- A new study from Chainalysis shows that illicit crypto addresses received $14 billion last year, an increase of nearly 80% from $7.8 billion in 2020.
- But the total volume of cryptocurrency transactions has also ballooned by 550% to $15.8 trillion last year.
- “The scale of legitimate activity has grown much faster than the scale of criminal activity,” Kim Grauer of Chainalysis told Insider.
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The cryptocurrency market witnessed amazing growth in 2021 as currencies from bitcoin to dogecoin reached record levels. But along with this spike, there has been a sharp rise in illicit activity, according to a new study from Chainalysis.
In 2021, crypto-based crime reached an all-time high, with illicit addresses receiving $14 billion, nearly 80% higher compared to $7.8 billion in 2020.
However, the forensic and forensic analysis firm also notes that the total volume of cryptocurrency transactions has also ballooned by 550% to $15.8 trillion last year.
“The amount of legitimate activity has grown much faster than the amount of criminal activity,” Kim Grauer, head of research at Chainalysis, told Insider. She added that given the growth of the area, the increase in crime has never been lower compared to legal transactions.
However, illegal activities continued to spread. Chainslees said criminal abuse of digital assets threatens broader institutional adoption as regulators around the world crack down on cryptocurrencies.
Crimes that Chainalysis noted in 2021 included the ongoing threat of ransomware and NFT-related scams. But two other trends have emerged in particular last year: fraud and money theft, with decentralized finance being the common denominator.
The total value of cryptocurrencies defrauded by scammers reached $7.8 billion in 2021 – an 82% increase over 2020. More than $2.8 billion of that amount came from rug pulls, a new type of scam where creators are quickly profiting of their earnings after developing what appeared to be a legitimate token.
The scam was exposed when the top head of Turkish crypto exchange Thodex fled Istanbul, leaving nearly 400,000 people unable to access their accounts.
Other than that incident, which accounted for 90% of all rug-pull revenue last year, every other rug-haul followed by Chainalysis involved DeFi projects, the study said.
Grauer said that a possible reason for the prevalence of DeFi scams may have something to do with the smart contract code that governs the protocols. She said anyone with the technical skills to create DeFi tokens can list them on the exchange even though there is no audit over the code, which is when a third party analyzes and confirms the credibility of a particular project.
“A lot of the code that writes these protocols is public and open source,” she told Insider. “So anyone can look at them and look for errors in the code that they can then exploit.”
Another reason is just the rapid growth of space. DeFi trading volume jumped 912% in 2021, thanks to decentralized tokens like shiba inu that spurred speculation.
Then there is outright theft, with cryptocurrency theft revenue jumping 516% to $3.2 billion in 2021.
Chainalysis said nearly $2.2 billion – 72% of last year’s total – was stolen from DeFi protocols. That’s just over $162 million in 2020.
Chainalysis also saw an exponential growth in DeFi protocols used to launder illicit money in 2021, a practice that saw only sporadic examples in 2020. In fact, money laundering increased by 1.964% compared to 2020.
“I hope we won’t see this much hacking of DeFi protocols in the next year because I hope these people realize the importance of taking security measures to protect their platforms with data like these,” Grauer told Insider.