Crypto kidnappings and so-called wrench attacks have been in the news recently. In one high-profile case, kidnappers in France abducted Ledger co-founder David Balland and his wife and demanded a significant crypto ransom for their release.
Closer to home, criminals allegedly held and tortured an Italian entrepreneur for 17 days in a Manhattan apartment. Sadly, it isn't a new phenomenon. Last year, a Florida resident was sentenced to 47 years for a series of crypto-related home invasions that started in 2022.
However, these crimes are on the rise. And the Coinbase data breach that revealed the home addresses of over 69,000 customers does not help investors feel safe.
Image source: Getty Images.
The rise of wrench attacks
According to Bloomberg, there have been 23 attacks on crypto holders this year, up from just six in the same period last year. The name "wrench attacks" comes from a comic strip that suggested complex encryption wouldn't help against criminals who drugged and beat their victims to get their passwords.
Bitcoin (BTC 0.13%) has soared to record highs this year. Not only are digital currencies becoming more valuable, but they're also more mainstream. TRM Labs Director Phil Ariss says that makes it more attractive to criminals, including violent ones. "As long as there's a viable route to launder or liquidate stolen assets, it makes little difference to the offender whether the target is a high-value watch or a crypto wallet," he said. TRM Labs specializes in analyzing blockchain data to fight fraud and financial crime.
Why thieves are targeting crypto investors
One key reason for the rise in attacks on cryptocurrency holders is that the criminals think crypto transactions are both anonymous and irreversible. The transfer takes place instantly. And, unlike a bank transaction, if someone hands over their crypto keys under duress, there's a perception that transfers can't be traced. That's not actually entirely correct. Authorities are getting better at tracking and prosecuting these types of illicit transactions. Sadly, that message hasn't gotten through to the thieves.
Another crypto-specific risk is that potential attackers can use peer-to-peer (P2P) transactions to identify crypto holders. The nature of P2P trading means that individuals talk directly to one another, which can expose their personal information.
Finally, the thieves target people who post about their crypto gains. From influencers to key players in the industry, bad actors glean information online. Take, for example, the Taihuttu family, who have travelled the world using only Bitcoin since 2017. Recently, strangers told them they'd used YouTube videos to work out where they were staying, so the family stopped posting.
Although home jackings aren't unique to crypto, there are elements of digital currencies that can amplify the risks. For some, one of the attractions of crypto is that you can become your own bank. But if you go that route and store your assets in a non-custodial crypto wallet, you are responsible for security.
Don't let criminals rule your investment decisions
The idea that your investment decisions could make you a target for criminals is certainly unnerving. But don't let dramatic headlines put you off investing in Bitcoin or any other crypto. There are many reasons you might put a small percentage of your portfolio into cryptocurrency, including a desire to hedge against economic uncertainty.
However, cryptocurrency doesn't always work in the same way as stocks or money in the bank. Even with increased adoption, it is still a relatively new asset class, and it doesn't have the same investor protections. If you buy crypto, think about how to store it safely.
Here are some steps you can take:
- Buy crypto through an exchange-traded fund (ETF): If you invest in crypto through an ETF, it is the fund -- not you -- that needs to safeguard the assets. The Securities and Exchange Commission (SEC) has already approved spot ETFs for Bitcoin and Ethereum (ETH 0.75%) and looks likely to greenlight others shortly.
- Be careful what you post on social media: Criminals are using social media to build profiles of potential targets. If you've built a profitable crypto portfolio (or from any other investments), try not to share that information online.
- Make a plan to store your crypto: If you use a non-custodial hardware wallet, consider storing it in a bank safety deposit box. Most crypto wallet companies offer additional security features, so find out what's available. For example, a multisignature wallet requires several keys to authorize transactions. There are also tools that split your seed phrase into several parts and ways to set up fake dummy wallets.
Depending on the size of your crypto holdings, you might consider crypto insurance. An increasing number of insurance companies now offer specific packages for Bitcoin holders. Look for policies that specifically protect against wrench attacks.
A new frontier
Cryptocurrency investing is still a new frontier. If you buy into a crypto ETF through a brokerage account, the fund takes care of the custody and security. However, if you buy through an exchange, think carefully about how you will store your assets to minimize both cyber and physical risks.
