The world of cryptocurrency attracts not only investors and enthusiasts but also hackers who seek vulnerabilities to steal funds and personal data. Protocol breach is one of the key threats in decentralized finance (DeFi), and in 2024, this threat remains as significant as ever. In this article, we will discuss how cryptocurrency breaches occur, what consequences they bring, and highlight some major attacks and their impacts.

How Does a Protocol Breach Happen?

In the crypto industry, protocol breaches often occur due to errors in the code of smart contracts, which manage transactions and data on the blockchain. Smart contracts are programmable algorithms that automatically execute the terms of agreements. However, their complexity is what makes them vulnerable to various attacks.

Hackers specifically target vulnerabilities in smart contracts to interfere with the transaction process, steal funds, or gain access to users’ personal information. Some breaches occur through so-called “exploits”—methods by which hackers take advantage of weaknesses in the security system.

A protocol breach is possible through common attack methods, including:

• Flash loan attacks – quick, unsecured loans that can be used to manipulate markets.
• Reentrancy attacks – hackers call a smart contract function multiple times before the first transaction is completed, leading to a loss of funds.
• Phishing attacks – a standard scam where users are deceived into giving up access to their crypto wallets.

A protocol breach can lead to significant negative consequences for both users and companies. The problem lies in the fact that once funds are lost in a breach, it’s almost impossible to recover them, as blockchain transactions are irreversible. Additionally, each breach undermines users’ trust in platforms and decentralized finance as a whole.

Many DeFi companies try to address security issues through smart contract audits. To do this, companies hire independent auditors to check the code for vulnerabilities. However, even this doesn’t always guarantee safety, as hackers continually discover new attack methods.

A protocol breach can severely damage a project’s reputation and lead to significant financial losses. In 2023, the number of DeFi protocol breaches increased by 153%, serving as a warning signal to the entire crypto market.

Why Do Companies Face Protocol Vulnerabilities?

The vulnerabilities in many crypto companies are tied to several core issues:

• Complexity of smart contracts. With each passing year, systems become more complex, which increases the likelihood of coding errors.
• Lack of qualified professionals. The demand for experienced smart contract developers in the crypto sphere far exceeds the supply.
• Insufficient audit resources. Conducting audits of all code changes is challenging and expensive. This makes some (usually smaller) projects more vulnerable to breaches.

Additionally, the decentralized nature of many crypto projects adds an extra layer of difficulty in maintaining security. The absence of a central governing body can complicate efforts to coordinate protocol protection.

Examples of Major Breaches

The history of cryptocurrencies is filled with examples of major breaches that caused serious financial losses for both users and projects. Let’s take a look at a few:

• Penpie (2023). In July 2023, the DeFi protocol Penpie was hacked, resulting in the theft of more than $27 million. The attack exploited vulnerabilities in smart contracts, allowing hackers to access users’ funds.
• LiFi Breach (2022). The LiFi protocol breach in 2022 cost the project $10 million. Hackers exploited a vulnerability in one of the smart contracts, which enabled them to manipulate project tokens.
• Ronin Network (2022). One of the largest breaches in cryptocurrency history occurred on Ronin Network, where hackers stole more than $600 million. This protocol breach was linked to manipulations with validator keys responsible for transaction confirmations on the network.

Each of these incidents serves as a reminder that cryptocurrency projects need to place greater emphasis on security.

Protocol Breach: The Solution

Addressing security issues in the cryptocurrency industry begins with the prevention of attacks. Projects that aim to protect their users must implement multiple layers of protection. These can include actions such as multi-stage code reviews, external audits, and the use of advanced cryptographic methods.

In some cases, affected projects compensate users for their losses, as seen with Tether, which froze stolen funds to return them to affected users. However, such measures are not always applicable, especially in fully decentralized projects.

To keep your funds safe, use reliable cryptocurrency storage methods. We previously wrote about how to choose a crypto wallet for various purposes. Additionally, to avoid risk exposure from exchanges, take advantage of fast exchanges with the SwapGate service. It is a convenient online crypto exchange that allows you to buy cryptocurrency for tokens at the best rate, quickly and securely. The No KYC service will help you keep your personal data private and save time, ensuring that your cryptocurrency exchanges are completely under your control.

Conclusion

Protocol breaches remain one of the most serious threats to cryptocurrency projects and users. Although companies and developers put significant effort into securing their systems, hackers continue to find new ways to breach them. Security in the crypto world requires a comprehensive approach—from proper smart contract design to implementing effective data protection measures.

The ever-growing scale of attacks indicates a pressing need for more robust security practices and broader involvement of specialists in this field. Users should also remain aware of the risks and carefully choose the platforms for their investments and transactions.