How Crypto Users Get Rekt and How You Can Stay Safe

The crypto industry has witnessed unprecedented growth over the past decade, but with it has come an equally dramatic rise in sophisticated attacks targeting both individuals and companies. From the record-breaking $1.5 billion Bybit hack to AI agents successfully exploiting smart contracts, the landscape of crypto security threats continues to evolve at an alarming pace. What's particularly concerning is that even seasoned crypto veterans with years of experience are falling victim to increasingly sophisticated social engineering attacks.

Key Takeaways

• 99% of crypto funds stolen today result from operational security failures, not smart contract vulnerabilities, with social engineering being the primary attack vector
• North Korean IT workers now comprise an estimated 40-50% of all crypto job applications, using sophisticated tactics including laptop farms and identity theft
• Companies must implement zero-trust security policies, assuming any employee could be compromised, and never grant single points of failure for fund access
• Individual users should prioritize hardware wallets for significant holdings, use unique passwords with hardware-based 2FA, and maintain separate email addresses for different security levels
• When attacks occur, immediate response through resources like SEAL 911 can help secure remaining assets and potentially recover stolen funds

The Evolution of Crypto Security Threats

The crypto security landscape has undergone a fundamental shift in recent years. While the industry has significantly improved at preventing smart contract vulnerabilities, threat actors have adapted by pivoting to traditional web2 attack methods combined with crypto-specific social engineering tactics.

"With a crypto startup, you can go from like just launching to suddenly being in charge of tens of millions of dollars of people's funds kind of overnight without kind of a gradual buildup of internal security capability."

Today's attacks primarily involve private key theft, malware deployment, phishing campaigns, account takeovers, and domain hijacking. The common thread connecting virtually all successful attacks is social engineering - the art of manipulating people into acting against their own interests.

Social Engineering: The Primary Attack Vector

Modern crypto attacks exploit human psychology rather than technical vulnerabilities. Attackers pose as venture capitalists reaching out to founders, recruiters contacting developers, or journalists offering interview opportunities. These approaches are designed to build trust and lower victims' defenses before delivering malicious payloads.

The sophistication level continues to escalate. Attackers now compromise legitimate accounts of trusted contacts, use recorded video footage to impersonate victims during calls, and even infiltrate professional networks like lawyers and accountants to deliver expected documents infected with malware.

The North Korean IT Worker Threat

One of the most significant emerging threats to crypto companies comes from North Korean IT workers systematically infiltrating organizations. These actors serve dual purposes: earning salaries for the regime while positioning themselves to steal company and user funds.

Scale and Sophistication

Current estimates suggest that 40-50% of job applications received by crypto companies originate from North Korea. These applications typically showcase candidates who claim expertise in every programming language and framework - a major red flag that companies should recognize.

The operation has evolved through multiple phases of sophistication:

• Laptop Farms: North Korean workers remotely access computers physically located in the US, making their connections appear domestic
• Identity Purchasing: US citizens unknowingly participate by conducting interviews, background checks, and daily meetings while North Korean workers perform the actual development tasks
• Professional Networks: Attackers leverage compromised contacts and professional relationships to gain credibility

Detection and Prevention Strategies

Companies can implement several screening measures to identify potential IT workers:

• Require in-person meetings at industry events or company offices
• Conduct OSINT (Open Source Intelligence) research on candidates
• Verify cultural and geographical knowledge through casual conversation
• Monitor payment addresses for suspicious consolidation patterns or routing to sanctioned exchanges
• Re-verify candidate profiles several days after interviews, as fake profiles are often deleted

Enterprise Security Best Practices

Crypto companies face unique challenges in scaling security practices alongside rapid growth. The key principle is designing systems that assume any individual, including founders, could be compromised.

Zero-Trust Architecture

Effective crypto security requires implementing least-privilege policies where no single person can move significant funds without multiple confirmations and time delays. This includes:

• Multi-signature wallets with distributed key holders
• Time-locked transactions for major fund movements
• Separation of operational funds from treasury reserves
• Regular rotation of access credentials and permissions

"When you protect the company, when we do for example the audits, you have to find all the weak things, all the holes, you have to find all of them. And a threat actor just needs to find one."

Incident Response Training

Having security policies is insufficient without regular training and simulation exercises. Companies should conduct tabletop exercises simulating various attack scenarios, ensuring team members can execute response procedures under pressure.

Critical elements include:

• Clear communication protocols during incidents
• Pre-established relationships with security professionals
• Backup access methods when primary systems are compromised
• Legal frameworks like Safe Harbor agreements for white-hat interventions

Individual User Security Guidelines

While companies face sophisticated targeted attacks, individual users must protect themselves against both opportunistic scams and collateral damage from broader security breaches.

Wallet Security Fundamentals

The most critical recommendation for individuals holding more than $2,000 in crypto is transitioning from hot wallets to hardware wallets. However, the security of the seed phrase storage is equally important:

• Store seed phrases exclusively on paper, never digitally
• Avoid password managers, which have suffered major breaches affecting crypto users
• Use multiple hardware wallets for different purposes (long-term storage vs. active trading)
• Consider multi-signature setups for significant holdings

Account Security Architecture

Users should implement a layered email strategy using separate addresses for different security levels:

• Public email: For general correspondence and public profiles
• Private email: For password managers, 2FA apps, and Apple ID
• Disposable email: For event signups and temporary services
• Crypto-specific email: Exclusively for exchange accounts and DeFi protocols

Authentication Best Practices

Traditional 2FA methods using SMS or authenticator apps provide limited protection against sophisticated phishing attacks. The most secure approach involves hardware keys supporting FIDO2 standards, which provide cryptographic proof against phishing attempts.

For exchange and custodial accounts:

• Use unique, complex passwords for each platform
• Avoid phone numbers for account recovery when possible
• Choose established providers with comprehensive insurance coverage
• Diversify holdings across multiple platforms and custody methods

Emergency Response and Recovery

When security incidents occur, rapid response can significantly impact the outcome. The Security Alliance (SEAL) provides emergency response services through SEAL 911, connecting victims with experienced incident responders.

Immediate Response Protocol

If you suspect your device or accounts have been compromised:

1. Immediately disconnect the affected device from the internet
2. Use a separate, clean device to access your wallets
3. Transfer any remaining funds to new addresses with fresh seed phrases
4. Change all passwords and revoke active sessions
5. Report the incident to your employer if you work in crypto

Professional Assistance

SEAL 911 provides free emergency response services for crypto security incidents. Their volunteer network includes experts in forensic analysis, fund tracing, and coordination with exchanges for potential asset recovery. While complete recovery is rare, approximately 15-20% of stolen funds can sometimes be frozen or recovered through rapid response efforts.

The Future of Crypto Security

As the crypto ecosystem matures, security challenges continue evolving. The integration of privacy-enhancing technologies presents both opportunities and challenges for security professionals. Solutions like privacy pools offer promising approaches to balance user privacy with the need for compliance and bad actor identification.

The increasing sophistication of attacks, particularly those leveraging AI and deep fake technologies, requires the crypto community to remain vigilant and adaptive. Success in this environment requires treating security as an ongoing process rather than a one-time implementation.

"Eventually we are all going to be social engineered... that's why we should have second barriers of protection and here is where I go to the recommendations for people."

The crypto security landscape demands constant vigilance from both individuals and organizations. While the threats are sophisticated and ever-evolving, implementing proper security practices significantly reduces risk exposure. The key is acknowledging that perfect security doesn't exist, but layered defenses and rapid incident response can minimize damage when attacks inevitably occur. By staying informed about emerging threats and following established security practices, the crypto community can build more resilient systems while maintaining the innovative spirit that drives the industry forward.