Global cryptocurrency-based crime hit a record high in 2021 as overall legal payments also reached an all-time peak, according to data released on Thursday.
Criminal transactions, involving bitcoin and its peers, totalled $14 billion, up 79% from 2020, according to Chainalysis, a research group.
Total cryptocurrency payments meanwhile rocketed 567% to $15.8 trillion year-on-year, Chainalysis said, as the sector won some strong support from traditional finance.
“Given that roaring adoption, it’s no surprise that more cybercriminals are using cryptocurrency,” the group concluded.
“In fact, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower.”
Illicit transactions amounted to 0.15% of the total. But growth in scams stood at 82% last year, according to Chainalysis.
“Criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimises innocent people around the world,” the report stressed.
“Rug pulls” played a sizeable part, it noted. This is when investments, notably in newer cryptocurrencies, suddenly disappear.
Disappearing Profits – and Coins
This was the case last year with “Squid coin”, inspired by the Netflix hit “Squid Game”. The creators of Squid coin disappeared from social media and so did investors’ profits, mirroring other cryptocurrency scams.
“One promising development in the fight against cryptocurrency-related crime is the growing ability of law enforcement to seize illicitly obtained cryptocurrency,” Chainalysis said.
At the same time, illicit addresses currently hold at least $10 billion worth of cryptocurrency, according to Chainalysis.
Newcomers have been drawn to the promise of quick gains touted by crypto backers, as well as hopes that bitcoin offers a hedge against soaring inflation.
Yet cryptocurrencies are still subject to patchy regulation, leaving investors with little recourse against crime.
Financial watchdogs and policymakers from Washington to Frankfurt have fretted over the use of crypto for money laundering, with some urging lawmakers to grant them greater powers over the industry.
Driving the increase in crime was an explosion of scams and theft at decentralised finance (DeFi) platforms, Chainalysis said.
DeFi sites – which offer lending, insurance and other financial services while bypassing traditional gatekeepers such as banks – have been plagued by problems that include flaws in underlying code and opaque governance.
- AFP and Reuters, with additional editing by George Russell