A new report confirms that cryptocurrency-based crimes posed “one of the biggest threats to cryptocurrency’s continued adoption.”
Blockchain analysis firm Chainanalysis has revealed startling details about the devastation cybercriminals managed to cause during 2021. According to a preview of its “2022 Crypto Crime Report” due to be released in February 2022, cryptocurrency-oriented scammers and cyber criminals grabbed around $7.7 billion worth of cryptocurrency from their targets this year. This marks an 81% increase in losses compared to the statistics released in 2020.
Cryptocurrency-based Crime- The Biggest Threat
Around $1.1 billion of the overall $7.7 billion in losses accounted for one particular scam that targeted users in Russia and Ukraine. Chainanalysis confirmed that cryptocurrency-based crimes posed “one of the biggest threats to cryptocurrency’s continued adoption.”
SEE: Hackers steal $600 million in largest-ever cryptocurrency heist
The number of scam addresses deposits decreased to 4.1 million from 10.7 million, indicating a drop in individual scam victims. Moreover, scammers’ money laundering tactics more or less remained the same, as compared to last year, since most of the grabbed crypto transferred through scam addresses ended up at mainstream exchanges.
Rug Pulls- Main Source of Cryptocurrency Losses
Rug Pulls were declared one of the primary sources of the increase in cryptocurrency losses this year as they accounted for 37% of all cryptocurrency scam revenues, which totaled around $2.8 billion. This is 1% higher than the rate identified in 2020. Rug Pulls is where a new cryptocurrency developer vanishes, taking along supporters’ funds.
“Rug pulls are prevalent in DeFi because, with the right technical know-how, it’s cheap and easy to create new tokens on the Ethereum blockchain or others and get them listed on decentralized exchanges (DEXes) without a code audit,” Chainanalysis blog post read.
“While total scam revenue increased significantly in 2021, it stayed flat if we remove rug pulls and limit our analysis to investment scams–even with the emergence of Finiko,” Chainanalysis noted.
Investment Scam Characteristics
Chainanalysis identified that investment scam networks operated differently this year and that the number of ongoing financial scams increased from 2,052 in 2020 to around 3,300 in 2021.
On the other hand, on an individual basis, their lifespan decreased from around 500 days in 2016 to 291 days in 2020, and this year it further dropped to 70 days.
Chainanalysis experts also noted that previously such scams could continue operating for a long time, but now their lifespan has reduced considerably given that law enforcement authorities and regulators are more concerned about it.
The takeaway?
According to Chainanalysis, the takeaway from their report’s preview is to avoid new tokens that haven’t yet undergone a code audit. It is a process where a third-party firm assesses the code of the smart contract behind another DeFi project or a new token and confirms that the contract’s governance rules are “iron-clad and contain no mechanisms that would allow for the developers to make off with investors’ funds.”
SEE: Hacker stole $55M worth of crypto from DeFi lender bZx via phishing
Furthermore, investors should remain aware of tokens that lack publicly known materials, which guarantees the legitimacy of a project. These include white paper, websites, and tokens created by individuals without using their real names.
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