In a blog post in early January 2022, Chainalysis, a blockchain data firm, claimed that 2021 was a record-breaking year for crypto scams. The research firm revealed that illicit transactions represented a record $14 billion worth of cryptocurrency in the previous year. It ramped up by 79% from 2020 when scammers took $7.8 billion worth of cryptocurrency. The growth in crypto crimes occurred chiefly because of scamming, with theft being the second reason.
The Role of DeFi (Decentralized Finance) in Crypto Scams
Cryptocurrency users and entrepreneurs use DeFi for legit cryptocurrency transactions as it skips the need for intermediaries for financial transactions. Compared to ones leveraged by cryptocurrencies, it is a financial technology predicated on secure distributed ledgers.
However, research firm Chainalysis considers the increasing popularity of DeFi behind the rise of both illegitimate transactions and crypto scams. For starters, the Decentralized Finance platform protocols are very vulnerable since the industry is new and its enormous code is open-source. Cybercriminals are always on the lookout for potential vulnerabilities.
Kim Grauer, the head of research at Chainalysis, also hinted at the above problem with DeFi. He believes that hackers can exploit several code vulnerabilities existing in the many newly launched protocols. In 2021, 21% of all hacks cashed in on these code exploits. Although third-party firms exist to conduct code audits and highlight secure protocols, several users still choose platforms that skip this step. They usually believe that this will help them get better returns.
When it comes to crypto scams, cybercriminals stole $2.2 billion worth of cryptocurrency from DeFi protocols in 2021. Apart from that, total cryptocurrency theft reached an equivalent of $3.2 billion of cryptocurrency. It is a surge of 516% from the figures of 2020. Recently, one of the DeFi tokens, Shiba Inu, prompted a feeding frenzy to have impressive returns. But remember that dealing in this new crypto ecosystem is filled with several red flags.
Scams accounted for $7.8 billion worth of cryptocurrency losses, rising 82% from the previous year. Of the total cost, around $3 billion came from rug pulls. It is an increasingly popular type of crypto scam in which developers would build cryptocurrency projects that seem legitimate. After taking money from investors, they disappear.
Law Enforcement Action
With bad guys in the crypto sector wreaking havoc, we saw the response from law enforcement agencies across the globe last year. According to experts, a publically visible ledger records each transaction. Also, the ratio of criminal activity of cryptocurrency can be observed in real time.
The most praiseworthy action we witnessed against crypto scams in 2021 came from the U.S. Department of Justice. It recovered most of the Bitcoin ransom following the ransomware attack on Colonial Pipeline. In Australia, its police recovered $48 million in currencies and cryptocurrencies following the massive-scale crime stint that led to large-scale arrests. Similarly, U.K. law enforcement also confiscated over £300 million in Bitcoin and other cryptocurrencies in 2021.
Government agencies worldwide are upgrading their skills and tools to knock out blockchain criminals and crypto scams. However, when it comes to adapting to new technologies, law enforcement agencies are often slower than cybercriminals. Under these circumstances, developing proactive strategies in dealing with unforeseeable threats is the only way out.
Scammers took a record $14 billion in 2021
Chainalysis discovered that crypto crime hit a record $14 billion in 2021
Crypto-based crimes hit a high in 2021
Crypto scammers Stole $14 Billion in Crypto in 2021