Scams, theft and cryptocurrency laundering are on the rise, according to Chainalysis.
As enthusiasm for cryptoassets soars, so does crime, according to data from blockchain research firm Chainalysis Inc.
In a post giving an overview of its upcoming annual report on cryptocurrency-related crime (scheduled for release next month), Chainalysis said that the web addresses it has associated with illicit activities received more than US$14 billion in 2021, up from about US$7.8 billion the year before, almost double.
In particular, scam activity jumped 82 percent year-over-year, Chainalysis found, with US$7.8 billion worth of cryptocurrencies lost in scams last year.
Of that amount, more than $2.8 billion was lost due to so-called “rug pulls,” which are seemingly legitimate cryptocurrency projects that simply disappear with investors’ money, the company said.
At the same time, about $3.2 billion worth of cryptocurrencies were stolen in 2021. Of this amount, 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,” the report reads.
“[T]he most cases of theft in DeFi protocols can be attributed to errors in the smart contract code governing these protocols, which hackers exploit to steal funds, in the same way as the errors that allow rug pulls to occur.”
DeFi protocols are also increasingly being used to launder illicit funds, points out the New York firm, which reports a huge increase in money laundering activities.
“DeFi is one of the most exciting areas of the broader cryptocurrency ecosystem, presenting huge opportunities for cryptocurrency entrepreneurs and users. But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scams and theft,” he said.
Despite the sharp increases in the use of cryptocurrencies for criminal activities, the report points out that the legitimate use of cryptocurrencies is growing much faster, with total transaction volume increasing by 567% year-on-year in 2021.
“In fact, as the growth of legitimate cryptocurrency use far exceeds that of criminal use, the share of illicit activities in the volume of cryptocurrency transactions has never been lower,” the report concludes.
“Transactions involving illicit addresses accounted for only 0.15% of the volume of cryptocurrency transactions in 2021, despite the fact that the gross value of illicit transaction volume reached its highest level ever recorded.”
