As enthusiasm for crypto assets soars, so does crypto-related crime, according to data from blockchain research firm Chainalysis Inc.
In a post previewing its forthcoming annual crypto crime report (which is due for release next month), New York-based Chainalysis said that web addresses it has associated with illicit activity received more than US$14 billion in 2021, up from around US$7.8 billion the previous year.
In particular, scam activity jumped by 82% year over year, Chainalysis reported, with US$7.8 billion worth of crypto lost to scams last year.
Over US$2.8 billion of this involved so-called “rug pulls,” where seemingly legitimate crypto projects simply shut down and disappear with investors’ money, the firm said.
At the same time, there was about US$3.2 billion worth of crypto stolen in 2021. Of that, US$2.2 billion was stolen from so-called decentralized finance (DeFi) protocols.
“The increase in DeFi-related thefts represents the acceleration of a trend we identified in last year’s crypto crime report,” it said.
“[M]ost instances of theft from DeFi protocols can be traced back to errors in the smart contract code governing those protocols, which hackers exploit to steal funds, similar to the errors that allow rug pulls to occur.”
DeFi protocols are also increasingly being used to launder illicit funds, the firm said, noting a huge increase in laundering activity.
“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike. But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft,” it said.
Despite sharp increases in the use of crypto for criminal activities, the report pointed out that legitimate crypto usage is growing much faster, with total transaction volume rising by 567% year over year in 2021.
“In fact, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower,” it said.
“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.”