How much stolen Crypto currency is in circulation? A lot. Just last month, hackers breached Bithumb and Coinrail, two South Korea–based crypto currency exchanges, and stole over $70 million worth of various crypto tokens.

Bithumb and Coinrail are not alone in their ordeal. Since the founding of the first crypto currency exchange in 2010, hackers have walked away with billions of dollars’ worth of crypto currencies and digital tokens stolen from exchanges, and they continue to eye the crypto currency landscape as an attractive arena to make money. In 2014, a huge $460 million breach at Mt Gox caused the collapse of the then-largest bitcoin exchange and a sudden drop of the price of crypto currencies.

Aside from directly stealing from exchanges, cyber criminals are also using other methods to illegally earn crypto currencies. This includes cryptojacking scripts, software that secretly uses computer resources to mine crypto currencies, and ransomware, malware that locks out users from their files and only restores their access after they pay attackers a certain amount of crypto currency.

The appeal of cryptocurrency to cybercriminals is largely due to the lack of legal and technical safeguards to protect individuals, exchanges and organizations against money laundering and fraud. The lack of security damages the entire industry, and every new heist results in a steep drop in trust and value of cryptocurrencies.

But as crypto currencies slowly develop from a geek niche to a financial landscape sprawling over hundreds of billions of dollars and thousands of currencies, solutions are emerging to make the market more reliable and resilient against malicious activities.

What happens to the dirty money?
To be able to spend their stolen stash, hackers have to convert their cryptocurrencies to fiat at cryptocurrency exchanges. In the past two years, with the explosion of ICOs and crypto-tokens, hackers have turned their attention to smaller tokens. Many of the last year’s hacks were staged against these smaller tokens.

In July 2017, hackers stole $7.53 million from CoinDash’s ICO and directed the CDT tokens to their own wallet address. In January, another attack robbed Coincheck, a Japan-based exchange, of $400 million worth of NEM tokens.

Cryptocurrencies are based on blockchain, a transparent distributed ledger where every transaction is stored in a transparent and immutable way. Most cryptocurrencies are traceable, which means anyone can trace where money goes by following the addresses it is transferred to after it is stolen.

Hackers usually take their stolen tokens to the decentralized exchanges (DEX). Decentralized exchanges are less regulated than their centralized peers such as Coinbase and Binance. Because DEXs generally don’t have proper know-your-customer (KYC) safeguards, hackers have an easier time laundering their stolen tokens, and they provide hackers with the anonymity they require to launder their tokens.

Since token-to-token trading is possible on DEX, hackers convert their loot to other tokens or to mainstream cryptocurrencies such as Bitcoin and Ethereum. In doing so, hackers can make it difficult to trace stolen cryptocurrencies and cash them out using centralized exchanges. Hackers use DEXs to convert their loot to other tokens or to mainstream cryptocurrencies such as bitcoin and Ethereum. This enables them to obscure their traces and then take the stolen cryptocurrencies to centralized exchanges where they can cash them out.

A decentralized approach to fighting fraud and money laundering
Aside from supporting digital money, blockchain also has applications in cybersecurity. Several organizations are using the technology to fight censorship and cyber attacks such as distributed denial of service and data tampering.

However, blockchain can also help fight the exact same kind of fraudulent activity that decentralized exchanges are suffering from. This is the focus of the Sentinel Protocol, a blockchain-based threat intelligence platform created by Uppsala Foundation, a Singapore-based cybersecurity firm. Patrick Kim, the founder of Uppsala Foundation, himself was a victim of cryptocurrency theft and lost 7,218 Ether in 2016 due to a vulnerability in an Ethereum wallet.

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