Hackers are always one step ahead, crafting new, more sophisticated ways to drain crypto wallets — via phishing, malware, or direct exploits. As adoption grows, many users remain unaware of the critical security measures needed to survive in the crypto Wild West. In this article, we’ll break down the most common wallet-draining tactics and, more importantly, how you can stay one step ahead and protect your crypto assets.

Key Takeaways

• Hackers use different methods to compromise crypto wallets, from phishing to malware attacks.
• Understanding how a cryptocurrency wallet works helps users protect their crypto assets.
• Security measures like two-factor authentication, hardware wallets, and vigilance against social engineering attacks reduce risks.
• Some of the biggest crypto wallet hacks have exposed vulnerabilities in hot and cold wallets.

Understanding Crypto Wallets

A crypto wallet is a digital tool that allows users to store, send, and receive crypto assets securely. Wallets are usually divided into two categories: hot wallets, which are constantly connected to the internet, and cold wallets, which store keys offline for better security. Like bank accounts, these wallets do not physically hold cryptocurrencies; they store private keys, granting access to crypto transactions on the blockchain network. A wallet's security depends on how well these private keys are protected from third parties.

How Do Cryptocurrency Wallets Work?

Each cryptocurrency wallet is, in fact, a combination of these three:

1. A wallet address (public key) – used to receive funds.
2. A private key – required to sign transactions and access funds.
3. A recovery phrase (seed phrase) – an encrypted mnemonic phrase (made from a private key) is used to restore the wallet in case of loss.

Once you lose access to your secret phrase or fail to secure access to your wallet provider, you may end up with a wallet hack or wallet drain by malicious actors.

Methods Hackers Use to Compromise Crypto Wallets

Phishing Attacks

Phishing remains one of the most common yet effective methods to steal crypto assets: deception, manipulation, fake everything. Fishing aims to make users make one click, entrust their crypto holdings to scammers and be drained. Phishing comes in lots of forms; we’ll cover them below:

Email Phishing

Hackers craft convincing emails that appear to be from legitimate wallet providers or crypto exchanges. These emails often contain urgent messages about security threats or transaction issues, prompting users to log in. However, the provided links direct victims to a fake crypto wallet website that captures their credentials. Once the hacker gains access, they quickly drain the victim’s funds.

Fake Websites

Criminals create identical copies of renowned crypto platforms to trick users so they enter their wallet credentials, private keys, or login details. Some of these sites may even process one or two transactions, giving victims a false sense of security before funds are diverted to an attacker-controlled wallet.

Social Engineering

A social engineering attack exploits human psychology instead of technical flaws. Attackers may disguise themselves as tech support agents, influencers, or project representatives to manipulate users into sharing sensitive data.

• Fake customer support scams: Fake support agents may contact victims and ask for login credentials, such as passwords and security codes, to "assist” with technical issues.
• Investment scams: Fraudsters offer extremely attractive investment opportunities, requiring victims to send funds or share private keys to access “guaranteed” profits.
• Deepfakes and AI-based scams: Increasingly, hackers use AI-generated videos or voice recordings to impersonate known figures in the crypto space to gain trust and exploit users. Imagine Elon Musk shilling $DOGE2 in your DMs.

Malware and Keyloggers

Hackers use malware attacks to infect devices and steal sensitive credentials, such as wallet addresses and private keys, without the user’s knowledge.

Infected Software

Malware may often be hidden in harmless downloads like crypto mining software, trading bots, or, usually, pirated software. Once installed, it records keystrokes (keylogging) or scans files for recovery phrases.

Clipboard Hijacking

Some malware targets explicitly clipboard data. Since users often copy and paste wallet addresses when making transactions, malicious software can detect and replace the copied address with the hacker’s wallet. If users do not double-check the address before confirming the transaction, funds will be sent to an attacker-controlled wallet instead of the intended recipient.

SIM Swapping

SIM swapping is an advanced attack where hackers hijack a user’s phone number by tricking the mobile operator into transferring it to a new SIM card to their device. This allows attackers to:

• Bypass two-factor authentication (2FA) linked to SMS.
• Reset passwords for crypto exchanges or wallets.
• Take control of email accounts, which are regularly linked as a recovery method to access wallets.

Victims usually realise that an attack has occurred only after losing access to their mobile network or once they cannot log in to their wallet with 2FA. By this time, their crypto wallets will already be drained.

Exploiting Wallet Vulnerabilities

Even the most secure wallets — both hot and cold — are not immune to exploits. Attackers constantly search for unpatched zero-day vulnerabilities, exploiting weaknesses before developers can patch them. These exploits typically fall into three major categories:

• Smart Contract Exploits: Poorly audited (or unaudited) smart contracts can contain logic flaws that allow hackers to manipulate permissions, initiate unauthorised withdrawals, or execute re-entrance attacks on users’ wallets.
• API Vulnerabilities: Some wallet providers may use exposed or poorly secured APIs, which attackers intercept to modify transactions, extract sensitive user data, or gain unauthorised access to connected wallets.

Browser Extension Risks:

Browser-based wallets introduce

a higher attack surface area

, making them prime targets for

malicious extensions or clipboard-hijacking malware

. Attackers inject fake transaction approvals, replacing destination addresses with their own and draining funds without users' knowledge.

Notable Crypto Wallet Hacks

Atomic Wallet Heist

Over a single weekend, Atomic Wallet suffered a grand breach, stealing at least $35 million in various cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Dogecoin (DOGE), Litecoin (LTC), Binance Coin (BNB), and Polygon (MATIC).

Security experts had previously warned of vulnerabilities in Atomic Wallet, including weak cryptography, poor security practices, and flaws in its Electron framework, all of which may have contributed to the breach.

Many users lost their funds, highlighting the risks of compromised wallets and the need for stronger security measures in self-custody wallets.

WazirX Hack

On July 18, 2024, North Korean hackers from Lazarus Group stole $234.9 million from WazirX by exploiting its multisignature wallet system. They created a fake WazirX account, deposited tokens, and manipulated transactions to gain control over the hot wallet. Once WazirX signatories accessed the multisig wallet, hackers altered the smart contract, bypassing key authorizations to drain the cold wallet as well.

Personal Wallet Breaches

Due to poor security practices, individual users often fall victim to crypto scams, phishing, and malware attacks.

For example, on January 30, 2024, hackers stole $112 million worth of XRP from Ripple co-founder Chris Larsen’s personal wallet by exploiting private key exposure. Blockchain analyst ZachXBT traced 213 million XRP laundered through exchanges like MEXC, Binance, Kraken, and OKX.

On-chain data suggested attackers accessed an old wallet key linked to Larsen since 2013, leading to unauthorized transactions.

How To Protect Your Crypto Wallet

Use Hardware Wallets

A hardware wallet is a physical device that securely stores private keys offline, protecting against most online threats. Unlike hot wallets, which are always connected to the internet, hardware wallets are immune to some online attacks but still are not foolproof. They require physical confirmation for transactions, making it nearly impossible for remote hackers to steal funds.

However, losing a hardware wallet or forgetting its recovery phrase can result in irreversible loss, so proper backups are essential.

Enable 2FA or MFA

Enabling two-factor authentication (2FA) or multifactor authentication (MFA) reduces the risk of unauthorized access. Even if attackers obtain passwords, they still need a secondary authentication factor, like a mobile app or SMS code. However, SIM-swapping attacks can breach SMS-based 2FA. However, there is still a way to be safe: using apps like Google Authenticator or hardware security keys.

Stay Vigilant Against Phishing Attempts

Phishing attacks trick users into revealing sensitive information by impersonating crypto exchanges, wallet providers, or customer support teams.

Phishing also remains a leading cause of compromised wallets. Hackers create fake crypto wallet websites or transaction approvals, tricking users into willingly letting criminals access their funds.

Always verify URLs, avoid clicking on links from unsolicited emails, and double-check everything before taking action. Using antivirus software and browser security extensions can also help detect phishing attempts.

Regularly Update Software

Outdated software usually has security vulnerabilities. Keeping crypto wallets, operating systems, and security software updated ensures you have up-to-date protection across your app ecosystem.

Enabling automatic updates where possible will protect your data against known exploits. Yet, it’s not guaranteed that new patches won’t introduce newer zero-day vulnerabilities.

Backup Your Wallet

A proper backup of a recovery phrase (seed phrase) ensures access to a wallet in case of loss, theft, or device failure. Plus, properly stored recovery phrases are harder to lose, steal, or compromise.

Securely store your recovery phrase offline, such as in a paper wallet or encrypted external drive. Avoid storing sensitive information in cloud services, DMs on social media, or saved messages, as this can easily compromise your private key.

For long-term safety, consider using metal backups to protect against physical damage.

Final Thoughts

Can crypto wallets be hacked? Unfortunately, yes. However, with proper security measures, the risk of a wallet hack can be reduced significantly. By using a secure wallet, avoiding blockchain wallet scams (as hard as you can), and using best practices of informational and cyber hygiene, users can better protect their crypto transactions and funds from bad actors.