Centralized exchanges have been a favorite tool for cybercriminals to hide their illegal tracks. However, most CEXs have been forced to tighten their security measures over the last few years, a move that has helped curb the amount flowing into these platforms.
A recent report by BanklessTimes shows that CEXs popularity dropped drastically in 2021, with the platforms only receiving 15% of the $3.2 billion of the year’s illicit funds.
The year saw many of these platforms enforce stricter AML and KYC checks, which is probably what drove hackers away since they are no longer anonymous on these platforms.
Largest CEX theft surpassed $600 million
Notably, the biggest crypto thefts since last year have resulted from attacks on DeFi protocols. However, centralized exchanges still recorded a significant amount of stolen crypto assets.
Three centralized exchanges feature on the list of the biggest thefts of 2021 to date. In early August, the Poly Network hack saw the hacker make away with about $613 million worth of crypto assets.
However, in an exciting swing of events, the hacker returned most of the stolen funds two weeks after the incident, claiming that he had put the cryptos in a ‘trusted account.’ He claimed he had only taken the funds to highlight a bug in the network’s code without giving anyone else a chance to exploit it.
Another significant attack on a centralized exchange occurred in December when the crypto exchange BitMart lost about $200 million due to a security breach. The exchange had two of its hot wallets compromised after the hacker stole a private key.
A few days later, Vulcan Forged, a popular crypto gaming ecosystem, had 96 of its private keys stolen, which saw the platform lose $140 million in crypto assets.
CEXs tightening AML and KYC procedures
Just as digital currencies have changed the way we view money, they have revolutionized money laundering crimes. Despite showing up on the scene in 2009, AML guidance by the Financial Task Force only started publishing AML guidance on crypto assets in 2014.
Eight years later, several financial regulators worldwide have some semblance of guidance on AML and KYC procedures necessary for trading and using cryptocurrencies.
Having effective procedures in place helps deter criminals since the exchanges become riskier and less profitable. Besides, financial authorities are better placed to trace and catch cybercriminals.
The debate on whether AML and KYC processes serve more good than harm has been long-standing. Although many crypto enthusiasts argue that these regulations beat the point of cryptos’ anonymity feature, we cannot deny that they are absolutely necessary if we are to weed out the criminals from the crypto sphere.
