As a seasoned crypto investor with a decade of experience under my belt, I can confidently say that the landscape of digital assets has evolved significantly over the years – and not always for the better. The latest Hacken report sheds some fascinating light on this evolution, particularly the stark contrast between Decentralized Finance (DeFi) and Centralized Finance (CeFi).
In 2024, there was a 40% reduction in financial losses within the Decentralized Finance (DeFi) sector compared to the preceding year, largely attributable to enhanced protocols, robust interconnections, and sophisticated encryption techniques.
Based on the findings from the annual report by blockchain security company Hacken, it appears that the security enhancements within Decentralized Finance (DeFi) will progress throughout 2024, coinciding with Centralized Finance (CeFi) experiencing a rather grim reflection of the year.
Centralized Finance (CeFi) violations multiplied significantly, reaching over two times the original amount, while financial losses skyrocketed to a staggering $694 million. This increase was mainly due to centralized exchanges becoming high-profile targets for weaknesses in access control and other significant security threats.
In simpler terms, the study’s conclusions reveal a significant gap between the advancements in Decentralized Finance (DeFi) and the challenges faced by Centralized Finance (CeFi), offering an insightful perspective on both sectors as the flaws inherent in centralization start to surface more clearly.
DeFi security pump
According to Hacken’s 2024 report, there has been a significant decrease in the amount of money lost through DeFi in 2024 compared to 2023. The financial loss dropped from approximately $787 million in 2023 to around $474 million this year.
2023 saw a significant amount of $338 million lost due to bridge exploits, a common issue in the decentralized finance (DeFi) sector. However, by 2024, this figure had dropped drastically to only $114 million, indicating a substantial decrease in such incidents.
Despite DeFi improvements, such as multiparty Computation (MPC) and zero-knowledge proofs (ZKPs), challenges persist, as seen in access control vulnerabilities accounting for nearly half of all DeFi losses — like the Radiant Capital $55 million hack.
CeFi breaches on the rise
Based on the Hacken report, it appears that Centralized Finance (CeFi) had a significantly different outcome in 2024 compared to DeFi’s advancements, with CeFi experiencing financial losses over twice as much as in 2023, totaling approximately $694 million this year.
The significant increase in data breaches can be largely traced back to issues with access control and high-profile cases such as the DMM Exchange hack during the second quarter and the WazirX hack in the third quarter.
These strategies included breaches of personal encryption keys and taking advantage of weaknesses in multi-signature systems, leading to the theft of approximately $305 million and $230 million from the respective cryptocurrency exchanges.
According to Dyma Budorin, the co-founder and CEO of Hacken, the report’s conclusions point out significant weaknesses in the security operations of CeFi, primarily due to suboptimal key management of private keys, inadequate multisignature configurations, and exposures from centralized control structures.
Lessons to be learned
The significant difference in financial losses between the DeFi and CeFi sectors highlights an opportunity for improvement in both industries.
According to Budorin, hackers take advantage of weaknesses in security arrangements, and it’s essential to implement stronger key management methods and install automated surveillance systems to lessen these potential threats.
As an analyst, I’ve noticed that the warnings issued by the Hacken CEO seem to hold water based on recent findings. To be specific, the Chainalysis report from December 19th indicates a staggering $1.3 billion worth of cryptocurrency assets were stolen by North Korean hackers this year – across no less than 47 separate incidents.
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2024-12-24 16:06