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  • J Huang and S Pettigrove

It's all on chain: analyzing the latest crypto crime trends

Updated: Mar 10, 2023

Every year, Chainalysis publishes estimates of illicit cryptocurrency activity and reveal the latest trends in cryptocurrency-related crime. These kinds of estimates aren't possible in traditional finance, but are enabled by public and immutable blockchain records. This work demonstrates the significant transparency of blockchain technology, including its advantages in tracking and analysing financial crime.

The 2023 report paints an interesting picture of one of the most eventful years in the history of crypto. Despite the market downturn in 2022, illicit transaction volume rose for the second consecutive year, hitting an "all-time high" measured in dollars of $20.6 billion:

However, 43% of 2022’s illicit transaction volume came from activity associated with sanctioned entities, in a year when the US and EU launched some of their most ambitious crypto-related sanctions. A great example of this is crypto exchange Garantex, which accounted for the majority of sanctions-related transaction volume last year. The US sanctioned Garantex in April 2022, but as a Russia-based business, the exchange has been able to continue operating with impunity and so adds to the volume based total in the above graphic.

On the other hand, transaction volumes fell across almost all other categories of cryptocurrency-related crime, with the exception of stolen funds, which rose 7% year-over-year:

Chainanalysis explained this trend:

The market downturn may be one reason for this. We’ve found in the past that crypto scams, for instance, take in less revenue during bear markets, likely because users are more pessimistic and less likely to believe a scam’s promises of high returns at times when asset prices are declining. In general, less money in crypto overall tends to correlate with less money associated with crypto crime.

The rise in stolen funds was attributable to a record year for crypto hacks, which raked in $3.8 billion. Nearly half of this sum has been linked to North Korean-linked hackers.

Overall, the report found that the share of all cryptocurrency activity associated with illicit activity had risen for the first time since 2019 - from 0.12% in 2021 to 0.24% in 2022. But it still stands much lower than 2019's figure:

Chainalysis said:

Overall, illicit activity in cryptocurrency remains a small share of total volume at less than 1%. It’s also worth keeping in mind that despite this year’s jump, crime as a share of all crypto activity is still trending downwards.

The 2023 report also details the criminal activity behind that 0.24% of illicit usage, as well as what their on-chain analysis reveals about the market failures of the last year. While Chainalysis acknowledge that it estimates are likely to rise as they continue to attribute new wallet addresses and crypto flows to illicit activity, the relatively small percentage of illicit activity runs contrary to popular perceptions of cryptocurrency use. It also demonstrates the easy traceability of blockchain crimes, which is made possible by the inherent transparency of blockchains.

Against the backdrop of major crypto exchange collapses last year, Chainalysis said that the crypto industry still has room to improve transparency and visibility by connecting off-chain liabilities and on-chain data:

There are opportunities to connect off-chain data on liabilities with on-chain data to provide better visibility, and transparency of DeFi, where all transactions are on-chain, is a standard that all crypto services should strive to achieve. As more and more value is transferred to the blockchain, all potential risks will become transparent, and we will have more complete visibility.

You can read more about Chainalysis' crypto crime reports in 2020, 2021 and 2022 in our previous updates.


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