Role of Crypto in “All Forms of Crime” Increasing

The Cryptocurrency sector is moving into the mainstream, thanks not only to a pro-crypto president. Donald Trump, who courted the sector for support in his return to the White House, has had a generally positive impact on crypto, despite the less favourable optics of his memecoin ventures.

The departure of Gary Gensler from the US Securities and Exchange Commission (SEC) and several pro-crypto nominations to the Trump administration including a Crypto Czar, all had a positive influence on the sector.

Tokenisation and institutional adoption through exchange-traded funds (ETFs) also contribute to the growth of crypto adoption.

Related: Anti-Memecoin Law for US Politicians Proposed: Aptly Called MEME Act

Unfortunately, this has also meant that criminals increasingly target crypto. A recent report by Chainalysis highlights the increased foray of illicit actors into on-chain activity.

Some of these criminals, they wrote, conduct their illicit activities offline but turn to crypto for money laundering.

And they’re getting more professional in what they’re doing too, with a “broadening array of illicit actor organizations and networks using cryptocurrency, as well as increased complexity in their operations”.

In particular, we have seen the emergence of large-scale on-chain services that provide infrastructure for numerous types of illicit actors to help them launder their ill-gotten crypto.

Chainalysis

Crime Proceed Estimates Likely to Be Revalued Upwards

In pure dollar terms, Chainalysis suggests that while the initial figures for 2024 show a drop in value received by illicit cryptocurrency addresses to US$40.9 billion (AU$65.7 billion), these are “lower-bound estimates based on inflows to the illicit addresses […] identified up to today.”

They anticipate that these numbers will rise “as more illicit addresses are discovered” and their historical activities are included in future reports.

Based on past trends and the average annual growth rate of 25% in their estimates of illicit activities since 2020, Chainalysis expects that the revised total for 2024 could eventually exceed US$51 billion (AU$81.9 billion).

Related: On The Radar – What to Watch This Week in Crypto

The projection is based on ongoing identification and integration of new data, similar to how last year’s figure for 2023 was initially reported at US$24.2 billion (AU$38.9 billion) but later revised to US$46.1 billion (AU$74 billion).

In total, this number still only accounts for only 0.14% of all on-chain transaction volume. As the crypto sector grows so does illicit activity, though the report says this usually stays well below the 1% mark.

According to the analysts, the report doesn’t include unidentified funds yet and also excludes “non-crypto-native crime”.

They also exclude extremist funding as it’s difficult to define, as well as alleged fraud and market manipulation.

Ransomware, Scams and Stolen Funds Rife Despite Law Enforcement Efforts

Although the total value of illicit crypto funds is lower than in previous years, Chainalysis still saw an increase in crime, mainly across scams and stolen funds, with the latter up a whopping 21% year-on-year to US$2.2 billion (AU$3.5 billion).

Some of the stolen crypto can be traced back to North Korea, whose IT workers have been “increasingly infiltrating crypto and web3 companies, compromising their networks, and using sophisticated tactics, techniques, and procedures (TTPs)”.

Artificial Intelligence is also becoming a concern increasingly, as per the report:

[The] use of AI is consistent with a broader trend across a range of illicit cybercrimes, as services have emerged that leverage AI to bypass know-your-customer (KYC) requirements.

Chainalysis

Although law enforcement was able to disrupt ransomware operations, Chainalysis reports that the sector continues to get “in the hundreds of millions of dollars” in proceeds.  

And while darknet market and fraud shop inflows are down, they still account for US$2.2 billion.

Crypto Crime Becoming “Professional” and “Diverse”

Numbers aside, the illicit actors are becoming more sophisticated and the crypto crime landscape is becoming “increasingly diverse”.

An array of illicit actors, including transnational organized crime groups, are increasingly leveraging cryptocurrency for traditional crime types, such as drug trafficking, gambling, intellectual property theft, money laundering, human and wildlife trafficking, and violent crime.

Chainalysis

US$10.8 billion (AU$17.4 billion) of the total US$40.9 billion (AU$65.7 billion) received by illicit crypto addresses went to entities involved in both direct cybercrimes – such as hacking, extortion, trafficking and scams – and those providing essential services and infrastructure for these activities, including laundering-as-a-service.

Related: US Bitcoin ETFs Surpass Record 7-Day Outflow Streak as Billions Leave Funds

The online marketplace Huione Guarantee is a particularly striking example of the professionalisation of the crypto crime ecosystem, having processed over US$70 billion (AU$112.5 billion) in crypto transactions since 2021.

This platform has provided infrastructure which facilitates the sale of scam technology and processed on-chain transactions for pig butchering and other fraud and scams, addresses reported as stolen funds, sanctioned entities such as the Russian exchange Garantex, fraud shops, child sexual abuse material, and Chinese-language gambling sites and casinos, among others.

Chainalysis