Cryptocurrency Crime Hits All-Time High in 2021: Chainalysis

Cryptocurrency-linked crime surged to a record high last year in terms of value, with illegal addresses receiving $14 billion (roughly Rs. 1,04,200 crore) in digital currencies, up 79 percent from $7.8 billion (roughly Rs. 58,060 crore) in 2020, according to a blog from blockchain analysis firm Chainalysis released on Thursday.

As of early 2022, Chainalysis said illicit addresses already hold over $10 billion (roughly Rs. 74,440 crore) worth of cryptocurrencies, with the majority of this held by wallets associated with crypto theft.

Illicit addresses are defined as wallets tied to criminal activities such as ransomware, Ponzi schemes, and scams.

That said, illicit activities’ share of total crypto transaction volume remained low at just 0.15 percent in 2021. Total transaction volume surged to $15.8 trillion (roughly Rs. 11,76,14,410 crore) last year, up more than 550 percent from 2020 levels.

Chainalysis, however, said the 0.15 percent figure could still rise as the firm identifies more addresses tied to illegal transactions and incorporates that into the total volume.

In its last crypto crime report, Chainalysis had said that 0.34 percent of 2020’s crypto transactions was associated with illegal activity. That number has now been raised to 0.62 percent.

“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,” said Chainalysis.

Still, the underlying trend suggested that with the exception of 2019 – an extreme outlier year for crypto crime largely due to the multibillion-dollar PlusToken Ponzi scheme – crime has become a small part of the cryptocurrency world.

The report also said the rise in decentralised finance, or DeFi, which facilitates crypto-denominated lending outside traditional banking, has been a big factor in the increase in stolen funds and scams.

In 2020, less than $162 million (roughly Rs. 1,210 crore) worth of cryptocurrency was stolen from DeFi platforms, which was 31 percent of the year’s total amount stolen. That represented a 335 percent increase over the total stolen from DeFi platforms in 2019.

In 2021, that figure rose another 1,330 percent to $2.3 billion (roughly Rs. 17,120 crore), Chainalysis said.

DeFi transaction volume surged 912 percent in 2021, and Chainalysis said outsized gains on decentralized tokens like Shiba Inu have pushed investors to speculate on DeFi tokens.

“The increase in DeFi-related crime is an example of how criminals often exploit new technologies,” Kim Grauer, head of research at Chainalysis, said in an email to 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.”

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