Illicit Crypto transactions hit an all-time high in 2021

By fklivestolearn | Technicity | 15 Jan 2022

This, however, doesn't tell the full story as the roaring adoption far outstripped the volume of the crypto crime

One of the biggest criticisms that digital assets face by the nay-sayers is that they are widely used in illicit and illegal activities. Darknet often harbors such cybercriminals and other gangs which engage in such nefarious activities. Although Bitcoin and other cryptos have made it even more convenient for these illegal rackets to operate, the former’s share in these black markets operations is far smaller than it is led to assume in the mainstream.

As outlined in the 2022 Crypto Crime Report by Chainalysis, cryptocurrency-based crime continues to grow, with illicit addresses receiving $14 billion during 2021 — hitting an all-time high (ATH), up from $7.8 billion in 2020 (Figure 1). Although the detailed report is expected to be released in February, a blog preview summarizes the main findings.

It wouldn’t be fair, however, without comparing crypto adoption with the growth of illicit transactions. While cybercriminals' use of crypto was up 79% year over year in 2021, the total transaction volume of all cryptocurrencies tracked by Chainalysis grew to a massive $15.8 trillion in 2021, up 567% from 2020’s totals. Despite a roaring adoption of cryptos last year, the magnitude of the nefarious crypto activity was much smaller.


Figure 1

As the chart above suggests, the total crypto value received by illicit addresses has continued to grow from 2017 to 2021 — growing from $4.6 billion to an ATH of $14.0 billion last year. Scams have been the biggest contributor to this metric followed by stolen funds, which saw significant growth last year. Stolen funds recorded a massive growth of over 500% while Scamming revenue rose 82% in 2021 to $7.8 billion worth of cryptocurrency stolen from victims.

Despite the volume of illicit transactions reaching an ATH in 2021, Transactions involving illicit addresses represented just 0.15% of the total cryptocurrency transaction volume in 2021 (Figure 2). In the previous Crypto Crime report 2020, the same figure stood at 0.34%. That figure has now been updated to 0.62% and the same could be done to last year’s figure mentioned above, as Chainalysis identifies more illicit addresses.

Barring any huge surprises, the ratio still points to a downward trend in the share of all illicit crypto transaction volume. There was an outlier in the yearly trend in the form of the PlusToken Ponzi scheme — causing a spike in both metrics for the year 2019. The bright spot in all this points to a continually dwindling criminal footprint in the crypto ecosystem.


Figure 2

Decentralized Finance (DeFi) has largely driven the amount of cryptocurrency stolen in the last year and saw an exponential growth (Figure 3) — owing to the DeFi transaction volume growing by 912% in the last year alone. Cashing in on the scope of the decentralized ecosystem, anybody with the right technical skills to create new DeFi tokens and get them listed on exchanges, without a code audit. Since DEXes don’t require code audits before listing tokens, many fraudsters scam investors out of their money.

Cryptocurrency theft grew even more, 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. DeFi related thefts in 2021 were basically an acceleration of the trend that was identified in the last year’s report. Most of the Defi thefts can be associated with the contract code governing those protocols which hackers exploit to steal funds. DeFi protocols saw the most growth by far in usage for money laundering at 1,964%.


Figure 3

Another positive development that we saw last year was the ability of law enforcement agencies to seize illicitly obtained cryptocurrency. In November 2021, for instance, the IRS Criminal Investigations announced 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.

Chainslysis report estimates that based on the current holdings of illicit addresses to be at least $10 billion worth of cryptocurrency. Going forward, it’s imperative that public-private partnerships ensure the safety of this nascent digital space. Effective compliance and regulation can also contribute to effectively mitigating crypto-based crime.

 Originally Published on Medium

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I am a prolific Blogger on Substack/Medium with my daily newsletter. Extensive trading experience in Forex & Stocks based on technical studies. Cryptocurrency trader and Enthusiast, Blockchain/Fintech Evangelist & generally just a Technology Freak.


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