Cryptocurrencies have exploded in popularity in recent years due to their decentralized nature and potential for high returns on investment. However, with the increase in adoption comes an increase in incidents of cryptocurrency theft.
The lack of regulation and the anonymous nature of transactions makes it a prime target for hackers and cybercriminals.
You can secure your crypto assets with measures like using hardware wallets and two-factor authentication. But, despite taking necessary precautions, cryptocurrency theft and hacks can still occur, resulting in significant losses.
In such situations, knowing how to recover stolen cryptocurrencies can help mitigate the damage and potentially retrieve lost funds. Here’s how you can increase your chances of recovery.
Common Types of Cryptocurrency Theft
From what we’ve seen in the crypto space, the most common types of thefts include:
Hacking is one the most common forms of crypto theft, where cybercriminals gain unauthorized access to your account. Once they have access, they can transfer the cryptocurrency to their own wallets.
In 2014, Mt. Gox, a popular cryptocurrency exchange, lost 850,000 Bitcoins to hackers that gained access to the company’s internal systems. This eventually led to Mt. Gox’s bankruptcy.
In this type of attack, hackers create fake websites or emails that mimic legitimate cryptocurrency exchanges or wallet providers.
They will try to trick you into sharing their login credentials or private keys, which they’ll then use to steal your crypto assets.
In 2021, Ledger — a popular hardware wallet provider — suffered a data breach that exposed users' email addresses and home addresses. This increased phishing attacks against Ledger’s customers as the hackers had more info to sound legitimate.
This is where hackers will use social media, forums, or other online platforms to lure you into investing in fraudulent cryptocurrency projects.
Once they raise enough money, they’ll disappear, leaving investors with worthless tokens.
In 2018, the founder of a cryptocurrency startup called Centra Tech was arrested and charged with scamming investors out of $32 million.
Social engineering attacks
Social engineering attacks involve the use of psychological manipulation to trick users into giving up their cryptocurrency. The thief might impersonate a well-known cryptocurrency influencer, claiming to offer free tokens or investment advice in exchange for a small payment.
Early in 2023, a Web3-based startup lost $4 million worth of USDC from their trust wallet account to a social engineering attack.
Immediate Actions to Take When Cryptocurrencies are Stolen
If, unfortunately, you fall prey to one of these theft attempts, here are the initial steps we suggest you to take:
Secure other accounts
First and foremost, secure your other accounts that may have sensitive information or assets linked to them.
Hackers may have gained access to your email or other accounts to steal your cryptocurrencies, and it is important to secure them to prevent further unauthorized access.
You should also change your passwords immediately and enable two-factor authentication wherever possible.
Notify the exchange or wallet provider
Some exchanges or wallet providers also have insurance policies to cover losses due to theft or hacking.
Report the theft to relevant authorities
Report the theft to relevant authorities such as the police or the cybercrime department as soon as possible. This will enable them to investigate and potentially recover your stolen crypto assets.
Working with Law Enforcement and Legal Options
Let’s expand further on the topic of contacting law enforcement as it has one of the best chances of recovering your stolen crypto assets.
For starters, you may have to contact the local police department or investigative organizations like the FBI, depending on the severity of the crime.
It is also essential to document all evidence related to the theft. This includes things like:
You should also retain all records related to your investment, like receipts, transaction records, and any other relevant information.
Working closely with law enforcement is critical to ensure that the investigation is thorough and that the stolen crypto assets are returned. It is important to remain patient and cooperate with investigators throughout the process.
In addition to working with law enforcement, you can also explore legal options for recovery. This can include civil litigation, arbitration, or seeking restitution through the criminal justice system.
We suggest consulting with an attorney who is experienced in dealing with digital crimes. This can help you navigate these legal options and determine the best course of action for your specific case.
Tracking and Tracing Stolen Cryptocurrencies
While the investigation from law enforcement is underway, you can track the stolen crypto assets yourself or with the help of a professional. Here’s how:
Blockchain & tracking
To summarize, tracking is a core component of cryptocurrencies. Every transaction on the blockchain is recorded on a public ledger that anyone can access without much trouble. So, as long as your crypto assets are on the blockchain, you have a chance of tracking their location.
Tracking tools and techniques
Here's how you can track blockchain transactions:
Blockchain analytics tools make it significantly easier to track the flow of cryptocurrency transactions on the blockchain. Some prime examples include Glassnode, Dune Analytics, and Messari.
Forensic investigations to trace stolen cryptocurrencies involve analyzing data related to cryptocurrency transactions. This includes:
Unless you have the knowledge and skill to perform this yourself, you will likely have to hire a professional investigator for this.
Collaboration with industry experts
Collaboration with industry experts is another effective approach to tracking stolen cryptocurrencies. Companies that specialize in blockchain analytics and cryptocurrency forensics work with law enforcement agencies and victims to help track stolen funds.
Limitations of crypto tracking
Despite these tools and techniques, tracking and tracing stolen cryptocurrencies pose several challenges and limitations.
A primary concern is jurisdictional issues that arise when attempting to track stolen funds across different countries and legal systems.
Plus, criminals can use various techniques — such as mixing services and tumblers — to hide the movement of stolen funds.
Dealing with Cryptocurrency Exchanges and Service Providers
When dealing with cryptocurrency exchanges and service providers, it's important to have a plan. Here are some steps we recommend you to take:
Just remember that not all exchanges and service providers are created equal. Some may have better policies and procedures in place for dealing with stolen cryptocurrencies.
Doing your due diligence before choosing an exchange or service provider can help mitigate the risk of theft in the first place.
Preventing Future Cryptocurrency Theft
Prevention is better than cure and this stays true for crypto thefts. In our experience, these are the best ways to prevent future crypto theft:
Recovering stolen cryptocurrencies can seem like a daunting task, but it is not impossible. Stay calm and contact the relevant authorities as soon as you can. Also, try to gather key evidence that may help in law enforcement investigations.
The best thing you can do in this regard is to implement preventive security measures like two-factor authentication, cold storage, and safe private key storage.
As cryptocurrencies continue to gain popularity, more and more thieves and hackers will target them. So, make sure to stay vigilant and take measures to protect your digital assets. If you have any money tied up in crypto, we recommend taking your crypto security more seriously starting today.