Crypto crime has increased as the overall adoption of crypto has grown.
Use of cryptocurrencies for criminal activities rose in the past year.
In 2021 crypto-based crime rose and hit a new All-Time High (ATH).
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Rise in Crypto Related Crime
According to Chainalysis research, illicit addresses received around $14 billion, up from $7.8 billion in 2020.

Crime has increased because crypto adoption has grown. In 2021, the total transaction volume recorded was $15.8 trillion, up 567% from 2020’s totals.
The increase in illicit proceeds was 79%, significantly lower than the growth rate of overall adoption.

That’s why the illicit transactions accounted for just 0.15% of the total transaction volume.
Their proportion is just a quarter of the 2020’s tally, despite the absolute number of illicit transaction volumes reaching a new ATH in 2021.
So, a trend has been observed that crime’s share in the overall crypto industry is reducing with every passing year. It is because law enforcement’s ability to tackle crypto-related crime is also improving.
Decentralized Finance’s (DeFi) Rise Provides More Opportunity for Crypto Crime

Out of all the categories of crypto crimes, stealing funds and scams have grown the most. Some categories even registered negative growth.
Scamming
Scammers received $7.8 billion worth of cryptocurrency, registering a growth of 82%.
Over $2.8 billion of this came from Rug Pulls.
Rug Pulls
Rug Pulls are a relatively new kind of scam wherein a legitimate appearing project flees with investor money. The figures from Rug Pulls only include the value of the funds stolen from investors not the subsequent loss of value DeFi tokens.
90% of the total value lost to Rug Pulls in 2021 can be pinned to one Centralized Exchange (CEX) called Thodex. The CEO of Thodex fled with the money after suspending users’ ability to withdraw funds.
All the other Rug Pulls tracked by Chainalysis involved DeFi projects.
Rug Pulls have proliferated because of 2 reasons.
First is the fear of missing out (FOMO) on opportunities offering skyrocketing returns by investing in DeFi products. The other is that anyone can create DeFi tokens without needing a Code Audit. In both scenarios, investors do not check the reliability of the project and the background of the developer.
Code Audit is a process wherein a 3rd party ‘audits’ a project to look for loopholes that would enable anyone to exploit the project and con the investors. The projects which pass the audit are considered safe to invest in.
Stolen Funds
Crypto theft grew at an enormous rate of 516%, siphoning off $3.2 billion worth of cryptocurrency.
72% or $3.2 billion of those funds were stolen from DeFi projects.
Crime Victims

In the year 2020, roughly $162 million worth of cryptocurrency was stolen from DeFi protocols accounting for 31% of the total amount stolen. This number grew by 1,330% in 2021.
Most DeFi exploits can be traced back to errors in the smart contract, code governing those protocols. These bugs are exploited by hackers to perpetrate the attacks.
The use of DeFi projects for money laundering also increased by 1,964% during the period in discussion.
Law enforcement has seized a big chunk of the illicit funds. At the moment, Chainalysis has identified that illicit addresses hold at least $10 billion worth of cryptocurrency. The majority of the funds are held by addresses associated with cryptocurrency theft.
Wallets associated with darknet markets and with scams also contribute significantly to this number. Much of the value arrived at is not the initial amount obtained from crimes rather from subsequent price increases of the crypto assets held.
Crypto-related crimes have reduced as a chunk of the overall crypto activity. Still, they create impediments to adoption. With greater cybersecurity, awareness among investors, improvement in the ability of law enforcement to tackle such crimes, and regulations, these crimes can be reduced.
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