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Crime
MID-YEAR CRYPTO CRIME UPDATE: ILLICIT ACTIVITY FALLS WITH REST OF MARKET, WITH
SOME NOTABLE EXCEPTIONS
August 16, 2022
August 16, 2022 | By Eric Jardine
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2022 has been a tumultuous year for cryptocurrency markets, with significant
price declines across all currencies in May and June. While there’s no telling
if we’ve reached the bottom, as of now in early August, prices have been
relatively stable for the last month, with Bitcoin holding between $20,000 and
$24,000. But what effects has the market downturn had on illicit cryptocurrency
activity?
Cryptocurrency transaction volumes this year for both illicit and legitimate
entities are tracking behind 2021 through July. Overall, criminal activity
appears to be more resilient in the face of price declines: Illicit volumes are
down just 15% year over year, compared to 36% for legitimate volumes. However,
the aggregate data doesn’t tell the whole story. If we dig into specific forms
of cryptocurrency-based crime, we find that some have actually increased in
2022, while others have declined more than the market overall. Below, we’ll look
at examples of both, and provide some thoughts on why they’ve reacted the way
they have to market conditions.
WHERE ILLICIT ACTIVITY IS DROPPING IN 2022
SCAMS
Total scam revenue for 2022 currently sits at $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.
Since January 2022, scam revenue has fallen more or less in line with Bitcoin
pricing. And as we see on the chart below, it’s not just scam revenue falling —
the cumulative number of individual transfers to scams so far in 2022 is the
lowest it’s been in the past four years.
Those numbers 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 hypothesize 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.
It’s also important to remember that scam revenue is often driven by large
outliers, such as PlusToken, which netted over $2 billion from victims in 2019,
or Finiko, which netted over $1.5 billion in 2021. So far in 2022, no scams
identified thus far are approaching the level of either.
2022’s Top 3 scams 2021’s Top 3 scams Scam name Total value received through
July Scam name Total value received through July JuicyFields.io $273,935,606
Finiko $1,164,115,620 Unique-Exchange.co/PARAIBA.world $267,487,674 Mind.capital
$506,240,555 OmegaPro.world $106,449,195 CashFXGroup.com $291,597,650
Note: Unique-exchange.co and PARAIBA.world are interconnected services with
separate wallet infrastructures run by the same scammers — Paraiba is a
multi-level marketing crypto investment scam, and Unique-Exchange is a
cryptocurrency exchange run and promoted by the same group. We have combined
their total value received into one figure above.
The biggest scam of 2022 so far has netted $273 million worth of cryptocurrency,
just 24% of Finiko’s revenue through the end of July in 2021. However, there’s a
flipside to this: Since total scam revenue in a given year is so often driven by
one or two huge scams, it’s possible an outlier could emerge or be identified
before the end of the year and reverse the trend of declining scam revenue that
we currently see.
DARKNET MARKETS
Darknet market revenue is also down significantly in 2022, and is currently 43%
lower than where it was through July in 2021. Unlike with scams, however, this
hasn’t been the case for the entire year — 2022 darknet market revenue was
tracking above 2021 until April, at which point its rate of increase dropped off
a cliff. This is almost certainly due to the April 5 shutdown and sanctioning of
Hydra Marketplace, which for years had been the predominant darknet market,
acting as a hub not just for drug sales, but for sales of hacking tools, stolen
data, and money laundering services.
The message displayed on Hydra’s home page following its shutdown by German law
enforcement
Interestingly, while overall darknet market revenue fell following Hydra’s
shutdown, the remaining markets saw a significant uptick in the number of
individual incoming transfers.
We suspect that this increase represents Hydra vendors and customers moving
their funds to new markets in search of a replacement. Nevertheless, the decline
in darknet market revenue — and indeed, cryptocurrency value received by all
criminal categories — following Hydra’s shutdown shows the tangible impact of
law enforcement’s growing ability to fight cryptocurrency-based crime.
WHERE ILLICIT ACTIVITY IS INCREASING IN 2022: HACKING AND STOLEN FUNDS
No area of cryptocurrency-based crime is bucking the 2022 trend of declining
revenue like stolen funds.
Through July 2022, $1.9 billion worth of cryptocurrency has been stolen in hacks
of services, compared to just under $1.2 billion at the same point in 2021. This
trend doesn’t appear set to reverse any time soon, with a $190 million hack of
cross-chain bridge Nomad and $5 million hack of several Solana wallets already
occurring in the first week of August (neither is represented on the graph above
as we’ve chosen July 31 as our cutoff point).
Much of this can be attributed to the stunning rise in funds stolen from DeFi
protocols, a trend that began in 2021. As we’ve covered previously, DeFi
protocols are uniquely vulnerable to hacking, as their open source code can be
studied ad nauseum by cybercriminals looking for exploits (though this can also
be helpful for security as it allows for auditing of the code), and it’s
possible that protocols’ incentives to reach the market and grow quickly lead to
lapses in security best practices. 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. We estimate that so far in
2022, North Korea-affiliated groups have stolen approximately $1 billion of
cryptocurrency from DeFi protocols.
Additionally, we shouldn’t expect theft to drop based on cryptocurrency market
movements the way scamming does — as 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 them is for the industry to shore up security
and educate 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.
CRIME IS DOWN BUT THERE’S STILL WORK TO BE DONE
Nobody likes a crypto bear market, but the one silver lining is that illicit
cryptocurrency activity has fallen along with legitimate activity, albeit not as
sharply. This is especially encouraging in scams, where the decrease in market
hype seems to mean fewer are fooled by scammers, and in darknet markets, where
law enforcement’s shutdown of Hydra Market appears to have dampened the entire
sector. Still, with huge increases in stolen funds, we can’t afford to rest on
our laurels. The public and private sectors must continue to work together and
hone their ability to fight cryptocurrency-based crime. We look forward to
diving deeper on all forms of cryptocurrency-based crime and seeing if current
trends hold when we release our 2023 Crypto Crime Report early next year.
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Chainalysis does not guarantee or warrant the accuracy, completeness,
timeliness, suitability or validity of the information in this report and will
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inaccuracies of any part of such material.
CrimeDarknet MarketsDataHacksScamsStolen funds
Author Eric Jardine
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