Many publications at the end of the year highlight the explosive growth of cryptocurrency frauds. To begin, in 2017, hackers caused $3.7 billion in cryptocurrency theft losses.
According to a new analysis from Immunefi, this is a 58% rise over the $2.3 billion fraudulent actors stole from investors and exchanges in 2021.
Meanwhile, in 2022, the value of illegal cryptocurrency transactions hit $20.1. This was an increase of $2.1 billion over the previous year.
According to a new analysis published by Chainalysis, increasing U.S. penalties against digital currencies have contributed to that growth.
It’s clear that there are varying degrees of criminal activity associated with cryptocurrencies in these two publications. For one, there are crooks who steal cryptocurrency.
On the other hand, bitcoin allows criminals to conceal their funding of illegal activities. Illegal enterprises of all stripes are thriving.
Frauds Involving Stolen Cryptocurrencies Keep Rising
Ninety-five percent of bitcoin thefts are caused by hacking, per Immunefi. Losses in the remaining categories were caused by fraud and other types of cons. There was a significant increase from the 104 instances recorded in 2021 to the 134 cases tracked in 2022.
Researchers had been keeping tabs on the rising tide of hacking attempts on digital currencies this year. And with $718 million worth of cryptocurrencies taken in total, October 2022 was called “the biggest month of the biggest year ever for hacking activity“ by the analytics firm Chainalysis. By the end of October, hackers had stolen $3 billion in 125 separate attacks.
The fraud of $625 million worth of assets from Ronin Bridge, a platform that allows cash movement between blockchains, was one of the biggest incidents of 2022.
The United States government concluded that a North Korean organization was responsible for this attack. As a result of this occurrence, concerns regarding crypto industry vulnerabilities are even more prevalent in the context of national security.
Elliptic, a blockchain analytics company, reached a similar conclusion in relation to the June robbery of $100 million from the Horizon Bridge.
“Two years ago, I would not even dream of some hacker getting over $100 million,” said Adrian Hetman, tech lead at Immunefi. “But we’ve seen several incidents like that in the previous two years.”
Misconduct Involving Virtual Currency
The proceeds from cryptocurrency theft are often used by criminals for other nefarious purposes. The United States government has increased its use of penalties on businesses and individuals as a means of combating this persistent issue.
As stated by Chainalysis, over 44% of the $20 billion in illicit transactions can be linked back to sanctioned firms.
Transactions involving child sexual abuse materials, human trafficking, malware, stolen funds, terrorism financing, scams, cyber criminal administrators, and dark web markets were only some of the many illegal acts labelled in the report.
Unfortunately, the results of these penalties have been inconsistent, despite the best efforts of the United States government. The effects of OFAC sanctions were found to be variable in a chain analysis.
Once Tornado Cash was officially sanctioned, for instance, users stopped depositing money into the system in large numbers. According to CyberScoop, however, trading volume increased on the Russian exchange Garantex, which has been blacklisted for its alleged role in money laundering.
The authorized Hydra Marketplace dark web market also saw a complete halt in trading activity. Importantly, German law enforcement agencies also took possession of Hydra’s physical assets.
To put this in context, illegal behaviour constitutes a small but steadily growing portion of all cryptocurrency transactions. In 2022, illegal behaviour only accounted for 0.24 percent of all cryptocurrency transactions. According to Chainalysis, this was an increase from 0.14% in 2021.
Government Action in the Face of Growing Cryptocurrency Crime
The Treasury Department has been taking measures in response to these occurrences, including the imposition of sanctions against Tornado Cash in August.
However, in September, a group of federal prosecutors led by the Department of Justice’s National Cryptocurrency Enforcement Unit set up shop all over the country to combat the unlawful usage and frauds of cryptocurrency.
A “Comprehensive Framework for Responsible Creation of Digital Assets” was also published by the White House not long ago. Improvements in the fight against illicit financial activity are a key focus of the Framework.
The United States government, for instance, will consider whether to request that Lawmakers change the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws prohibiting money transmission without a licence.
Non-fungible token (NFT) platforms and other suppliers of services related to digital assets may be targeted by these regulations.
In addition, the White House’s Framework proposes increasing penalties for unauthorized money sending to be on par with those for similar offences under existing anti-money-laundering laws.
It’s also possible that efforts will be made to have the Department of Justice pursue criminal activity involving digital assets wherever the victim may be located.
Criminal Activity Involving Cryptocurrencies: Industry Reaction
Cryptocurrency-related crimes are also being met with increased efforts from the private sector.
In 2022, for instance, there was a significant increase in the demand for the services of organizations that specialize in reviewing the code of cryptocurrency projects. Bounty payments made in bitcoin through Immunefi’s platform jumped from $13 million in 2021 to over $52 million in 2022, the company reported.
This demonstrates that businesses are taking greater measures to proactively discover and fix security flaws in their systems.
In addition, Binance has Tigran Gambaryan, who is the global head of intelligence and investigations. Gambaryan spent over a decade as a Special Agent for the IRS Criminal Investigation (IRS-CI) Cyber Crimes Section before joining Binance.
The former U.S. agent predicted in a recent blog post that Binance will do the following in the year 2022:
- Approximately 47,000 demands from law enforcement
- More than a 500% increase in staff dedicated to ensuring security and regulatory compliance
- Taken part in over 70 cyber crime prevention training with agencies all around the world.
- Made history by becoming NCFTA’s first blockchain and cryptocurrency member (NCFTA).
The Global Law Enforcement Training Program that Binance offers aids law enforcement and prosecutors in their efforts to uncover financial cyber crimes. They help bring criminals to justice as well.
More than seventy workshops and training sessions were provided to law enforcement and prosecutors around the world in 2022, allowing them to benefit from the program’s intimate knowledge and expertise.
Interference from the Internal Revenue Service
The Internal Revenue Service wants to work with bitcoin companies to tackle crime. A senior IRS official reportedly told The Wall Street Journal that the agency is eager to strengthen its relationship with the cryptocurrency industry.
The IRS is expanding its criminal investigations team, according to Thomas Fattorusso, special agent in charge of the New York field office.
He reaffirmed the IRS’s neutrality towards the asset type. The IRS hopes to work with the cryptocurrency industry in a way that benefits both parties.
The desire to stay out of the hands of the government was an early and primary motivation for cryptocurrency. Only time will tell if this sort of cooperation bears fruit.
To read our blog on “Cryptocurrency predictions for 2023, Ethereum could beat BTC,” click here.
