Crypto scammers took a record $14 billion in 2021: Chainalysis
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Due to the growth of Decentralized Finance (DeFi), scammers were able to take home an unprecedented $14 billion worth of cryptocurrency in 2021. According to Chainalysis, a blockchain analytics company.
Due to an increase in scams and theft, crypto-related crime losses rose by 79% compared to one year before.
Scamming was the greatest form of cryptocurrency-based crime in 2021, followed by theft — most of which occurred through hacking of cryptocurrency businesses. According to the firm, DeFi plays a significant role in both of these crimes. This is yet another warning signal for anyone who wants to get involved in the emerging crypto sector.
Chainalysis’ annual review stated that DeFi was “one of most exciting areas in the wider cryptocurrency ecosystem,” and offered huge opportunities for both entrepreneurs and users. Crypto Crime report.
DeFi will not realize its true potential if it allows widespread fraudming and theft.
DeFi’s wild west
DeFi is an emerging sector in the cryptocurrency market. It aims at removing banks and middlemen from financial transactions like loan securing.
DeFi replaces lawyers and banks with a piece of programming code known as a smart contract. It is written using a public Blockchain, such as ethereumOder solanaIt can execute when conditions are met and negates the need for an intermediary.
Joey Krug is the Chief Investment Officer of Pantera Capital. This cryptocurrency- and blockchain-focused asset manager said that “the financial system basically sends money around with different terms and conditions.”
According to Chainalysis statistics, the DeFi transaction volume increased 912% between 2021 and 2023. Decentralized tokens such as shiba Inu have also seen impressive returns, which has sparked a feeding frenzy.
There are many red flags about dealing with this emerging crypto-system.
Kim Grauer (Chainalysis’ head for research) says that DeFi has a problem because many new protocols are vulnerable to hackers. This code vulnerability was exploited by 21% in hacks performed between 2021 and 2023.
Grauer told CNBC that although there are companies that do code audits, and publically identify which protocols are safe, most users choose to use platforms with high risk that can bypass these steps if they feel they will get a good return.
The theft of cryptocurrency rose 516 percent between 2020 and now amounts to $3.2 billion. 72% of the stolen funds came from DeFi protocols.
Scams accounted for 82% of the $7.8 Billion in cryptocurrency losses.
A new scheme, but extremely popular, called “rug pull” saw more than $2.8 Billion come from it. This is a type of scheme in which developers create what appear to legitimate cryptocurrency projects and take investors’ funds before disappearing.
DeFi hype may have led people to be more open to using less secure platforms in order not miss out on the potential benefits. Grauer.
Statistics on crime don’t reveal the whole story
While crypto-related crime is at an all time high, research shows that legal cryptocurrency usage has grown far faster than the criminal use.
Illicit addresses accounted for just 0.1% of total crypto trade volume of $15.8 trillion by 2021.
Based on the connection between illicit activities and illicit funds, research firms identify illicit funds. Funds would, for example, be illegal if they are sent from or to a darknet marketplace or if it is known that the funds were stolen by hacker.
“The fact that the increase was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all,” Chainalysis wrote.
According to the report, “Crime is shrinking in importance within the crypto ecosystem,”
Researchers partially credit the curbed rise in cryptocurrency-based crime to evolving law enforcement tools and inherit transparency from blockchain technologies.
It is becoming less common for criminal activity to be a part of cryptocurrency ecosystem.
Chainalysis
2021 Crypto Crime Report
Grauer said that cryptocurrency transactions are not recorded like cash or other forms of value transfers. With the right tools Grauer can also see how much of any activity has been linked to crime.
Grauer said that authorities have been extremely successful at using blockchain transparency to uncover and end illicit activities.
In November, for example, the IRS Criminal Investigations agency said that it had seized over $3.5 billion worth of cryptocurrency in 2021 — all from non-tax investigations — representing 93% of all funds seized by the division during that time period.
Law enforcement also won other victories in 2021, including the $56 million seizure by the Department of Justice in an investigation into a crypto-scam. $2.3 million seizedRansomware from the Colonial Pipeline Attack ransomware group, and an undisclosed amount seized by Israel’s National Bureau for Counter Terror FinancingA case that involves terrorist financing.
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