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2021 was a banner year for cryptocurrencies with major coins such as Bitcoin (BTC) and Ethereum (ETH) setting new all-time highs. Unfortunately, the rising popularity of digital currencies also meant that these assets have become more enticing for cybercriminals as well.
In fact, illicit crypto transaction activity reached an all-time high in terms of value and almost doubled the previous year’s figure. “Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020,” blockchain data platform Chainalysis said in a report released on January 6, 2022.
The report also noted an increase in crypto-related illegal activity in the decentralized (DeFi) sector. “Two categories stand out for their growth: stolen funds and, to a lesser degree, scams. DeFi is a big part of the story for both,” the firm added.
Scammers stole $7.8 billion worth of crypto from their victims in 2021, which is up 82 percent from 2020’s figure. Of the $7.8 billion, Chainalysis revealed that 2.8 billion was lost due to one type of scam called rug pull. In this new type of scam, developers build what appear to be legitimate crypto projects before suddenly disappearing along with investors’ money.
Meanwhile, the value of crypto lost to theft rose to around $3.2 billion in 2021, which is an increase of 516 percent from 2020’s figure. Of the $3.2 billion total, 72 percent or $2.2 billion were stolen from DeFi protocols.
“In 2020, just under $162 million worth of cryptocurrency was stolen from DeFi platforms, which was 31% of the year’s total amount stolen,” Chainalysis said. “That alone represented a 335% increase over the total stolen from DeFi platforms in 2019. In 2021, that figure rose another 1,330%. In other words, as DeFi has continued to grow, so too has its issue with stolen funds.”
The firm added that most of the crypto theft in decentralized financial platforms is due to coding errors in smart contracts. “Most instances of theft from DeFi protocols can be traced back to errors in the smart contract code governing those protocols, which hackers exploit to steal funds, similar to the errors that allow rug pulls to occur,” the report added.
While the value of illicit crypto activities has increased, the firm pointed out that its share compared to overall transaction volume has decreased to just 0.15 percent in 2021 compared to 0.62 percent in 2020 and 3.37 percent in 2019. “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,” Chainalysis said.
