What is the reason behind the increased inclination of crypto hackers to return stolen funds in the first half of 2023?

The crypto market has experienced an unexpected turn of events in the first half of 2023. Cybercriminals, who have always targeted the crypto market, have surprised many by starting to return the stolen funds. This trend has grown significantly this year, leading to speculation about whether hackers are unintentionally supporting the growth of the crypto market by identifying vulnerabilities.

During the first quarter of 2023, cryptocurrency attacks resulted in thefts of around $400 million across nearly 40 incidents. This represents a significant 70% decrease compared to the same period in 2022. Interestingly, the total value stolen in Q1 2023 was lower than any quarter in the previous year. The decline in the stolen amount was even more noticeable than the drop in cryptocurrency prices during the same period.

In the second quarter of 2023, crypto hacks and exploits led to the loss of over $300 million in digital assets. A total of 212 security breaches occurred during this period, resulting in malicious entities extracting a total of $313,566,528 from Web3 protocols. Compared to the second quarter of 2022, which saw a loss of $745 million, this quarter marked a 58% reduction in the total amount lost.

The most intriguing aspect of this trend is that hackers have started returning the stolen funds and opting for a “white hat” reward offered by the compromised projects. In 2023, victims of these hacks managed to recover almost half of the stolen funds.

For instance, the individual who stole $61 million from Curve Finance, a decentralized exchange, has partially returned the stolen cryptocurrency after discussions with one of the victims. Through an Ethereum blockchain transaction, the perpetrator requested Alchemix, one of the victims, to verify the protocol’s address for the return of the assets. Subsequently, the individual transferred nearly $10 million worth of Ether (ETH) and alETH to Alchemix’s multi-signature wallet through several transactions.

Another example involves JPEG’d, a protocol for nonfungible tokens (NFTs) and decentralized finance (DeFi). The hacker who targeted Curve Finance returned 5,495 Ether, valued at approximately $10 million, in exchange for a bounty of 610.6 ETH (around $1.1 million).

There have been other instances where hackers have returned stolen funds. The attacker who manipulated the TenderFi protocol returned half of the $1.6 million acquired from the attack and received an $850,000 bounty from TenderFi. Similarly, the hacker responsible for the exploit of the Euler lending protocol returned the entire $200 million worth of stolen cryptocurrency.

One possible reason for this trend could be the increasing regulatory scrutiny and high-profile enforcement cases surrounding crypto hacks. Cryptocurrency exchanges are tightening their Know Your Customer (KYC) and Anti-Money Laundering (AML) policies, making it more difficult to liquidate stolen coins. Additionally, the Ethereum mixing protocol Tornado Cash has been under U.S. sanctions since August 2022, resulting in the blacklisting of all Tornado-related funds on regulated exchanges.

The arrest of Avraham Eisenberg, the first individual to be apprehended for a DeFi exploit, may also be acting as a deterrent. Eisenberg openly confessed to manipulating the Mango Markets protocol and was arrested in Puerto Rico in December.

Another hypothesis suggests that hackers are sympathizing with crypto projects and assisting in their development. A significant hack on a crypto project can jeopardize its objectives, roadmap, and future, as well as impact users’ funds. In a message, the Curve exploiter expressed remorse towards the affected projects, stating that the funds are being returned not because they can be found, but to avoid ruining the project.

Unfortunately, this decrease in crypto thefts is unlikely to be a lasting change. The nature of crypto hacks and the patterns observed in the past indicate that this is likely just a temporary break. The total amount stolen can fluctuate greatly from month to month, with a few major attacks contributing the majority of stolen funds. Additionally, looking at individual six-month periods does not accurately predict the amount lost to hacks over the entire year. In 2022, there was a record number of hacks, resulting in the highest amount of stolen money ever.

Tags: Bitcoin, Blockchain, Crypto Regulations, Cryptocurrency, DeFi, Ethereum, Hack