Hacking, however, remains on the rise, as US$1.9bn worth of cryptocurrency has been stolen in hacks this year, compared to under US$1.2 billion at the same point in 2021.
After cryptocurrency-based crime hit an all-time high in 2021, with illicit addresses receiving US$14 billion over the course of the year, there now appears to be a slowdown in illicit crypto-related activities this year, aligning with the broader decline of cryptocurrency markets.
However, while legitimate cryptocurrency transaction volumes have dropped 36% year-over-year, criminal activity appears to be more resilient, with comparative illicit volumes down just 15%.
The total cryptocurrency-related scam revenue for 2022 currently sits at US$1.6 billion, 65% lower than where it was through the end of July in 2021 and this decline appears linked to declining prices across different currencies.
Moreover, it’s not just scam revenue that’s falling – the cumulative number of individual transfers to scams so far in 2022 is the lowest it’s been in the past four years. And while the biggest scam of 2022 so far has netted US$273 million worth of cryptocurrency, this represents just 24% of the revenue that the largest scam of 2021 drew in at the end of July last year.
“Our data suggest that fewer people than ever are falling for cryptocurrency scams,” said Kim Grauer, Director of Research at Chainalysis. “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.”
Darknets – the infamous hubs that facilitate the sales of drugs, hacking tools, stolen data and money laundering services – have also been impacted, with revenues for these marketplaces currently 43% lower than darknet market revenues through July 2021. Grauer states that this decline demonstrates the tangible impact of law enforcement’s growing ability to fight cryptocurrency-based crime.
While overall, the decline in illicit activity bodes positively for the crypto community, there remain concerns around specific threats, most notably, hacking and stolen funds. Through July 2022, US$1.9 billion worth of cryptocurrency has been stolen in hacks of services, compared to just under US$1.2 billion at the same point in 2021. Much of this can be attributed to the meteoric rise in funds stolen from DeFi protocols and cross-chain bridges in particular.
Furthermore, much of the value stolen from DeFi protocols can be attributed to bad actors affiliated with North Korea, especially elite hacking units like Lazarus Group. Chainalysis estimates that so far in 2022, North Korea-affiliated groups have stolen approximately US$1 billion of cryptocurrency from DeFi protocols.
“We shouldn’t expect theft to drop, based on cryptocurrency market movements, the way scamming does,” said Grauer. “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.
“The only way to stop crypto hackers is for the industry to shore up security and educate employees to recognise red flags as well as consumers on how to find safe projects to invest in. Law enforcement, meanwhile, must continue developing its ability to seize stolen cryptocurrency to the point that hacks are no longer worthwhile.”
