Cryptocurrency crime at record high – Scammers make more than £10 billion

Cryptocurrency: Man recalls friend losing £50,000 due to scam

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According to blockchain researcher Chainalysis, scams have proved a major component of this with revenue from fraud rising 82 percent in 2021 to reach £5.76bn ($7.8bn). Over £2.07bn ( $2.8bn) of this came from rug pulls- a relatively new scam where developers launch an apparently legitimate cryptocurrency, take investors money and then disappear leaving them unable to cash in. Such a move happened in November when a token based around the TV series Squid Game was revealed to be a scam with the developers making off with an estimated £2.48m ($3.38m). A key factor in the growth of rug pulls has been the rise of Decentralised Finance (DeFi).

Unlike centralised finance such as through banks and stock exchanges, DeFi relies on direct peer to peer transactions facilitated by public blockchains.

In their report, Chainanalysis wrote: “DeFi transaction volume has grown 912 percent in 2021, and the incredible returns on decentralized tokens like Shiba Inu have many excited to speculate on DeFi tokens.

“At the same time, it’s very easy for those with the right technical skills to create new DeFi tokens and get them listed on exchanges, even without a code audit.”

Coin audits involve third-party companies or exchanges analysing the code behind a new token with Chainanalysis suggesting many investors could have avoided rug pulls if they’d stuck to projects which had undergone a code audit.

As well as scams, cryptocurrency theft has grown with around £2.36bn ($3.2bn) stolen in 2021.

Use of cryptocurrencies to launder money has also become a key part of criminal activity involving tokens.

While the value of cryptocurrency involved in crime has increased considerably in total amounts, one positive though is it has in fact fallen proportionately given the wider surge in legitimate usage.

While illicit use has risen 79 percent, the total transaction value of all cryptocurrencies has grown 567 percent since 2020, to reach £11.67tr ($15.8tr) in 2021.

Transactions involving illicit addresses now represent just 0.15 percent of all cryptocurrency transactions, having fallen from 3.37 percent in 2019.

Marcus Sotiriou, analyst at digital asset broker GlobalBlock, pointed out: “The UN estimate that 2-5 percent of GDP is connected with money laundering and illicit activity.

“Therefore, even though crypto crime is a problem we need to address, it is not as bad as critics make out.

“I think education of risks and crime in crypto will help attract more institutional money to the space.”

Meanwhile law enforcement agencies have increasingly tried to tackle cryptocurrency-related crime by seizing digital assets.

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In November the US Internal Revenue Service reported it had seized $3.5bn (£2.58bn) in cryptocurrency during the last financial year.

Israel’s National Bureau for Counter Terror Financing also seized an undisclosed sum connected to terrorism.

Chainalysis report criminals are currently thought to hold at least £8.38bn ($10bn) worth of cryptocurrency with much of the value being gained from subsequent price increases rather than the original amount.

Cryptocurrency is a fast-moving space though with Chainalaysis warning law enforcement will need to keep up as criminal activity appears in areas such as NFT related fraud and ransomware.

A full report on cryptocurrency crime in 2022 is expected to be released by Chainalaysis in February.

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