The more popular cryptocurrency grows, the more types of crypto scams people come up with- and a crypto dusting attack happens to be one of them. Well, technically, this is true for any sector of our financial markets. According to De.FI, a web3 security firm, crypto hacks got away with about $2 billion dollars in 2023. The good news is that for the first time since 2020, the number of crypto scams and stolen amounts has gone down in the past year. For instance, in 2022 itself, there was $3.8 billion stolen in crypto hacks!
So we can say that the crypto and DeFi space is growing more secure with robust protocols that maximize user safety. However, it still falls on you as a user to know about different crypto hacks and types of crypto scams so you can protect your assets on your own too. In this article, we learn all about a common crypto attack- a crypto dusting attack.
What is Crypto Dust?
Crypto dust refers to small amounts of crypto sent to a large number of wallet addresses for the purpose of stealing personal information. By small amounts we mean that crypto dust almost always equals the amount of crypto spent as transaction fee or lower. Bitcoin Core (the Bitcoin blockchain software) has set a dust limit of about 546 satoshis (0.00000546 BTC), for example, which is the smallest unit of Bitcoin.
Further, crypto dust can also include the small amount of cryptocurrency remaining after a trade resulting from rounding errors or transaction fees. Either way, dusted crypto is always unsuitable for use in a transaction or withdrawal.
What is a Crypto Dusting Attack?
You can understand a crypto dust attack as a large-scale crypto hacking scheme working with minuscule amounts of cryptocurrency. A blockchain is a decentralized, transparent ledger- therefore, while you can transact on a blockchain under a pseudonym to protect your true identity, every activity from your wallet is still visible on the ledger, and anyone can track your movements.
Now, in a crypto dusting attack, what an attacker does is that they send tiny untraceable amounts of cryptocurrency to thousands of wallet addresses and try to uncover the real identities of the wallet holder.
Unfortunately, the amounts of crypto dust are so small that you might not realize that you have been dusted. You go on using your wallet to send and receive money, including the crypto dust amounts. These transactions can then be tracked by the attacker, and once they do so, they can break into your privacy by associating your address with other addresses, and do some off-blockchain hacking to figure out your true identity. Therefore, crypto dust attacks can reveal your crucial personal data.
As you may realize, crypto dusting attacks give hackers leverage to carry out a similar scam on any wallet addresses linked to you, as you would be transferring the crypto dust unknowingly to your peers. The bigger picture is that a crypto hacker can track thousands of crypto wallet activities and find out the identities of their owners to further launch malicious attacks through phishing or plain blackmailing.
How Does a Crypto Dust Attack Work?
While you have an idea of the working of a crypto dusting attack already, here is a quick overview of the crypto scam:
- A crypto attacker named X sends some crypto dust to a hypothetical person A’s wallet. Since it is a minuscule amount, person A doesn’t realize they have been dusted.
- Person A unknowingly combines the rest of their assets with this crypto dust and uses it for transactions to person B and person C.
- The crypto attacker X tracks transaction movements of persons B and C along with A since all of them now have dust in their wallets. This leads X to identify the real identities of A, B, and C, through some offline probing after realizing these people are connected.
This particular crypto hack seems more severe once you realize that there is a possibility that person A may send the crypto dust to an off-blockchain centralized institution. This organization might need to comply with KYC (know your customer) mandates, which is why they would store personal data of person A, making them easy to track and vulnerable to phishing and other types of crypto scams.
How to Protect Yourself Against Crypto Dust Attacks?
The only way to recognize a crypto dusting attack is to monitor your wallet for the sudden appearance of small amounts of extra crypto which you can not spend on its own or withdraw. There are some measures to counter crypto dust, of course, including:
- You can use a VPN (virtual private network) service to safeguard your online movements.
- Use crypto dust conversion services so these small amounts can be exchanged for a platform’s native token and used for trades without inhibitions.
- You can use a hierarchical-deterministic (HD) wallet. This wallet will generate a new public key for every transaction, and so even if you transact with the crypto dust amount, it would be from a different address. This makes it impossible for the attacker to trace the dusted crypto back to you.
Example of a Crypto Dusting Attack
In September 2020, KuCoin went through a massive crypto hack resulting in a loss worth $281 million across different cryptocurrencies. The crypto scammers accessed the exchange’s wallets and transferred said funds to their addresses, and they also utilized the dusting crypto method to hamper their traceability.
Not All Crypto Dust Attacks are Crypto Scams
Here’s the interesting thing about some types of crypto scams: they can double as protective measures taken by different companies or governments to pinpoint illegal activities. As the saying goes, most ‘malicious’ techniques and technologies are actually just weapons that can be used for both good and evil.
Anyway, about dusting crypto: crypto dust can be used to link a blockchain address to a bad actor or organization, to track criminal operations or to ensure regulatory compliance. In fact, developers themselves may use a crypto dusting attack to test their software and relevant security protocols.
Of course, there’s also some crypto dust you receive from trades, which are not harmful. However, to avoid malicious dusted crypto, it’s still good practice to convert whatever little dust you get into exchange native tokens- given the option. Even if it is not a part of a crypto dusting attack, at least this way no fund, however little it may be, goes to waste.
Stay Safe in the World of Crypto
If you think about it, crypto transaction fees are only growing higher with time, and therefore it’s harder than ever for crypto hackers to initiate dust attacks; both because sending dusted crypto to thousands of addresses requires significant money, and transaction fees for dusting crypto add up. Still, there’s no harm in being watchful- in the world of DeFi, the control and responsibility of your funds are both in your hands, after all. So even as the exchanges you use employ maximized security, be vigilant on your own too for dusted crypto.
Team Blockverse wishes you happy and safe crypto trading! Follow our blog for more tidbits about the world of crypto and blockchain.
