What should retail investors in the cryptocurrency market do to recover losses when encountering theft of their coins?
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What should retail investors in the cryptocurrency market do to recover losses when encountering theft of their coins?
In cases of cryptocurrency theft, reporting to the police may not guarantee recovery of stolen assets, but failing to file a report certainly makes recovery difficult.
Navigating Web3 tides with focused insightsAuthor: Chu Yan
Recently, Bybit's cold wallet was hacked by North Korean hackers, resulting in the theft of $1.4 billion. Yesterday, Web3 money market fund Infini lost $50 million. The consecutive theft incidents have caused significant concern among cryptocurrency investors regarding the security of digital assets. The crypto industry is high-risk and high-reward. If ordinary crypto investors suffer from asset theft, how can they recover their losses?
Tracing Stolen Funds on-chain
1. Identify the cause of the breach and quickly transfer remaining assets
Once crypto assets are found stolen, first determine whether the breach occurred due to mnemonic phrases or private keys being exposed online, using counterfeit phishing wallets, or clicking phishing links—common attack methods.
Inventory your on-chain assets and promptly move large holdings to a wallet address stored in secure hardware. If no such setup exists, consider depositing funds back into an exchange account as a priority.
Major exchanges generally have trustworthy security teams. As long as users safeguard their account passwords and enable Google Authenticator, many risks can be avoided. Even in cases like Bybit’s cold wallet hack, major exchanges have significantly stronger risk resilience than individuals. Users become creditors of the exchange; as long as the exchange isn't driven into bankruptcy by a bank run, it can gradually replenish the stolen assets by earning trading fees.
In my personal view: for ordinary crypto investors, storing assets with top-tier exchanges is the optimal method of custody.
2. Map the stolen fund flow path
Blockchain technology allows transparent tracking of on-chain asset flows. After a theft, blockchain explorers and supplementary on-chain data analysis tools can trace the movement of stolen assets, enabling the creation of a fund flow map originating from the compromised address. This flow map can serve as investigative evidence when filing a police report, assisting law enforcement in gathering evidence.
3. Request temporary risk control freezing from exchanges
Stolen funds may eventually be deposited into centralized exchange accounts during subsequent on-chain transfers. You can contact exchange customer service or account managers to request risk control measures to freeze the receiving accounts.
However, this is only a temporary measure that delays further movement of stolen funds. To achieve actual recovery through freezing, it is still necessary for public security authorities to formally open a case and issue a freezing cooperation notice to the exchange.
Filing a Police Report and Requesting Law Enforcement Assistance
1. While reporting a theft may not guarantee asset recovery, failing to file a report virtually ensures no chance of recovery.
Exchanges do not have the authority to arbitrarily handle users' crypto assets. Only when law enforcement issues a formal freezing and investigation cooperation notice according to relevant laws can exchanges freeze involved accounts and later transfer assets based on court judgments.
Therefore, the key to loss recovery lies in filing a report and requesting law enforcement coordination with exchanges for investigation.
2. In China, victims of crypto-related criminal cases often face difficulties in getting cases officially registered. Choosing appropriate jurisdiction and preparing comprehensive criminal complaint materials are crucial for successful registration.
Different regions may have varying internal policies regarding crypto cases. Jurisdiction over cybercrime is relatively broad, so it's essential to select the appropriate jurisdiction based on the specific case.
Additionally, understanding of crypto cases and investigative capabilities vary among local law enforcement officers. Before filing a report, prepare materials including a criminal complaint letter, precedents of similar cases, and an on-chain fund flow map.
What to Do If Public Security Authorities Refuse to Open a Case
In practice, victims of crypto-related criminal cases are often told by responding officers that cryptocurrencies are illegal and unprotected, or even that trading is unlawful, discouraging them from proceeding.
The standard procedure involves the duty officer taking a report and creating an "Interrogation Record." If submitting materials, the complainant signs and submits them, along with signing an "Evidence Receipt Form."
The public security agency should issue a "Case Acceptance Receipt." This written receipt serves as official proof that the case has been accepted and forms the basis for the complainant to assert rights later.
According to legal provisions, the review period for criminal case registration原则上does not exceed 3 days; if criminal leads require verification, the review period does not exceed 7 days; for major, complex, and difficult cases, with approval from responsible officials at county level or above, the period may be extended to 30 days.
During this review period, receiving a "Case Filing Notice" indicates successful registration. Law enforcement can then issue freezing and investigation cooperation notices to centralized exchanges or institutions to freeze accounts receiving stolen crypto assets, arrest suspects, and pursue legal remedies for recovery.
If a "Non-filing Notice" is received, one may apply for reconsideration or re-examination with the public security agency, or request prosecution supervision from the procuratorate, pursuing these remedies to achieve case registration.
In practice, filing complaints for crypto theft or fraud cases is relatively difficult and may encounter various obstacles. For ordinary crypto investors facing such situations, it is advisable to consult security firms and professional lawyers, seeking multiple opinions before moving forward.
Moreover, the current market features a mix of legitimate and fraudulent crypto asset recovery teams. Investors must carefully distinguish between them and avoid secondary scams driven by the desire for quick gains.
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