Crypto scammers made away with $14.00 billion (£10.34 billion) in the past year, setting a new record for the highest amount pinched from the industry. Blockchain analytics company Chainalysis disclosed this news through its annual Crypto Crime report, noting that the crypto space recorded a 79% rise in the amount of money lost to scams and theft.
According to the report, scamming was the most prevalent crypto-based crime followed by theft through hacking cryptocurrency businesses. The company said the decentralized finance (DeFi) space accounted for the largest portion of the stolen funds, highlighting the extreme risk involved with the burgeoning segment of the crypto industry.
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Chainalysis acknowledged that the DeFi sector is one of the most exciting parts of the extensive crypto ecosystem, adding that it offers entrepreneurs and adopters massive opportunities.
However, the firm believes the space might not live to realize its full potential if the same decentralization that makes it dynamic opens a window for widespread scamming and theft.
Many crypto adopters avoid red flags
Per Chainalysis data, DeFi’s transaction volume increased by a whopping 912% in 2021. However, Kim Grauer, the Head of Research at Chainalysis, believes that most projects have code vulnerabilities that hackers can exploit. Grauer pointed out that 21% of all hacks in the past year utilized code vulnerabilities.
She added that although there are third-party companies that audit codes and publicly disclose which projects are secure, many users do not pay much attention to such guardrails. According to her, many people prefer working with risky projects that bypass code audits if they believe they have a shot at netting higher returns.
As a result of this ignorance, crypto theft spiked by 512% from 2020 to hit $3.20 billion (£2.36 billion) in 2021. Notably, DeFi protocols accounted for 72% of the stolen funds. On the other hand, scams surged 82% to hit $7.80 billion (£5.76 billion). Notably, over $2.80 billion (£2.07 billion) of the $14.00 billion (£10.34 billion) came from rug pulls.
Legitimate crypto uses eclipse criminal uses
While crypto crime has been increasing with every passing year, analysts claim the growth of legitimate crypto uses outpaces illegal use by a significant margin. Reportedly, transactions that involved illicit addresses only represent 0.15% of the $15.80 trillion (£11.68 trillion) global trading volume.
Chainalysis detailed that,
The fact that the increase was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all. Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem.
Researchers believe the dwindling use of cryptos for criminal activities is a result of evolving law enforcement policies and the inherent transparency of the blockchain, which makes it easy for authorities to investigate and shut down illicit activity.
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