The surge in digital finance and the advent of cryptocurrencies has birthed an age of decentralized, peer-to-peer transactions. However, the anonymous nature of cryptocurrencies also attracts fraudulent activity, creating a new arena for theft and scams, especially when people trade crypto. This guide provides an overview of how to recover stolen cryptocurrency, outlining the investigation process, resources available to victims, and measures that law enforcement agencies and cryptocurrency exchanges take to deal with stolen crypto assets.
The Scope of Cryptocurrency Theft
With the wider adoption of blockchain technology, the incidences of cryptocurrency theft and crypto scams have skyrocketed. Crypto assets, including bitcoin, have been targeted on multiple occasions, affecting both individual wallet providers and cryptocurrency exchanges. It's estimated that nearly $10 billion worth of cryptocurrency, from Bitcoin to other digital currencies, was stolen between recent and past unresolved events and cryptocurrency scams like the infamous Mt. Gox hack.
Read also: North Korea stole a record amount of crypto in 2022
According to blockchain analytics firm Chainalysis, in October 2022 alone, which has been so far the worst month for DeFi (decentralized finance) hacks, attackers managed to get away with a record $718 million in crypto stolen across 11 different attacks.
The largest crypto heist to date occurred in late March 2022, when unknown attackers stole $540 million in digital assets from Ronin Bridge created by Sky Mavis for a popular play-to-earn game Axie Infinity. The sophisticated attack targeted the company's employees with a fake job offer, enabling the thieves to compromise five out of nine network's private validator keys. Later it was confirmed by the FBI that the actors behind the hack were associated with the two notorious North Korean cybercrime gangs, Lazarus Group and APT38.
Recovering Stolen Cryptocurrency: Services like ReclaimCrypto
To address the challenges posed by malicious cyber activities, services such as ReclaimCrypto have emerged to assist victims in getting back Bitcoin and other stolen cryptocurrencies. Coinfirm, a blockchain analytics firm, partners with Kroll, a global investigation firm, in this initiative. They combine blockchain forensic techniques and traditional legal investigation to recover stolen bitcoin and other stolen cryptocurrencies.
Coinfirm's approach is rooted in anti-money laundering practices within crypto networks. They analyze crypto exchange and transaction histories using advanced algorithms and big-data analytics. Kroll, on the other hand, uses more conventional methods, including court orders to reveal details about IP addresses or employing former FBI and CIA operatives to explore the dark web for stolen funds.
Furthermore, ReclaimCrypto can potentially arrange third-party litigation funding. This means specialized finance firms shoulder the cost of people’s litigation. In return, they take a percentage of the recovered funds, typically around 30%, and return the rest to the victims.
Steps to Take if Your Cryptocurrency is Stolen
If you find yourself a victim of cryptocurrency theft, it's crucial to act promptly. Here's a brief guide on how to proceed:
Report to the platform: Report the incident immediately if the stolen assets were taken from a cryptocurrency exchange or wallet provider. They may be able to assist or provide valuable information for investigation.
Document everything: Keep a record of your transaction history, wallet addresses, and any suspicious activity you've noticed. This relevant information can be valuable for subsequent investigations.
Reporting the Theft to Authorities: Whenever a Bitcoin is taken from the market or stolen, you must inform the relevant government. Hopefully, that's how we can start investigating and improving the possibility that someone will recover your money. In almost every instance, you can contact an authorized police or cybersecurity unit. This person can be helpful in obtaining a police report if they suspect theft. These could include transactions, screenshots, and emails from a malicious person. If you have any funds stolen, you can contact a cryptocurrency wallet exchange or cryptocurrency exchange.
Engage a recovery service: If the amount stolen is substantial, consider hiring a service like ReclaimCrypto. They have the expertise and resources to conduct a thorough investigation and can liaise with law enforcement on your behalf.
Alert the community: Use social media and cryptocurrency forums to alert others about theft. The tight-knit cryptocurrency community can often provide support, advice, and even aid in tracking stolen assets.
Stay vigilant: Often, thieves will attempt to access more than just your cryptocurrency. Change all your passwords, enable two-factor authentication, and monitor your accounts closely for further suspicious activity.
While the theft of cryptocurrency can be a daunting and distressing experience, remember that there are resources and services available to aid in the recovery of lost funds. And most importantly, don't lose hope. With the continuous advancements in blockchain analysis and cybercrime investigations, the chance of recovering stolen cryptocurrency is consistently growing.
Law Enforcement and Stolen Cryptocurrency: The Bitfinex Case
Law enforcement agencies have been instrumental in helping to recover stolen cryptocurrency. A notable instance is the 2016 Bitfinex hack, where a hacker stole nearly 120,000 Bitcoin worth $3.2 billion at today's prices.
Read also: How to trace Bitcoin wallet address?
The U.S. Department of Justice mounted an impressive effort to recover the stolen cryptocurrency, culminating in the largest-ever seizure of stolen Bitcoin. Thanks to the transparent nature of the blockchain, the investigators were able to track the money and arrest alleged launderers, Ilya Lichtenstein and his wife Heather R. Morgan.
National Cryptocurrency Enforcement Teams
In response to the growing threat of crypto theft, the US Justice Department launched a National Cryptocurrency Enforcement Team. This group specializes in identifying, tracing, and seizing criminal proceeds held in cryptocurrency reserves. In its short existence, the team has already made significant progress in recovering stolen cryptocurrency, including a $2.3m worth of Bitcoin seizure related to a ransom paid by the Colonial Pipeline company after a highly publicized ransomware attack that damaged the company's infrastructure.
“Ransom payments are the fuel that propels the digital extortion engine, and today’s announcement demonstrates that the United States will use all available tools to make these attacks more costly and less profitable for criminal enterprises,” Deputy Attorney General Lisa O. Monaco stated in a press release at the time. “We will continue to target the entire ransomware ecosystem to disrupt and deter these attacks. Today’s announcements also demonstrate the value of early notification to law enforcement; we thank Colonial Pipeline for quickly notifying the FBI when they learned that they were targeted by DarkSide.”
Bottom line
The theft of cryptocurrency can be a daunting experience. However, there are resources and services available to aid in recovery. By promptly reporting thefts, documenting all relevant activities, engaging recovery services, and alerting the community, you can increase your chances of recovering your lost or stolen cryptocurrency. Always remember to maintain your digital assets' security, by securing your private keys and wallet addresses, to mitigate the risk of falling victim to such incidents.
