Crypto crime skyrocketed in 2021 along with the overall crypto adoption.
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Overview of Crypto Crime in 2021
As much as $14 billion were received by illicit addresses in 2021, up from $7.8 billion in 2020. It is the new All-Time High as revealed by blockchain analytics firm Chainalysis in its report titled ‘The 2022 Crypto Crime Report’.
The rise in illicit money can be daunting, but when compared to the growth in total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020’s totals.
“The fact that the increase in illicit transaction volume was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all.”
Transactions involving illicit addresses constituted just 0.15% of cryptocurrency transaction volume in 2021 despite the absolute number of illicit transaction volume reaching an All-Time High.
Among all the criminal activities, stolen funds constituted the biggest chunk of illicit proceeds.
Criminal balances fluctuated throughout the year, from a low of $6.6 billion in July to a high of $14.8 billion in October. At year-end criminal balances stood at $11 billion. Stolen funds account for 93% of all criminal balances at $9.8 billion.
“The fluctuations are a reminder of the importance of speed in cryptocurrency investigations, as criminal funds that have been successfully traced on the blockchain can be liquidated quickly.”
Moreover, it shows that law enforcement’s improved ability to seize cryptocurrency from criminals not only allows “financial restitution for victims of cryptocurrency-based crime” but also “disprove the narrative that cryptocurrency is an untraceable, unseizable asset perfect for a crime”
Criminal Whales
Chainalysis identified 4,068 criminal whales that hold over $25 billion worth of cryptocurrency.
Criminal whales represent 3.7% of all cryptocurrency whales.
Whales are private wallets holding over $1 million worth of cryptocurrency.
Criminal whales are those addresses that received 10% or more funds from illicit addresses.
Of the total 4068 criminal whales identified, 1,374 criminal whales received between 10% and 25% of their total balance from illicit addresses.
But as many as 1,361 criminal whales received between 90% and 100% of their total balance from illicit addresses.
The rest of 1,333 criminal whales received between 25% and 90% of all funds from illicit addresses.
Darknet markets are the biggest source of illicit funds of criminal whales, followed by scams second and stolen funds coming at 3rd place.
NFT Crimes
Non-fungible tokens (NFT) were all the rage during 2021. NFT even became the Collins Dictionary word of the year.
Chainalysis found that NFTs are prone to wash trading and money laundering.
Wash Trading
Wash trading involves a transaction in which the seller is on both sides of the trade i.e. they are both the seller and buyer either directly or indirectly. Through this, they paint a misleading picture of an asset’s value and liquidity.
They make the asset, in this case NFT, appear lucrative and then sell it to an unsuspecting buyer.
Money Laundering
Cybercriminals purchase NFTs with illicit funds and then sell them. They earn clean money with no connection to the original criminal activity, thereby laundering the funds
Value received by NFT marketplaces from illicit addresses jumped significantly in the 3rd quarter of 2021, crossing $1 million worth of crypto.
In both the 3rd and 4th quarters of 2021, the majority of funds from scam-associated addresses were used to make NFT purchases.
Ransomware
As of now, Chainalysis has identified just over $602 million worth of ransomware payments. The company believes the true number could be a lot higher.
At least 140 ransomware strains received payments from victims at any point in 2021, compared to 119 in 2020, and 79 in 2019. Those numbers testify the intense growth of ransomware we’ve seen over the last two years.
DeFi Thefts Grow
DeFi thefts grew at around 1330%.
$3.2 billion in cryptocurrency was stolen from individuals and services in 2021.
Of this, $2.3 billion were stolen from DeFi platforms, marking an increase of 1330%.
Surprisingly “in every year prior to 2021, centralized exchanges lost the most cryptocurrency to theft by a large margin. But this year, DeFi platform thefts dwarfed exchange thefts by a factor of six.”
The most common way of attack was code exploits. It accounted for 49.8% of the attacks.
When examining only hacks on DeFi platforms, that figure goes above 50%.
Scams
Scams accounted for $7.7 billion worth of cryptocurrency taken from victims worldwide.
Rug Pulls dominated all the scams, with around 37% of money stolen through them, as compared to 1% in 2020.
Finiko, AnubisDAO, and Thodex were the prominent scams that took place in 2021.
Laundering
Cybercriminals laundered $8.6 billion worth of cryptocurrency in 2021.
For the first time since 2018, Centralized Exchanges (CEX) didn’t receive the majority of funds sent by illicit addresses last year. DeFi protocols make up the difference.
They received 17% of all funds sent from illicit wallets in 2021, up from 2% in the previous year.
But overall, CEX dominated money laundering.
Bitcoin is one of the least used cryptos for laundering.
The 20 biggest money-laundering deposit addresses received just 19% of all Bitcoin sent from illicit addresses, compared to 57% for stablecoins, 63% for Ethereum, and 68% for altcoins.
“In fiat, the highest net worth criminals have murky networks of foreign banks and shell corporations to obfuscate their holdings, but in cryptocurrency, transactions are saved on the blockchain for all to see,” the blockchain analytics platform said.
Crypto adoption skyrocketed in 2021, so did the crime. It should be noted that crypto crime still constitutes a minuscule of the whole industry. No industry is crime-free. A positive development in this regard is that law enforcement has also enhanced its capability in crypto, and since crypto can be traced, authorities can nab the criminals.
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