Crypto Crime Hit All-Time High of $14B in 2021 as Prices Climbed: Chainalysis

The percentage of illicit transactions fell drastically, but the dollar value surged, a new report says.

Jan 6, 2022 at 1:25 p.m. UTC
Updated Jan 6, 2022 at 10:28 p.m. UTC

Crypto crime accounted for a record-setting $14 billion worth of blockchain transactions in 2021, according to a new report from blockchain research firm Chainalysis. The value of illicit transactions in 2021 was nearly double 2020′s figure of $7.8 billion in criminal blockchain activity.

But despite the precipitous rise in criminal activity by total volume, 2021′s figures are significant for another reason: When examined as a percentage of overall crypto transactions last year, criminal activity hit an all-time low.

The crypto market exploded in 2021, and total transaction volume grew by more than 550% to reach $15.8 trillion. According to Chainalysis’ report, criminal activity accounted for 0.15% of all blockchain transactions last year – down 75% from 2020 and down nearly 96% from 2019.

“We had an explosion in the amount of on-chain activity [in 2021],” Kim Grauer, Chainalysis’ head of research, told CoinDesk. “It’s just that the amount of crime didn’t grow as fast as the amount of legitimate use cases.”

Rug pulls and DeFi scams

Grauer and her team attribute the growth in volume of both scams and legitimate crypto transactions to the explosion in decentralized finance (DeFi).

Scams accounted for the lion’s share of crime in 2021, rising 82% to reach $7.8 billion. According to Chainalysis’ report, nearly $3 million of that total came from rug pulls, which are an increasingly popular crypto scam where developers build legitimate-looking projects, load their pockets and then disappear.

Aside from rug pulls, Grauer told CoinDesk that DeFi platforms were used for money laundering and were targeted by hackers for large-scale theft.

“DeFi services were hacked at rates that we’ve never seen before. Not only are people using DeFi to carry out crime, they’re also targeting DeFi for crime,” Grauer said, adding:

“DeFi platform protocols are hacked very often because it’s a new industry and a lot of the code is open-source, so people can look at the code and see vulnerabilities.”

In 2021, $2.2 billion worth of crypto was stolen from DeFi protocols – accounting for about two-thirds of all crypto stolen last year, and a 516% increase from 2020′s figures.

Does law enforcement deter?

Last year saw an uptick in law enforcement actions taken against bad actors in the crypto sector, as government agencies turn their attention to crypto crime.

The Internal Revenue Service’s Criminal Investigation Unit reported seizing $3.5 billion in crypto last year, $1 billion of which was tied to the darknet marketplace Silk Road.

The U.S. Department of Justice successfully recovered most of the bitcoin ransom from last year’s ransomware attack on Colonial Pipeline.

Similar trends were seen in government agencies around the world: Australian police busted more than 300 crime syndicates in 2021 and seized “over $48 million in various worldwide currencies and cryptocurrencies,” and law enforcement in the U.K. seized millions in crypto from criminals.

“We’ve seen law enforcement stepping in and stepping up to take on the challenge of tracking down crypto crime across the board,” Grauer told CoinDesk.

“There have been major law enforcement actions that have put a deterrent signal out to people,” she said. “Maybe what felt like a crime you might have been able to get away with in the past – maybe you’re a little bit more reluctant now.”

The year ahead

Law enforcement actions against malicious crypto actors show no signs of slowing: IRS Criminal Investigation Chief Jim Lee told reporters in November that he expected the trend of crypto seizures to continue in 2022.

And as government agencies continue to sign contracts with blockchain research providers like Chainalysis and Coinbase, they are increasingly building the skills and adding the tools needed to go after blockchain criminals.

Grauer noted, however, that bad actors are usually faster than law enforcement in adapting to new technologies.

“Criminals are quick to learn about a new potential solution to laundering money, and then lean in and take advantage of that,” Grauer said.

Despite law enforcement beefing up, scamming isn’t going anywhere.

“When you have a lot of competing new projects, it’s impossible to do your due diligence on all of them,” Grauer explained. “People are treating [investing] like a roulette table, and so I think that means there will be a lot of opportunities for people to get scammed.”

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Cheyenne Ligon is a CoinDesk news reporter with a focus on crypto regulation and policy. She has no significant crypto holdings.