We have good and bad news for anyone who wants to recover stolen crypto. If hackers steal your crypto from your custodial wallet, things can get a little tricky – bad news. On the other hand, if you’re following crypto stolen from a cryptocurrency exchange wallet, there’s some chance you could get your funds back – good news. Ironically, the larger the amount of crypto stolen, the better the chances the authorities and exchange could pursue the thieves. In this article, we interrogate whether tracking down and recovering your stolen cryptocurrency is possible. Welcome on board!
Can Anyone Recover Crypto Stolen from a Cryptocurrency Exchange?
You don’t have to have been in the crypto world for long to have read about infringements and hackers stealing billions of dollars’ worth of cryptocurrencies from centralized crypto exchanges. Strangely, despite the large amounts of money involved in some cases, incidents surrounding crypto stolen from centralized exchanges lack the drama associated with bank robberies, meaning they rarely make it to the mainstream headlines. The cryptocurrency market is still relatively new, and the question of recovering stolen crypto is rife. If you’re a crypto investor, the prominent question gnawing at the back of your mind must be: If my chosen crypto exchange gets hacked … would I get my money back?
How Cryptocurrency Exchanges Work
Cryptocurrency exchanges are like your normal exchange bureau. They set a price for different currencies and take a commission to allow users to trade on the platform. However, unlike traditional cash, cryptocurrencies offer a certain degree of security as a result, in part, of encryption. Unfortunately, people working at crypto exchanges that manage your crypto holdings can sometimes leave a few flaws that give hackers a foothold. When you combine human error with the fact that crypto market volatility sometimes leaves centralized exchanges holding a fortune, they become a prime target of criminal hackers.
The exchanges mostly store most crypto assets in cold wallets, meaning they are offline and relatively safe from hacking. Nonetheless, they keep a certain amount of cryptocurrency in liquid wallets that remain accessible to users. As a result, when there’s a security breach, and a hacker gains access to an exchange employee’s account, such as by stealing their private keys, they can pull off a heist and disappear with users’ crypto assets. Unfortunately, only a few cryptocurrency exchanges have an emergency fund they can use to compensate customers if there is a hacking incident.
Why is it difficult to trace stolen cryptocurrency?
There’s no doubt that cryptocurrency is real money. However, you can’t hold it like normal cash. That’s because digital money is only available on the blockchain. Besides being digital and intangible, governments or banks don’t control crypto. Moreover, it mostly remains anonymous and doesn’t use physical notes. Tracing crypto may be possible but not as easy as it is with conventional money.
The Danger of Bearer Assets
Crypto users and investors mostly trust digital wallets and centralized crypto exchanges to help them carry out cryptocurrency transactions securely. As a result, tracing lost or stolen crypto becomes a tricky affair because cryptocurrency is a bearer asset. This means that the person holding the private keys is technically the owner. Should anything go wrong, you must demonstrate proof of ownership, especially if you lose your private keys or someone steals them.
Can you Trace Crypto assets on the Blockchain?
Using hashes, the blockchain ledger can trace every cryptocurrency transaction. Since the distributed ledger technology allocates a unique hash, which can be as unique as a fingerprint, to every crypto block, it’s possible to trace the crypto in each block, including any crypto stolen from centralized exchanges.
In theory, authorities could help you recover stolen crypto. Using this concept, one may think that an expert can change the hash of a cryptocurrency block after it’s complete. However, it’s not as simple as it sounds, requiring plenty of technical skills and computing power. Even if that was possible, blockchains regularly updated their networks, meaning that they could still overwrite the changes and still manage to trace any transactions.
If Your Crypto Exchange Is Hacked, Will You Recover My Crypto?
The most common scenario where crypto can get stolen is when you send a certain amount of cryptocurrency to a centralized exchange for trading. If the exchange stores your crypto assets in a hot wallet, it is vulnerable to hacking. Should hackers breach the system, they can access the exchange’s hot wallet and transfer your crypto somewhere else.
If your chosen crypto exchange was established and had some insurance policy, you could get lucky enough to receive a reimbursement. However, depending on their capability, they could still track down the funds to their destination and pursue those who stole them with help from experts and authorities. Current technology is available on the blockchain to track and recover stolen crypto.
Moreover, authorities can use the transparency of the blockchain to identify which stolen cryptocurrencies belong to which victims during those large-scale hacking incidents. Authorities can use the blockchain to identify the original owners of the stolen cryptocurrencies. That means that theoretically, it is now possible for authorities to follow and recover stolen crypto assets from hackers even if they stored them in a cold wallet.
The technology that enables tracing stolen cryptocurrencies is still new, and authorities are still trying to get up to speed. However, it’s important to mention that very few people have received their stolen crypto back. You’re, therefore, safer using cryptocurrency exchanges that take precautionary measures to avoid hacking in the first place.
While recovering funds stolen from decentralized exchanges isn’t easy, there are several cases where funds were recovered. Some of the most prominent ones include:
- South Korean crypto exchange Bithumb lost approximately $7 million in a 2017 hacking incident. The platform recovered at least $1 million of the stolen crypto.
- Japan-based Coincheck crypto exchange lost $530 million to hackers in 2018 and managed to recover up to $400 million.
- DragonEx, a Singaporean exchange, recovered about $1 million from $7 million lost to hackers in a 2019 crypto heist.
- In all these cases, the platforms hired cybersecurity firms and collaborated with government authorities to pursue the stolen funds. However, recovery may be impossible in some cases.
What to Do If Your Crypto Assets Are Stolen
Should the unexpected happen, and you happen to lose your private keys or your crypto assets get stolen, the following are a few things you can do to try and seek recourse:
Contact the Exchange
Suppose you had kept your crypto assets with an established, well-known cryptocurrency exchange. In that case, they would have known what happened and could already be establishing a recovery mechanism. Should that be the case, the exchange would work hard to understand the situation and recover the stolen funds. However, since the insurance issue is still unclear, you may not receive all your assets back. And if that’s the case, there are also chances that you’re not the only victim.
Hire a Crypto hunter.
These days, there are crypto hunters whose business is to seek and recover lost or stolen crypto from centralized exchanges on behalf of victims. Using specialized software to generate millions of potential passwords, crypto hunters work with crypto holders and law enforcement agencies to try and locate misplaced, inaccessible, or stolen cryptocurrencies at a fee. Crypto hunters are also helping recover lost private keys or forgotten passwords.
Conclusion
Most people have read at least one nightmarish story about investors losing a fortune’s worth of cryptocurrency stolen from centralized crypto exchanges. If you’ve been unlucky enough to become a victim and are wondering whether there’s anything that you can do to recover your crypto assets, the answer is YES and NO.Luckily, just like crypto hunt experts recovered crypto paid to hackers during the Colonial Pipeline incident in the U.S. a few years ago, there’s a slim chance you could get back. Still, the process could be complicated for most average crypto holders. Remember, though, that the success of any method used to try and recover crypto stolen from a cryptocurrency exchange will vary based on specific circumstances and the actions that you and the affected exchange will take.
