Crypto crooks take record $ 14 billion in 2021: Chainalysis

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Scammers won a record $ 14 billion in cryptocurrency in 2021, largely thanks to the rise of decentralized finance (DeFi) platforms, according to new data from blockchain analytics firm Chainalysis.

Losses from crypto-related crime increased 79% from the previous year, due to an increase in thefts and scams.

Scam was the largest form of cryptocurrency-based crime in 2021, followed by theft, most of which occurred through hacking of cryptocurrency businesses. The company claims DeFi is a big part of the story for both, in another warning for those entering this emerging segment of the crypto industry.

“DeFi is one of the most exciting areas in the larger cryptocurrency ecosystem, providing huge opportunities for entrepreneurs and cryptocurrency users,” Chainalysis wrote in its annual Crypto Crime report.

“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also enables large-scale scams and thefts.”

DeFi’s Wild West

DeFi is a rapidly growing sector of the crypto market that aims to eliminate middlemen, such as banks, from traditional financial transactions, such as guaranteeing a loan.

With DeFi, banks and lawyers are replaced by a programmable piece of code called a smart contract. This contract is written on a public blockchain, like Ethereum or Solana, and it executes when certain conditions are met, eliminating the need for a central intermediary.

“The financial system basically sends money with various terms and conditions,” said Joey Krug, chief investment officer at Pantera Capital, a cryptocurrency and blockchain-focused asset manager.

DeFi transaction volume grew 912% in 2021, according to statistics from Chainalysis. Impressive returns on decentralized tokens like the shiba inu have also spurred a binge eating among DeFi tokens.

But there are a lot of red flags when it comes to dealing with this nascent crypto ecosystem.

One problem with DeFi, according to Kim Grauer, head of research at Chainalysis, is that many of the new protocols launched have code vulnerabilities that hackers can exploit. 21% of all hacks in 2021 took advantage of these code exploits.

Grauer told CNBC that while there are third-party companies that perform code audits and publicly designate the protocols as safe, many users still choose to work with risky platforms that bypass this step if they think they can get it. an important return.

Cryptocurrency theft increased 516% from 2020, reaching $ 3.2 billion in cryptocurrency. Of that total, 72% of the stolen funds came from DeFi protocols.

Losses from scams increased 82% to $ 7.8 billion in cryptocurrency.

Over $ 2.8 billion of that total came from a relatively new but very popular type of program known as a “rug pull”, in which developers build what appear to be legitimate cryptocurrency projects, before finally taking investor money and disappearing.

“Given the hype around DeFi, people may have been more okay with using less secure platforms because of the fear of missing out on potential gains,” Grauer explained.

Crime statistics don’t tell the whole story

Crypto-related crime may reach an all-time high, but the researchers note that the growth in legitimate cryptocurrency use far exceeds the growth in criminal use.

Transactions involving illicit addresses were an all-time low of just 0.15% of the $ 15.8 trillion in total crypto exchange volume in 2021.

The research firm identifies illicit funds based on their link to confirmed illicit activity. For example, funds would be considered illicit if they were sent to or from a darknet marketplace, or if they were known to have been stolen during a hack.

“The fact that the increase was only 79%, almost an order of magnitude lower than overall adoption could be the biggest surprise of all,” Chainalysis wrote.

“Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem,” the report continues.

Researchers attribute the stunted growth in crypto-based crime in part to the evolving law enforcement toolkit, as well as the transparency inherited from blockchain technologies.

Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem.

Channel analysis

Crypto Crimes Report 2021

Unlike cash and other traditional forms of value transfer, every transaction is recorded in a publicly visible ledger, and with the right tools, Grauer says it’s possible to see how much of all crypto activity is happening. -currency is associated with crime.

“Authorities have been enormously successful in leveraging the transparency of blockchains to investigate and stop illicit activity,” Grauer said.

In November, for example, the IRS criminal investigation agency said it had seized more than $ 3.5 billion in cryptocurrency in 2021, all from non-tax investigations accounting for 93% of all funds seized by the division during this period.

Other victories for law enforcement in 2021 included the $ 56 million seizure of the Justice Department in a cryptocurrency scam investigation, $ 2.3 million seized from the ransomware group at the origin of the colonial pipeline attack, as well as an undisclosed amount seized by Israel’s National Counterterrorism Financing Office in a terrorist financing case.

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