DeFi hacks are nothing new in the blockchain space. Ever since the introduction of blockchain technology, there has been a race of people trying to innovate and protect the space as much as possible, as well as bad actors that aim to essentially exploit it and hack it for personal gain.
However, this trait isn't exclusive to the blockchain space and is a part of just about any industry.
To help users protect themselves as much as possible from these DeFI hacks, we will be going over some of the most recent exploits and then looking at how anyone can protect their cryptocurrencies as much as possible.
BitKeep Wallets and Defrost Finance Hacks
On December 26, 2022, users of the multi-chain cryptocurrency wallet known as BitKeep reported that their funds were being drained, after which they were transferred whilst they were not using their wallets.
The official Telegram group of BitKeep confirmed that some APK package downloads were hijacked by attackers, which featured code that was implanted. According to data from the blockchain security and analytics firm Peck shield, more than $8 million in Tether (USDT), DAI (DAI), BNB (BNB), and Ether (ETH) got stolen.
Alongside this, Defrost Finance, which is a Decentralized Finance (DeFi) protocol that suffered a huge hack throughout the week, ended up losing $12 million of user funds. They announced afterward, however, that they managed to recover the stolen money.
The hacker involved with the V1 hack returned the funds, and the company released a wallet address with the funds in question.
Based on these two recent examples, it is clear that DeFi hacks are nothing new and will not go away anytime soon in the DeFi space. However, some companies have indeed managed to recover funds, which is an excellent overall outcome. In any case, keeping cryptocurrencies as protected as possible is essential, so let's go over how anyone can do so.
Protecting Your Cryptocurrencies and DeFi Wallets
For blockchain platforms to truly prevent and protect themselves from any future DeFi hacks, smarter smart contracts are required. Specifically, the current smart contracts that are utilized to govern DeFi feature exploitable code, and for the hackers that understand this, the code plays a major role in how they can execute these exploits.
Most companies combat this by hiring reputable smart contract auditing firms. However, there is never a 100% guarantee with any code that it cannot ever get compromised. Remember, anything connected online has a slim chance, no matter how slim, of getting compromised.
To protect from DeFi hacks, each user will need to understand what kinds of wallets exist. There are custodial, on-exchange wallets and non-custodial, off-exchange wallets.
In private cryptocurrency wallets, users have full control and ownership over their cryptocurrencies, as only they have access to the private keys. However, in custodial, on-exchange wallets, the exchange has access to the keys, and if it gets compromised, so will the wallet.
However, even private wallets can be hacked potentially through phishing or exploits, so the best way to protect cryptocurrencies is through the usage of hardware wallets.
Even if a trader sticks with an on-exchange wallet, they can enable two-factor authentication (2FA) or biometric verification to ensure a much higher level of security. Avoiding opening phishing links is always essential, so never open a wallet or sign a transaction on a URL that looks a bit fishy or unofficial.
Hardware Wallets and Their Role in Cryptocurrency Protection
Hardware wallets are just about any cryptocurrency wallet that can be completely disconnected from the internet or from a computer device it is connected to. In other words, these are physical objects, in the form of a USB, for example, or an external hard drive, which are encrypted, and can connect to a computer through a USB cable or wirelessly.
The main advantage they have when compared to other types of wallets is that they can get completely disconnected, and once the USB cable is removed or the connection is turned off, it is fully impossible for anyone to be capable of remotely gaining access to the cryptocurrencies stored on it.
The only way they could get stolen, or compromised, is if someone would physically find the device and steal it and then have the technical know-how to decrypt it.
In any case, the most advanced hardware wallets will typically include fingerprint verification or other forms of additional protection.
Any cryptocurrency investor or trader has the responsibility of keeping their balance as secure as possible, and the best way to do this is to keep at least a specific percentage of their portfolio in such a storage device.
Not that everyday traders still need to have some crypt on-exchange or in a custodial wallet, as consistently pushing them to a hardware wallet and on-exchange, bank-and-forth, will lead to a lot of transaction fees and would make their strategies not profitable.
As such, it is a good idea to have a small percentage of cryptocurrencies in exchange for everyday operations or in a non-custodial, online hot wallet, while the most important ones, intended to be held long-term, remain in hardware or cold wallet devices.
Moving Forward With Using DeFi Services
No matter what kind of online wallet you end up using to store your cryptocurrencies or how well-protected the DeFi platform you are using is, there will come a point in time when someone might slip up, and things can get hacked, compromised, or exploited.
But, at the point in time when a trader or investor takes the time to automate things and protect themselves efficiently, even if a platform gets compromised, their crypto can remain secure.
When trading, it is essential to have a strategy, and you can make automatic withdrawals from an exchange, for example, with ZenDCA, which can automate the process. This way, even if you forget, the automation tool will provide you with access to set up withdrawal schedules and keep your crypto as safe as possible.