Crypto scammers looted a file $ 14 billion in 2021


Chinnapong | iStock editorial team | Getty Images

Fraudsters took home a record $ 14 billion in cryptocurrency in 2021, largely thanks to the rise of decentralized financial platforms (DeFi). according to new data from the blockchain analysis company Chainalysis.

Crypto-related crime losses increased 79% year over year, driven by an increase in theft and fraud.

Fraud was the largest form of cryptocurrency-based crime in 2021, followed by theft – most of it from hacking cryptocurrency companies. The company says DeFi is a huge part of the story for both of them, yet another warning to those who delve into this emerging segment of the crypto industry.

“DeFi is one of the most exciting parts of the broader cryptocurrency ecosystem and offers tremendous opportunities for entrepreneurs and cryptocurrency users alike,” wrote Chainalysis in its annual Crypto Crime Report.

“But DeFi is unlikely to reach its full potential if the same decentralization that makes it so dynamic enables widespread fraud and theft.”

The wild west of DeFi

DeFi is a rapidly growing sector of the crypto market that aims to exclude middlemen such as banks from traditional financial transactions such as securing a loan.

DeFi replaces banks and lawyers with a programmable code called a smart contract. This contract is written on a public blockchain like Ethereum or Solana and is executed when certain conditions are met, so no central intermediary is required.

“The financial system basically sends money around on different terms,” ​​said Joey Krug, chief investment officer at Pantera Capital, a cryptocurrency and blockchain-focused asset manager.

DeFi’s transaction volume grew 912% in 2021, according to Chainalysis statistics. Impressive returns on decentralized tokens like Shiba Inu have also sparked a frenzy among DeFi tokens.

But there are plenty of red flags when it comes to dealing with this nascent crypto ecosystem.

One problem with DeFi, said Kim Grauer, head of research at Chainalysis, is that many of the new protocols emerging have code vulnerabilities that hackers can exploit. These code exploits made use of 21% of all hacks in 2021.

Grauer tells CNBC that while there are third party companies that do code audits and publicly state which protocols are safe, many users still choose to go with risky platforms that will bypass this step if they think that they can get a great return.

Cryptocurrency theft has increased 516% since 2020 to $ 3.2 billion worth of cryptocurrencies. Of that, 72% of the stolen funds were taken from DeFi logs.

Fraud losses increased 82% on cryptocurrencies valued at $ 7.8 billion.

More than $ 2.8 billion of that came from a relatively new but hugely popular type of scheme known as a “rug pull,” where developers build seemingly legitimate cryptocurrency projects before eventually taking investors’ money and disappearing.

“Given the hype surrounding DeFi, people may be more likely to use less secure platforms because they feared missing out on potential profits,” said Grauer.

Crime statistics don’t tell the whole story

Cryptocurrency-related crime may have reached an all-time high, but researchers note that the growth in legitimate use of cryptocurrencies far outstrips the growth in criminal use.

Illegal address transactions represented an all-time low of just 0.15% of the total crypto trading volume of $ 15.8 trillion in 2021.

The research firm identifies illicit funds based on their link to confirmed illegal activity. For example, funds would be considered illegal if they were sent to or from a darknet market, or if they were known to have been stolen in a hack.

“The fact that the increase was only 79% – almost an order of magnitude lower than overall adoption – might be the biggest surprise of all,” wrote Chainalysis.

“Crime is becoming an increasingly smaller part of the cryptocurrency ecosystem,” the report continued.

Researchers attribute the restrained growth in crypto-based crime in part to the evolving law enforcement toolbox as well as the inherited transparency of blockchain technologies.

Crime is becoming an increasingly smaller part of the cryptocurrency ecosystem.

Chain analysis

Crypto Crime Report 2021

Unlike cash and other traditional forms of transfer of value, every transaction is recorded in a public ledger, and with the right tools, Grauer says it is possible to see how much of all cryptocurrency activity is crime-related.

“Authorities have been hugely successful in using the transparency of blockchains to investigate and prevent illegal activities,” said Grauer.

For example, in November the IRS Criminal Investigations Agency announced that it had seized over $ 3.5 billion worth of cryptocurrencies in 2021 – all from non-tax investigations – representing 93% of all funds seized by the department during that period.

Other law enforcement wins in 2021 included the U.S. Department of Justice’s seizure of $ 56 million in a cryptocurrency fraud investigation, $ 2.3 million found by the ransomware group behind the attack the Colonial Pipeline were seized and an undisclosed amount paid by the Israeli National Bureau for Counter Terror Financing in. one case related to the financing of terrorism was seized.

Leave A Reply

Your email address will not be published.

Get more stuff like this
in your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Thank you for subscribing.

Something went wrong.