Much has been written about the criminal use of cryptocurrency, including ransomware attacks, terrorist funding and outright theft.
And crypto-related crimes are increasing.
The 2022 Crypto Crime Report from Chainalysis, a blockchain analysis firm, found that cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020.
Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever, Chainalysis said.
“Cryptocurrency usage is growing faster than ever before,” the report said. “Across all cryptocurrencies tracked by Chainalysis, total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020’s totals.”
Given that roaring adoption, the study said, “it’s no surprise that more cybercriminals are using cryptocurrency.”
“But the fact that the increase in illicit transaction volume was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all,” the report said.
Chainalysis said that the 0.15% figure is likely to rise as the firm identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes.
Last year’s crypto crime report, for example, found that 0.34% of 2020’s cryptocurrency transaction volume was associated with illicit activity. Chainalysis has now raised that figure to 0.62%.
“Still, the yearly trends suggest that with the exception of 2019 — an extreme outlier year for cryptocurrency-based crime largely due to the PlusToken Ponzi scheme — crime is becoming a smaller and smaller part of the cryptocurrency ecosystem,” the report said.
PlusToken scheme mostly had investors in China and South Korea and victims were taken for roughly $2 billion to $3 billion.
Chainlysis noted, however, that “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.”
“Criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimizes innocent people around the world,” the report said.
to the increase over 2020’s total, came from rug pulls, a relatively new scam where developers build what appear to be legitimate cryptocurrency projects before taking investors’ money and disappearing.
“We should note that roughly 90% of the total value lost to rug pulls in 2021 can be attributed to one fraudulent centralized exchange, Thodex, whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds,” the report said.
Every other rug pull tracked by Chainalysis in 2021 involved DeFi, or decentralized finance, projects.
Cryptocurrency theft grew even more, the study found, with roughly $3.2 billion worth of cryptocurrency stolen in 2021 — a 516% increase compared to 2020. Roughly $2.2 billion of those funds — 72% of the 2021 total — were stolen from DeFi protocols.
Money-laundering totaled $8.6 billion worth of crypto last year, up 30% from a year ago. Chainalysis said this not surprising “given the significant growth of both legitimate and illicit cryptocurrency activity in 2021.”
“The biggest difference between fiat and cryptocurrency-based money laundering is that, due to the inherent transparency of blockchains,” the report said, “we can more easily trace how criminals move cryptocurrency between wallets and services in their efforts to convert their funds into cash.”
In addition, criminal whales represent 3.7% of all cryptocurrency whales, meaning private wallets holding over $1 million worth of cryptocurrency.
Chainalyis said that by the end of 2021, it had identified a number of terrorist organizations that have attempted to finance their operations with cryptocurrency.
Governments that have embraced blockchain analysis have seized millions of dollars in cryptocurrency and stopped a number of terrorist financiers, the report said, “further evidence that with the proper tools, investigators can cut terrorist organizations off from the funds that enable their rise.