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Cryptocurrency-based crime hit a new record in 2021 with an estimated $14 billion worth of cryptocurrency stolen, scammed, or otherwise “extracted” to illicit addresses. And yet, paradoxically, it also reached an all-time low.
We are well into 2022, and what a better time it is to look back at the previous year, assess if the previously made predictions came true, shine a light on the “biggest villains” of 2021, and of course hypothesize about the future crypto crime trends. Let’s start with the elephant in the room.
This statement by Chainalysis – a cryptocurrency research platform – published in their yearly crypto crime report, sounds dire at first glance. A 2021′s record-setting $14 billion in criminal blockchain activity nearly doubled 2020′s figure of $7.8 billion worth of stolen cryptocurrencies. But those numbers don’t show the whole picture, apparently.
Crypto market grew exponentially in 2021, rising 567% from 2020’s totals and reaching $15.8 trillion. When compared to just a 79% increase in illicit transaction volume, the overall statistic becomes substantially more positive. In fact, according to the report, criminal activity accounted only for 0.15% of all blockchain transactions in 2021.
Now that we have established why no disaster bells were ringing during the year 2021 regarding the crypto trade, let’s take a closer look at the 0.15% of crime activity.
When it comes to the competition for the title of the “main villain” of crypto crime 2021, the outcome can be quite ambiguous. The most obvious choice would be to crown the biggest perpetrator that stole the largest amount of cryptocurrency. In this case, we have an irrefutable winner in the face of Thodex. There is the Turkish fraudulent centralized exchange, whose CEO suddenly disappeared and allegedly took approximately $2 billion in user funds with him.
However, we can also take a slightly creative approach in which we use the term “villain” loosely and do not look for a specific crime, but rather a common variable between all of the cryptocurrency-based crime types that increased the most in 2021. How, or rather where they happened? Judged by these criteria, the biggest offender in crypto trading security are the decentralized finance (or simply DeFi) platforms. “Two crime type categories stand out for their growth: stolen funds and, to a lesser degree, scams. DeFi is a big part of the story for both,” says the report.
The most popular crime type of 2021 were unquestionably scams, accounting for the major share of cryptocurrency crime, $7.8 billion, which is more than a half of all crypto assets received by illicit addresses in 2021. Rug pulls, a type of scam mostly associated with the aforementioned DeFi platforms, where developers build legitimate-looking projects, take investors’ money, and then disappear, were particularly on the rise that year. Since decentralized exchanges list new tokens without a prior code audit, it creates opportunities for scammers to pray on less technically savvy users. “Every other rug pull tracked by Chainalysis in 2021 involved DeFi projects” the report states.
DeFi also played a major role when it comes to the second most common cryptocurrency-based crime type – theft. According to Chainalysis, roughly $3.2 billion worth of cryptocurrency were stolen in 2021, which is a significant 516% increase compared to 2020. An estimated $2 billion of those funds, were stolen from DeFi protocols. There are several reasons for DeFi’s vulnerability, most of which stem from the fact that it’s still a new industry and lot of code is an open-source, which benefits cybercriminals as they can analyze the scripts for vulnerabilities.
And finally, let’s take a look at one of the shiniest cryptocurrency success stories of 2021 – Non-fungible tokens (NFTs). Based on the Chainalysis report, around $44.2 billion worth of cryptocurrency was sent to two types of Ethereum smart contracts associated with NFT marketplaces and collections compared to only $106 million in the previous year.
But as we well know, with every sudden explosion in popularity, inevitably also comes a rise of crime associated with this new booming technology. In the case of NFTs specifically, we are talking about wash trading to artificially increase the value of NFTs and money laundering through the purchase of NFTs. And as the expansion of the NFT market shows no
signs of stopping, we can safely assume that we will be hearing about a rise of NFTs related crime in 2022’s numbers next year as well.