June 10, 2023


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2021 a record year for crime linked cryptocurrency wallets

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2021 has gone on record as being the year criminals used a record amount of cryptocurrency for illicit purposes, but the overall growth of digital asset markets outstripped the rise in scams.

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2021 a record year for crime linked cryptocurrency

The amount of crypto sent to addresses with known criminal associations shot to a record $14 billion last year, more than doubling from 2020, according to research from data company Chainalysis.

Scams, ransomware and theft rose 79% in dollar terms last year but the overall market expanded by 550%, with $15.8 trillion worth of cryptocurrencies traded in 2021.

That means the relative share of illicit activities has dropped to a record low. “The yearly trends suggest that . . . crime is becoming a smaller and smaller part of the cryptocurrency ecosystem,” Kim Grauer, director of research at Chainalysis, wrote in the report.

“With the growth of legitimate cryptocurrency usage far outstripping the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower, at 0.15%,” Grauer added.

In its previous study, Chainalysis estimated that 0.34% of cryptocurrency transactions were made for illegitimate reasons.

In spite of the trend, cryptocurrency markets remain highly risky for investors. Scams involving cryptocurrencies cost investors $7.8 billion in total and roughly $3.2 billion worth of cryptocurrency was stolen in 2021, a 516% increase over the previous year.

In January, illicit addresses held more than $10 billion worth of cryptocurrency, Chainalysis calculated.

Law enforcement and regulators have become better at tackling crimes involving bitcoin and other cryptocurrencies but they are playing catch-up with new markets such as decentralised finance, or DeFi, which present opportunities for criminals to launder money and steal funds.

More than $100 billion of funds are locked into DeFi markets, where algorithms handle all transactions and there is no human interaction between parties.

The fivefold growth of this space last year has provided a rich hunting ground for thefts and scams such as “rugpulls”, where scammers persuade investors to put money into a new token before disappearing.

Those scams cost investors $2.8 billion last year. Theft has also proliferated, with some $2.2 billion of funds stolen from DeFi venues, an increase of 1,330%from 2020.

One example was the $600 million breach of the Poly Network, which the hacker dubbed Mr White Hat later returned.

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