2021 has seen many events involving cryptocurrency scams. In August, PolyNetwork, a decentralized finance (DeFi) company working on cryptocurrency interoperability, was hacked and $600 million worth of cryptocurrency was transferred. In November, there were reports of hackers forcing Instagram users to film “hostage-like videos” as part of a bitcoin scam that saw the nefarious actors gain access to their accounts.
New data from blockchain analytics firm Chainalysis has revealed that scammers stole $14 billion in cryptocurrency in 2021 in part due to the growth of the decentralized finance (DeFi) platform with transactions DeFi growing 912% in 2021, according to Chainalysis.
DeFi is a platform that effectively removes middlemen from traditional financial transactions by replacing them with a smart contract.
But many of the new protocols launched through DeFi have code vulnerabilities that can be exploited by nefarious actors.
21% of all hacks in 2021 resulted from exploiting these codes.
Scammers get their way
Losses from crypto-related crime were up 79% year over year, due to a spike in thefts and scams.
Scamming was the biggest form of cryptocurrency-based crime in 2021, followed by theft, most of which occurred by hacking into cryptocurrency businesses.
Bad actors often entice new investors by promising the payment of safe, lucrative, and guaranteed returns over relatively short terms, sometimes measured in hours or days instead of months or years.
Although there are third-party companies that perform code audits and publicly designate safe protocols, many users still choose to work with risky platforms that bypass this step if they think they can get a big return.
Losses from scams soared 82% to $7.8 billion in cryptocurrency.
More than $2.8 billion of that total came from a relatively new but wildly popular type of system known as “rug pulling,” in which developers build what appear to be legitimate cryptocurrency projects. , before finally taking the investors’ money and disappearing.
Yet transactions involving illicit addresses accounted for just 0.15% of the $15.8 trillion in total crypto trading volume in 2021.
Crime is actually becoming a smaller and smaller part of the cryptocurrency ecosystem.
The stunted growth of crypto-based crime can be partly attributed to the evolving law enforcement toolkit, as well as the inherent transparency of blockchain technologies.