2023 may not have been the best year for crypto. The outcome of the collapse of FTX, the continuous battle of the SEC against cryptocurrencies, and the high-spiked volatility are surely not helping investors thrive. Indeed, 2022 was undoubtedly worse in terms of lost crypto assets, but things don’t seem to brighten up for investors.
Interestingly enough, Bitcoin survived yet another dramatic year on the market, showing it can withstand almost any situation and still show an increasing trend. But other digital assets didn’t perform in a similar way, leaving Ethereum and similar altcoins behind.
Besides the financial struggle, this shows a crack in the cryptosystem that must be handled before the next halving in April 2024. How will investors be affected until then?
What does a $2 billion loss look like?
2023 was less brutal to crypto users and investors regarding losses, but $2 billion is still significant, considering how underdeveloped the market is. These losses come from scams, rug pulls, and hacks, showing how sensible the crypto environment still is despite blockchain technology and high-security levels through encryption.
The statistics came around the corner when suppositions about a bear market occurred at the end of 2023 since it wasn’t showing any performance signs. The trend was also observed in the stock market, where the dangers of a recession affected activity considerably.
Blockchains suffered too
Cryptocurrencies weren’t the only assets experiencing losses and lack of value. Blockchains, too, lost valuable assets and features. Ethereum, for instance, lost about $1.35 billion, primarily due to the rapid expansion of the ecosystem that cannot be controlled or verified easily. At the same time, it’s known that the best projects are built on Ethereum due to its proper network and tools, which is why the blockchain suffered considerable exploits. BNB Chain and Solana, too, showcased consistent losses.
However, these problems were noticeable even on centralized apps and networks, not only on decentralized ones. That’s because centralized exchanges and trading platforms hold significant value and assets, so they’re the first hacker target.
How is the crypto market hacked?
Usually, most people believe that cryptocurrencies, blockchains, and tokens are impossible to hack. Still, the truth is that most hackers specialize in breaking these systems by taking advantage of their weak points. For example, the most common risks include access control exploits because they alter permissions and access on smart contracts and platforms. If they’re being able to enter a system, hackers can get unauthorized access to consistent funds in crypto.
Another typical attack includes flash loans, which are the outcome of a loan feature in DeFi through which attackers can borrow as much as they want in crypto without an upfront payment. After getting the funds, they can manipulate market prices through massive crypto transactions or exploit DeFi vulnerabilities in applications.
Finally, exit scams accounted for $136 million in losses due to hackers draining liquidity from tokens or removing them from the market after a previous activity of raising money for a cause. Although it’s the least effective, exit scams are the most difficult to identify, making it easy for people to be drawn into these projects.
So, crypto users are not protected
The first conclusion from these stats would be that crypto users are exposed to considerable dangers but don’t have a safety net provided in case they’re being hacked. Indeed, investing in crypto is tricky due to volatility, which investors are aware of before starting to build up value in their portfolios.
However, these issues can be solved in time. For instance, there were some vulnerability signs in Solidity, Ethereum’s programming language, in regard to access control. It seems like hackers can access the smart contract linked with withdrawing ether without being checked for permission. There’s a way to fix the issue by checking user permission before executing any function.
Hence, similar problems have a seemingly easy solution, but considering how vast the environment is, it’s challenging to handle them successfully. Moreover, we must remember that the legal framework is pretty limiting, hindering people’s involvement in the crypto sector.
Does that mean investors should forget about crypto?
When it comes to investing or trading, whether on the stock or crypto market, there will always be risks in regard to the safety levels of people’s portfolios. The stock market is affected by inflation, which has been at all-time highs in the past year due to geopolitical conflicts. There’s also the problem of liquidity, credit and currency troubles, so no stock market is free of dangers.
On the other hand, the crypto market must handle volatility, cyber risks and key custody exposure, all of which can’t be managed without a reliable legal framework. Indeed, Bitcoin is on the path to becoming legal tender globally, but there’s a long way to go until it achieves this status and becomes available to the regular user. At the same time, institutions like the SEC are totally against using these digital assets, making the adoption process more difficult.
So, as you can see, both markets have their problems, but that doesn’t mean they don’t return considerable outcomes. Where there is risk, there might be advantages, too, which is why the stock market exists. Investors and people interested in crypto must be wary of the dangers they’re exposing themselves to and create a fit strategy that helps them mitigate risks and protect their assets with the goal of gaining money. Hence, these markets mustn’t be eliminated but rather improved so that people can achieve financial freedom. The crypto community will benefit from better regulations and, therefore, create a safer ecosystem.
Bottom line
2023 was a better year than the previous one since financial losses in crypto decreased considerably. However, FTX’s collapse still has adverse effects on the market, as well as the continuous fight by the SEC against cryptocurrencies. Therefore, the market tends to a bear trend, but experts consider that crypto will significantly change around the fourth Bitcoin halving when prices increase.
