990s, we have seen several technologies evolve. Things that seemed impossible decades ago have become reality; technologies are turning the world into one tiny, global village. Disruptions have taken place in just about every sector, and the wind of change is blowing through the financial sector as we know it. As the world moves away from cash to wireless payments (think Google, PayPal, Stripe, etc), we are seeing increasing adoption of cryptocurrencies. 

Although cryptocurrencies have achieved increased adoption and global attention in the last decade, a negative cloud is forming. This cloud is the susceptibility of individuals, crypto exchanges and DeFi protocols to hacks and thefts. As a result of this cloud, several crypto investors have lost — and continue to lose — large quantities of their crypto assets. In the first half of 2022 alone, data from Forbes show that losses from crypto thefts, fraud, and hacks amounted to almost $2 billion. In 2020, this figure for the entire year was $1.9 billion. We have seen 175 hacks in 2022, almost double the 90 we saw in H1 2021. 

So, what are the steps to recover your crypto if stolen? In this complete guide, we delve into the den of thieves. We take a look at pointers to a possible hack and/or theft, ways in which hackers and thieves operate to steal crypto, how you recover your funds, and how to prevent future breaches. That said, let’s get right to it. 

How Do You Know Your Crypto Wallet(s) Have Been Hacked?

Most hackers operate by prowling different protocols and exchanges, looking for weaknesses to exploit. While technological advancements are making crypto wallets more secure than they have ever been, crypto thieves still use social engineering schemes such as hacks and phishing scams to have their way. 

How do you know that your wallet has been compromised? Simple: if you notice unauthorized transactions with your wallet (especially outflows), then hackers may have found their way into  your wallet. If you have set up notifications for transactions on your wallet, you may be better placed to spot criminal transactions quickly and nip them in the bud. 

5 Ways Your Crypto Assets May Be Stolen

1) Compromising Your SMS verification Process

Crypto thieves who adopt this mode of attack specifically target people who operate with cryptocurrencies a lot. When you use a centralized exchange, very often the Two-factor authentication is enabled on your mobile phone. Usually, the aim of a thief here is to intercept SMS verification codes from the centralized exchange. This compromise can occur via different means such as cloning, cloning your SIM card, voice phishing, or wiretapping. Once compromised, they use these codes to obtain access to your crypto wallet. 

2) Malware

Malware never stops being a part of the toolbox of cyber thieves and hackers. Malware infections are still popular among crypto hackers, and they remain potent against weakly secured crypto assets. How does malware work? Simple: cyberthieves infect devices with keyloggers that steal your passwords and PINs. When the legitimate user of a password or PIN enters it into a website, these malware infuse cross-scripting infusions into webpages. The passwords or PINs are then redirected to different malicious websites which are often not noticeable or traceable by your browser. These malicious websites either download the malware or ransomware to a hackers’ device, or they harvest your sensitive details. You can protect yourself against malware by reading about it here.

3) Phishing Attacks

This is the most popular and arguably the most effective way crypto thieves and hackers operate. With phishing, the potential victim gives access to their vaults by themselves, tricked by forged information that looks like legitimate emails, and authentic websites of cryptocurrency exchanges. Usually, to increase the potency of a phishing attack, the attackers send “confirmation” emails to unsuspecting asset owners. 

These emails contain links that take users to fake websites where they would have to input their authentication details. These details are then stolen and used to carry out transactions via the wallet. Detecting potential phishing attacks requires you to carefully and attentively check domain spellings (for example, a phishing email may require you to click on a link to opensea.com, whereas the legitimate website is opensea.io). Also, a Secure Sockets Layer Certificate (that little padlock on the left side of the address bar of a webpage) must be present before you enter sensitive information. 

4) Stealing Your Secret Keys

Usually, no financial operation(s) occur with a cryptocurrency without two kinds of keys: private and public keys. Private keys are only available to their owners and they validate all transactions carried out by such owners. Public keys are used to confirm private keys. Private keys are stored in respective crypto wallets, and if the owner of a wallet loses their key, the assets are inaccessible forever. By stealing your private key, a thief can transfer all your crypto assets to a different wallet and you could lose them forever. 

Hot wallets are also a lucrative field for thieves as these wallets usually run with CEXs (think Binance or Coinbase wallets). Cold wallets, on the other hand, exist as small hardware devices. They are usually more secure than hot wallets because of their hardware encryption. 

5) Mobile Applications With Poor Security Infrastructure

Although many crypto asset holders do not know this, not many exchanges and trading applications are secure. This could be as a result of poor architecture or security backdoors, making them susceptible to cyberattacks. Often, these platforms are also susceptible to data leakages such as API keys and sensitive information of users that may have been stored in unencrypted databases. When these attacks occur, crypto assets stored on these exchanges and applications may be stolen by the hackers. 

How to Recover Your Stolen Crypto: A Comprehensive Guide 

This guide will explain what you can do if you lose your assets to crypto thieves, as well as how to avoid becoming a victim in the future.

Before you set out to recover your assets, it is important to first determine if recovery will be worth it. Because it is expensive to try to recover stolen crypto assets, it is important to weigh your options before going that route. It is up to you whether it is worth the while to get professional help or simply let these assets go. This is especially true if your investment portfolio isn’t largely made of crypto assets. 

That said, these 3 tips can help you get back your stolen crypto assets: 

#1. Use a Bounty Hunter or Recovery Service 

There are websites that allow you to post bounties if you are willing and able to pay reasonable amounts to get your funds back. A blockchain locator expert will investigate the theft and determine if the assets are recoverable for a given price. Bitcoin Bounty Hunter is a great place to start with the recovery process. It is important to note, however, that these services are often expensive and often do not provide additional information beyond what is publicly available.

You can also use blockchain explorers like SnowTrace (for the Avalanche blockchain) and BscScan (for the Binance blockchain) to track movement of crypto and potentially identify the owner of the addresses that are used to move the stolen crypto. 

#2. Contact the Police (Where Applicable)

While official complaints won’t help you recover stolen cryptocurrency, filing some paperwork or having a case number is not entirely a bad idea. You never know if you will end up with an insurance claim or a lawsuit. Evidence that shows that you took the theft seriously can help if you need to prove that you are right. 

P.S: Contacting the authorities may not yield any results if your country of residence has either outrightly banned cryptocurrencies or do not recognize them as legitimate financial assets. It may prove counterproductive to report, as this act may land you in hot water with the authorities. 

#3. Contact the Exchange Involved 

If you discover that your crypto assets have been stolen due to an attempt to hack your account, you should act immediately. Delaying the tracking process allows hackers to cover their traces by transferring your assets to cold wallets and subsequently to another exchange.

If your exchange is well known, you are more likely to get help. If you take action quickly, you can freeze your assets on the platform, depending on the stage or magnitude of theft. However, note that exchanges are not mandated by law to help. Additionally, the governments of some nations do not consider cryptocurrencies an asset, which may reduce the likelihood of government support. To get across to your exchange, simply check out the Contact Us page on the exchange’s website. 

5 Tips That Can Help You Prevent Future Theft

Here are a few tips that can help you prevent future loss of your crypto assets to thieves:

1. Enable Multi-factor Authentication

First, make sure multi-factor authentication is enabled on your exchanges. Use an authenticator app (like Authy or Google Authenticator) instead of SMS. Where it is possible to operate without the SMS authentication option, you can turn it off. Set up your encryption account using a different email address from your primary email address and unique password. We recommend that you create a new email account that will only be used for cryptocurrency accounts and transactions. This reduces the likelihood that your email will be used as a target against you.

2. Use A Hard or “Cold” Wallet And Spread Assets Across Different Exchanges

Store your cryptocurrencies offline in a cold or hard wallet. With cold wallets, your private keys that give access to your tokens are “cold stored”, i.e., they are stored on a hardware device that is not connected to the internet. Usually, private keys can either be stored by hardware encryption (cold wallets) or software encryption (hot wallets). With software encryption, there is always the risk of cyberattacks where your funds could be drained, like the Solana attack that drained over 8,000 wallets of about $8 million. 

Additionally, several crypto exchanges have been the subjects of hacks and thefts recently. Spread your investments across different centralized and decentralized exchanges to reduce the chance of your funds being stolen.

3. Keep Your Wallets Safe 

The extra layer of security may make it a bit difficult to complete tasks in your wallet, but it is important if you want to protect your funds from intruders. So, if you own a crypto wallet, make sure there are adequate security checks in place, and use them whenever possible. After all, no security measure is out of the question when your valuable crypto assets are at stake.

4. Improve Your Overall Security Apparatus 

Take the time to improve the overall security of the exchanges and gadgets you use to interact with your crypto assets. Learn more about gadget security and how you can improve it. 

5. Protect Your Remaining Assets

If there are any of your crypto holdings left in any compromised wallet, it goes without saying that you should move them out immediately when you realize that they have been compromised. Delete such wallet(s) and get a new one to replace it. Change the PINs, passwords and secure codes associated with your account on the affected exchange immediately. Change the email account connected with the account immediately. If there is any reason to believe the device you used to log in to your account is compromised, please reformat the device or, better still, quit using it altogether for crypto transactions. 

Final Words…

It sucks to have your hard-earned crypto assets stolen. Worse still, sometimes these crypto assets may be worth thousands or millions of dollars — more than many will ever make in their lifetimes. However, recovering your funds and preventing a recurrence of such is more important. If you follow the tips provided in this guide, you are unlikely to become a victim of crypto thefts (at least not to devastating proportions).

This article is written by Chidera Anushiem as a part of enter.blog's bounty program. Do you have an interesting topic, series or subject you think would be fitting for enter.blog? 

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