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Chainanalysis: Cryptocurrency-based Crimes Reached $14 billion in 2021

A new report published by the blockchain data platform Chainanalysis estimated crypto-based criminal activity at $14 billion in 2021. The Crypto Crime Report is a yearly analysis shared by the company to provide insight into the darker side of this industry.

Blockchain users’ anonymity generally provides a safer payment network, but some exploit data encryption for malicious purposes. This article will highlight the primary evidence anticipated by Chainanalysis to the market, compared to past numbers.

How do criminals exploit cryptocurrencies?

Before mentioning all the numbers in detail, it is probably helpful to remind how criminals generally use cryptocurrencies. Let us go through each of the leading crimes in the following sections:

Money laundering

The recent legal history of the world economy has many cases of money laundering discoveries in crypto-related activities. In the U.S., for example, the Department of Justice (DOJ) has published several findings on the matter.

To mention one of the most famous cases, in 2020, a man in Ohio managed to launder over $300 million in cryptocurrencies. The whole operation was carried out through a DarkNet-based portal named Helix.

In this case, Helix (as many other portals out there) worked as a “mixer”, a popular scheme in the crypto-related criminal world. Mixers use many wallet addresses together to send tokens, at random intervals, to a recipient. The structure of this network aims to conceal the origin of cryptocurrencies in blockchain transactions.

Ransomware

Ransomware is a computer script aiming to alter an existing file. In more practical terms, ransomware makes a file (or a group of them) impossible to read for a computer or server. These operations usually aim to temporarily prevent users from accessing a system, asking the owner for a ransom.

The encrypted system, typical of blockchains, has led criminals to prefer cryptocurrencies to fiat money in their ransom requests.

DarkNet markets

The anonymity offered by cryptocurrencies and blockchain gained initial popularity in the DarkNet. A criminal exchanging illegal services and goods online can make the life of a regulator much harder.

There are reports online on the widespread use of cryptocurrencies on the DarkNet, proving that criminals benefit from blockchain technology.

Scams

Scamming users in the crypto industry does not need to be particularly complex to be effective. Think, for example, of the popular Pump-and-Dump scheme. Online groups and chats aim to buy a specific token to push up its price and sell it a few minutes later.

These groups generally may appear tempting to new investors in the crypto market. However, the truth is that many of them buy the token typically in advance, only to dump it as soon as they send the buy signal to the group.

Even worse, when users find it impossible to sell a coin on the market (since no one is buying at that price), a secondary scam appears. Criminals may suggest selling the tokens through a different website when users connect their wallets to the new website, any attempt to sell transfers money to the criminals’ wallets.

Stolen funds

Criminals can also steal access to a crypto wallet from a user. Most wallets require the use of a password and a secret phrase to unlock the funds. As soon as criminals steal this information, legit owners will no longer manage to access the wallet.

As we will see soon in our article, crypto fund stealing recorded a worrying trend in 2021. In this context, it should not surprise anyone to know that finding stolen crypto is becoming a real business.

Terrorism and extremism funding

Terrorists are also among the criminals who have enjoyed the perks of crypto and blockchain technology. In 2020, the DOJ announced the largest ever seizure of terrorism-related crypto wallets.

Consistent growth in crypto-related criminal activity

The numbers anticipated by Chainanalysis on a blog post are pretty straightforward. The $14 billion estimations for 2021 represents an all-time high in crypto-related illegal activity. Just in terms of comparison, the past years saw the following trend:

  • 2017: $4.6 billion
  • 2018: $4.4 billion
  • 2019: $11.7 billion
  • 2020: $7.8 billion

Among the many usages of cryptocurrencies by criminals, scams and stolen funds recorded an impressive growth rate. Scam operations nearly doubled compared to 2020, while cases of stolen funds increased by more than 500% yearly.

The growth in stolen funds appears particularly troublesome, as it can lead to enormous losses for investors. Chainanalysis claims that most of the increase depends on DeFi malicious protocols. To understand the growth, in 2020, DeFi protocols helped criminals steal $150 million, moving above $2 billion in 2021. 

DeFi has several problems it needs to solve in the future. However, the mentioned report proves that 2021 only saw a worsening of the issue.

Looking at the bigger picture

It would be wrong to ignore that 2021 was an unprecedented year of growth in the overall crypto activity. Think, for example, of how non-fungible tokens (NFTs) managed to become extremely popular last year.

As crypto adoption grows, no one should be surprised to see a similar trend in criminal activities in the industry. Chainanalysis claims that the share of illicit crypto activity has never been so low as in 2021.

The record low value of 0.15% (down from 0.62% in 2020) is a promising aspect for the sector’s future. However, the remaining numbers mentioned in the study call for interventions, such as:

  • A reasonable global crypto policy: as pointed out by the IMF, introducing an international regulation on cryptocurrencies may protect investors’ funds
  • A higher level of financial education: understanding how crypto criminals move can help citizens reduce the chance of falling into a scam.

Final thoughts

Cryptocurrency crimes are increasing, and so is the attention of regulators and policymakers. While we wait for intervention from financial authorities, learning about these operations can help investors avoid losing their funds.

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It is undoubtedly positive to observe how the vast majority of new market incomers play by the rules. However, the unprecedented growth in crypto trading brings more inexperienced investors to the industry. This category needs to be protected by the scams operating through the darkest sides of DeFi.

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