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Cryptocurrency Crime Soars to $14 Billion in 2021

Cryptocurrency fraud rose to $14 billion on 2021 according to preliminary figures released by Chainalysis. Credit: Wikimedia Commons/Public Domain

Cryptocurrency crime hit an all-time high in 2021, with an estimated $14 million going to illegal online addresses, according to a blockchain analysis just released by Chainalysis.

The amount of illegally-obtained digital currencies represented a 79% increase over the  $7.8 billion in ill-gotten cryptocurrencies in 2020, the report stated.

Just in the first week of 2022, Chainalysis states that illicit addresses already have over $10 billion worth of digital currency, with the majority of it held by wallets that are already associated with crypto theft.

Cryptocurrency crime heightens likelihood of eventual regulation

Such shady addresses often refer to wallets that have already been tied to criminal activities, including ransomware, Ponzi schemes and other types of scams.

Still, despite these enormous sums that have gone to bad actors, the share of illicit activities as part of the total cryptocurrency transaction volume stayed quite low last year, at a mere 0.15%. The volume of all digital currency transactions surged to $15.8 trillion during 2021, an increase of more than fivefold, or 550%, from levels seen the year prior.

Chainalysis noted, however, that the figure of 0.15% may rise as it identifies more addresses tied to illegal transactions and incorporates that into the total volume — as it has in the past.

The firm reported in its overview of 2020 that a total of 0.34% of that year’s crypto transactions was associated with illegal activity; however, after further analysis, that amount was upped to 0.62%.

“Criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimizes innocent people around the world,” Chainalysis stated in its report.

It appears that people taking advantage of the system are now an established part of the Cryptocurrency world, even apart from the gigantic fraud that rocked the digital currency world in 2019 with the “PlusToken” Ponzi scheme.

The very nature of digital currency, in that it is not regulated by any national or international authority, leads to its vulnerability to fraud; the report stated that the rise in decentralized finance, referred to as DeFi, which helps digital currency lending outside the traditional banking system, has played a huge role in the increase in stolen funds and fraudulent actions.

During 2020, Chainalysis reported that less than $162 million worth of cryptocurrency had been taken illegally from DeFi platforms; that amount represented 31% of all the funds that had been stolen during that calendar year. But it also was a 335% increase over the total amounts taken fraudulently from DeFi during all of 2019.

Partially because of the huge increase in the amounts of money circulating in these digital platforms, that figure rose a further 1,330% to $2.3 billion last year, Chainalysis revealed.

The transaction volume in the DeFi realm surged 912% last year while huge gains on decentralized tokens such as Shiba Inu have prompted investors to speculate on DeFi tokens.

“The increase in DeFi-related crime is an example of how criminals often exploit new technologies,” Kim Grauer, Chainalysis’ head of research, told interviewers from Reuters.

“When DeFi started to grow this year, we saw large increases in DeFi protocols being used to launder money as well as DeFi protocols being the actual victims of crimes such as hacking,” she added.

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