After reaching an all-time high in 2021, with illicit addresses receiving $14 billion during the year, there appears to be a slowdown in illicit crypto-related activities this year, coinciding with the broader decline of cryptocurrency markets. However, while legitimate cryptocurrency transaction volumes have fallen 36% year on year, criminal activity appears to be more resilient, with illicit volumes falling only 15%.
Total cryptocurrency-related scam revenue for 2022 is currently $1.6 billion, 65% lower than it was through the end of July in 2021, and this decline appears to be linked to declining currency prices. Furthermore, it’s not just scam revenue that’s declining; the total number of individual transfers to scams in 2022 is the lowest it’s been in four years. And, while the biggest scam of 2022 has so far netted $273 million in cryptocurrency, this represents only 24% of the revenue generated by the biggest scam of 2021 at the end of July last year.
“Our data suggest that fewer people than ever are falling for cryptocurrency scams. One reason for this could be that with asset prices falling, cryptocurrency scams — which typically present themselves as passive crypto investing opportunities with enormous promised returns — are less enticing to potential victims. We also hypothesise that new, inexperienced users who are more likely to fall for scams are less prevalent in the market now that prices are declining, as opposed to when prices are rising and they’re drawn in by hype and the promise of quick returns,” said Kim Grauer, Director of Research at Chainalysis.
Darknets — the infamous hubs that facilitate the sale of drugs, hacking tools, stolen data, and money laundering services — have been impacted as well, with revenues for these marketplaces currently 43% lower than darknet market revenues through July 2021. According to Grauer, this drop demonstrates the tangible impact of law enforcement’s growing ability to combat cryptocurrency-based crime.
While the overall decline in illegal activity is encouraging for the crypto community, there are still concerns about specific threats, most notably hacking and stolen funds. Through July 2022, $1.9 billion in cryptocurrency was stolen in service hacks, up from just under $1.2 billion at the same point in 2021. Much of this can be attributed to the dramatic increase in funds stolen from DeFi protocols, particularly cross-chain bridges. Furthermore, much of the value stolen from DeFi protocols can be attributed to North Korean bad actors, particularly elite hacking units like Lazarus Group. According to Chainalysis, North Korean-affiliated groups have stolen approximately $1 billion in cryptocurrency from DeFi protocols so far in 2022.
“We shouldn’t expect theft to drop, based on cryptocurrency market movements, the way scamming does. So long as crypto assets held in DeFi protocol pools and other services have value and are vulnerable, bad actors will try to steal them,” said Grauer. “The only way to stop crypto hackers is for the industry to shore up security and educate employees to recognize red flags as well as consumers on how to find safe projects to invest in. Law enforcement, meanwhile, must continue developing their ability to seize stolen cryptocurrency to the point that hacks are no longer worthwhile.”
