Cryptocurrency-based crime reached a new all-time high of $14 billion in 2021, according to a report by blockchain researcher Chainalysis.
According to Chainalysis’ 2022 Crypto Crime Report, illicit addresses received $14 billion over the course of the year 2021, up from $7.8 billion in 2020.
However, the increase in cybercrime comes with a significant rise in the use of legitimate cryptocurrency. As per the report, the growth of legitimate cryptocurrency usage far outpaced the growth of criminal usage.
Volumes
Across all cryptocurrencies tracked by Chainalysis, total transaction volume grew to $15.8 trillion in 2021, up 567 per cent from 2020’s numbers. Illicit transactions represented 0.15 per cent of the cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume being at its highest ever.
Further, the efforts and ability of law enforcement to combat cryptocurrency-based crime are also evolving with law enforcement agencies from the United States to Russia having taken action against scams, ransomware and cryptocurrency services heavily involved in money laundering, as per the report.
“However, we also have to balance the positives of the growth of legal cryptocurrency usage with the understanding that $14 billion worth of illicit activity represents a significant problem,” the US-based blockchain researcher said.
“Criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimises innocent people around the world,” it said.
Key trends
Two categories of cryptocrimes stood out for their growth over the past year — stolen funds and, to a lesser degree, scams.
DeFi is a big part of the story for both.
Overall cryptocurrency theft grew over five-fold from 2020, with around $3.2 billion worth of coins stolen last year. Around $2.2 billion of those funds, some 72 per cent of the total were stolen from DeFi.
Scams at DeFi platforms — such as “rug pulls,” where developers set up phoney investment opportunities before disappearing with investors’ cash — hit $7.8 billion, an 82 per cent jump from 2021, Chainalysis said.
‘Rug pulls’
Scamming revenue grew 82 per cent in 2021 to $7.8 billion worth of cryptocurrency stolen from victims. Over $2.8 billion of this total was from a relatively new scam type called “rug pulls.”
The scam involves developers building what appear to be legitimate cryptocurrency projects before taking investors’ money and disappearing, Chainalysis explained.
As per the report, roughly 90 per cent of the total funds lost in rug pulls in the past year can be attributed to one fraudulent centralised exchange, Thodex, whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds.
However, every other rug pull tracked by Chainalysis in 2021 involved DeFi projects.
“In nearly all of these cases, developers have tricked investors into purchasing tokens associated with a DeFi project before draining the tools provided by those investors, sending the token’s value to zero in the process,” it said.
Cryptocurrency theft increased even more, with roughly $3.2 billion worth of cryptocurrency stolen in 2021, a 516 per cent rise compared to 2020. Roughly $2.2 billion of those funds, which accounts for around 72 per cent of the 2021 total, were stolen from DeFi protocols.
