In its annual Crypto Crime report, New York-based blockchain analytics firm Chainalysis has reported that although the percentage of illicit crypto transactions fell drastically in 2021, their dollar value surged significantly.
As per the Chainalysis report, the value of crimes involving cryptos surged to a new high of US$14 billion in 2021. This represents an increase of 79 percent from US$7.8 billion reported in 2020, which is mainly due to the upward spiral in crypto prices experienced in 2021.
The cryptocurrency market has expanded to such an extent that Chainalysis has even opened a new office in the Australian capital due to increased mainstream adoption in the Pacific region.
Although the dollar value appears to be astronomical, the activity represents a mere 0.15 percent of the total of US$15.8 trillion in crypto transaction volumes over the year – the lowest percentage ever recorded. To put this in perspective, the illicit share of crypto transaction volume in 2019 was 3.37 percent, and 0.62 percent in 2020.
DeFi Scams and Rug Pulls Main Drivers of Crypto Crime
The Chainalysis report attributes the growth in the volume of scams and legitimate crypto transactions to the boom in decentralised finance (DeFi). While scams accounted for the largest share in 2021, rising 82 percent to US$7.8 billion, nearly US$3 million of the total crime value came from rug pulls.
Last year, Crypto News Australia reported that crypto scams, particularly rug pulls, have become the main trust issue in the crypto space, especially for newcomers.
Aside from rug pulls, DeFi platforms were also widely used for money laundering and were targeted by hackers for large-scale theft.
As Chainalysis head of research Kim Grauer noted: “DeFi services were hacked at rates that we’ve never seen before. Not only are people using DeFi to carry out crime, they’re also targeting DeFi for crime.”
Grauer added that DeFi platform protocols were often hacked because it’s a new industry and a lot of the code is open-source, exposing vulnerabilities.
In 2021, US$2.2 billion worth of cryptos was stolen from DeFi protocols, which accounts for two-thirds of all cryptos stolen in 2021 – this figure represents a 516 percent increase on the numbers reported in 2020.
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