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  • J McGlynn and M Bacina

Crypto crime at all time high! Crypto crime never lower! What's going on?!

Updated: Jan 17, 2022

Doubters and those who still need to understand more about cryptocurrencies often point to the "risk" of illegal activity around a highly traceable digital asset. The mere fact that digital assets are highly traceable won't stop all illegal usage, just as traceable bank accounts are used for nefarious purposes as well.

Blockchain monitoring business Chainalysis regularly publishes reports into the amount of illicit activity they identify in the public blockchain systems, which contain a wealth of information around what payments and transfers are being made.

A preview of Chainalysis’ 2022 Crypto Crime Report, the full versions of which is expected to be published in February, shows both that crypto-crime has never been lower, as a percentage, but because the volume of crypto transactions has skyrocketed, in absolute terms the total amount of crypto-crime has never been higher.

In 2021, the total volume of cryptocurrency transactions rose over 500%, to over USD$15 trillion. At the same time, crypto-crime identified by Chainalysis surged by only 79%, to USD$14 billion.

The headline figure leads to sensationalist headlines like "Cryptocurrency crime hits new high in value" and "Crypto Scammers Took Home a Shocking Amount in 2021…", which might get clicks and unfortunately perpetuates a tired and false narrative that cryptocurrency is only used by criminals. The overwhelming majority of cryptocurrency usage is legitimate, and the percentage of illicit activities is well below comparable percentages of illicit use estimated in the physical cash economy and traditional banking system.

Kim Grauer, Chainalysis’ head of research, explains further:-

We had an explosion in the amount of on-chain activity [in 2021]... the amount of crime didn’t grow as fast as the amount of legitimate use cases.

Scams represent the largest illicit use of cryptocurrency, with a proliferation of scams making up more than half the illicit usage of crypto, and just one scam (an exchange collapse) leading to $2BN of losses. Scams are on the rise in all financial services industries, with ASIC reporting the number of non-crypto financial scams doubled in 2021.

With USD$10BN reportedly held in illicit addresses, mostly from theft of digital assets, bad actors wallets will continue to be closely watched. The full report from Chainalysis will be out in February, and in the meantime, staying vigilant against scams is one of the best things that everyday crypto users can do.


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