Cryptocurrency thefts showing no signs of slowing down

In 2020, a 17-year-old in Hamilton, Ont. was able to swipe more than $45 million from a billionaire in Los Angeles.

But it wasn’t cold hard cash that was stolen, it was Bitcoin, a form of cryptocurrency that you’ve no doubt heard a lot about in recent months.

In an upcoming documentary, “Veracity: The Bitcoin Kid,” the story about one of the largest thefts of its kind in history is being told with insight from one of the people involved who is speaking out for the first time.

If you’ve read recent headlines, it was a rough end to 2022 for Bitcoin and the rest of the cryptocurrency world.

The price of Bitcoin tumbled in late 2022 significantly after reaching an all-time high of over US$68,000 in November of last year, add to that the collapse of exchange platform FTX, and investors were eager to ring in a new year with new hopes of a bounce back.

Brian Mosoff, chief executive at Ether Capital, a Toronto-based firm that provides investors access to the cryptocurrency Ethereum, told the Canadian Press even though retail investors are on edge due to uncertainty around the worth of crypto assets, those that understand the technology that underpins cryptocurrencies likely recognize that the sector still has potential.

Hackers may see potential as well. In 2022, there were major hacks where millions of dollars in cryptocurrency was stolen.

“We’ve been investigating a lot of cryptocurrency theft,” said Samy Tarazi, a detective in Santa Clara County, California, who has spent much of his career investigating cybercrimes like crypto hacks, working under Santa Clara’s Regional Enforcement Allied Computer Team (REACT).

“Santa Clara County is in the heart of the Silicon Valley. It’s five miles from Apple, ten miles from Google,” he shared.

Because of their location, Santa Clara County is often the go-to agency to help investigate cybercrimes. And for the past several years, they’ve been busy.

According to the most recent Crypto Crime Report from Chainanalysis — a group that tracks this type of crime – in 2021, thieves stole more than $3 billion worth of cryptocurrency.

“There are people out there who will take your crypto faster than you can imagine,” explained Ryk Edelstein, Technology CEO with 5-L Technologies, based in Montreal.

Much of the stolen crypto happens not because of a weakness in the system itself but human error.

“Crypto is decentralised,” Tarazi said. “There’s no bank or bank manager so everyone is in control of their own assets, which is the weakness in the system because humans make mistakes.”

Such was the case in Hamilton back in 2020. A 17-year-old stole more than $45 million by getting into the digital wallet where that person’s bitcoin was stored.

“It was stolen from a digital wallet that was easily accessed after this teenager hacked into the victim’s phone,” Tarazi explained.

That digital wallet is called a “hot” wallet in the crypto world.

“A hot wallet is essentially an online wallet to store your cryptocurrency,” said Trisha Paguyo, with BitBuy. “Think of an app on your phone. You have the ability to store crypto on your phone and transfer from one wallet to another.”

However, leaving $45M worth of crypto in a hot wallet is not advised.

“It’s where you leave active funds in. You should not leave money in there which you’re not using because if someone gains access to your phone, they can steal it,” Edelstein told CityNews.

In CityNews’ upcoming documentary, we take a closer look at what mistakes were made and the teen who pulled it off.

To date, the crypto stolen by him is one of the largest thefts of its kind from a single individual.

But crypto insiders are quick to point out that this crime occurred nearly three years ago and since then, things have changed.

“Canada has been a leader in crypto regulation overall,” Paguyo said. “Canadian investors have, in the past, lost money or have been victims to similar scams such as this. As a response to it, the regulators have forced anyone like BitBuy or any other exchange, working with individuals and Canadians to have the proper safeguards in place.”

But the human error component is still an issue.

“There will always be people out there to game any system if there stands to be a reward to be made or money to be made. It happens with crypto. It happens in equities. It happens in real estate. Every industry, unfortunately, there are bad players,” Paguyo said. “The hope is, over time, the industry evolves and we get to understand how to protect those in the industry and get those bad players out.”

“This teenager in Hamilton wasn’t the first and won’t be the last,” Edelstein added. “A big problem with crypto hacks is people, especially new investors, don’t take the necessary steps to secure their crypto and until they do these scams will continue.”

“Veracity: The Bitcoin Kid” premieres Sunday, Jan. 29 at 10 p.m. ET only on Citytv.