More than $30 million worth of stolen cryptocurrency from the mobile game Axie Infinity has been recovered by US authorities from North Korean hacking groups, the first time that stolen assets have been seized from bad actors linked to the reclusive nation, according to blockchain company Chainalysis.
The development was the result of actions by the New York-based company, in collaboration with law enforcement, which used tracing technologies that were able to follow stolen funds.
It followed a cyber heist in March in which more than $600m was stolen from Ronin Network, a sidechain — which is a separate blockchain network that connects to another blockchain — built for the play-to-earn game.
While the recovery was indeed a “milestone” in the fight against money laundering on the web, the seized assets are but a fraction of the overall theft, which highlights the need for more action and co-operation in the industry to enable more recoveries, New York-based Chainalysis said.
It estimates that North Korea-linked groups have stolen around $1 billion worth of cryptocurrency from decentralised finance protocols. Crypto thefts in 2022 have breached $1bn in 64 hacking incidents as of June, it added.
“With the help of law enforcement and leading organisations in the cryptocurrency industry … we’re confident it won’t be the last [recovery of stolen crypto],” Erin Plante, senior director of investigations at Chainalysis, wrote in a blog post.
She added that these collaborative efforts have enabled industry players to “quickly freeze funds” and make it “more difficult for bad actors to successfully cash out their ill-gotten crypto gains”.
Blockchain is the technology behind cryptocurrencies and decentralised finance, which is generally considered to be a safer way to conduct transactions and can potentially replace middlemen, such as brokers and banks, in the financial system.
But the growing scale of these sectors is proving to be a lucrative opportunity for the digital underworld. Cryptocurrencies tracked by Chainalysis yielded total transactions worth $15.8 trillion in 2021, up almost seven-fold from 2020.
Chainalysis had already identified money laundering, market manipulation and online theft as the biggest threats globally to decentralised finance on Web3, and recommended that collaborative solutions are needed to ensure user trust in the next iteration of the internet.
Theft rose in parallel as crypto-based criminal activity hit an all-time high in 2021, with illicit addresses receiving $14bn over the course of the year, almost double the $7.8bn recorded in 2020, Chainalysis had previously reported.
“Much of the funds stolen from Axie Infinity remain unspent in cryptocurrency wallets under the hackers’ control,” Ms Plante said.
Overall, more than $2.3bn in cryptocurrency was stolen in 2021, which is a 1,400 per cent surge from the previous year, Chainalysis said.
And much of the cryptocurrency stolen from decentralised finance protocols has gone to hacking groups associated with North Korea, with around $840m funnelled there in 2022, it added.
The overall cryptocurrency industry is already in a so-called crypto winter, or a cool-down in the market that has dragged Bitcoin, the world's first and largest cryptocurrency, to below its key $20,000 psychological level in June and wiped $2tn off the sector’s total market value sending it below $1tn.
Since then, Bitcoin has pared back some of its losses and was trading about 4 per cent higher at $20,664.62 as of 1.30pm UAE time on Friday, according to data from Coinbase.
The market is still reeling from the spectacular collapse of the Luna cryptocurrency and its associated Terra stablecoin. Luna, which was trading at $116 in April, fell to less than 1 per cent, while Terra — which, as a stablecoin, was meant to have a value of $1 at all times — was depegged on May 9, causing it to crash to 7 cents.
Adding to the challenges are the shockwaves being felt from the bankruptcies of major crypto companies, including Celsius Network, which filed for protection in July following massive losses, and Singapore's Zipmex, as well as job losses.
All these have led to a drop in venture capital funding to blockchain and cryptocurrency start-ups, which slid 29 per cent to $6.5bn in the second quarter of 2022, market intelligence platform CB Insights said recently.
Axie Infinity, meanwhile, rose to prominence as it allowed players to accumulate cryptocurrencies and non-fungible tokens, which they can trade in the game's marketplace for real-world money.
The game — which restarted transactions in late June following the massive hack — was originally built on the Ethereum blockchain and at one point was recording $30m worth of Ether transfers per day, according to tracker Etherscan.
“Cryptocurrency’s transparency is instrumental to investigating hacks like the one suffered by Axie Infinity. Investigators with the right tools can follow the money to understand and disrupt a cybercrime organisation’s laundering activities,” Ms Plante said.
“This would never be possible in traditional financial channels, where money laundering usually involves networks of shell companies and financial institutions in jurisdictions that may not co-operate.”