Fighting Cryptocrime: Key Trends, Issues and Successes
Crypto is often accused of being a tool for criminals. Blockchain’s pseudonymous nature is still mistaken for anonymous, when in reality it is a transparent system that allows anyone to examine all the transactions it contains. Several chain analytics companies specialize in extracting meaningful data from the blockchain (often in combination with the web data), and focus on tracking illegal activity, among other things.
Chainalysis, one such firm, recently released a report on cryptocrime in 2022, which analyzes the main components: fraud, ransom, darknet markets, stolen funds, scam shops and the fast-growing category of sanctions.
Key takeaways from the report include interesting general trends as well as specifics of crypto fraud, the most hacked crypto protocols, the relative effectiveness of OFAC sanctions, and the rapidly improving skills of law enforcement.
Cryptocrime in 2022: general trends
- volume of illegal transactions has reached $20.6 billion, which is 0.24% of all crypto transactions,
- this is an increase of 14% compared to 2021,
- 43% of this amount is attributed to the new category of sanctions, as OFAC was particularly productive last year,
- the volumes of fraud and darknet-generated transactions have fallen, while the number of hacker attacks has slightly increased due to North Korean hackers
Most Popular Crypto Scams
According to Chainalysis, crypto fraud revenue in 2022 fell by 46% to $5.9 billion – an expected decline in the bear market.
All of this year’s top 10 scams were investment scams, where scammers promote a bogus investment company with high returns and then make off with the money.
Other popular scam types included romance scams (scammers pretend to build an online romance just to convince the victim to send them money), impersonation scams (scammers pretending to be in a position of authority trick victims into sending crypto), giveaway- fraud (swindler). asking victims to send crypto, promising to give back more), and NFT scams (scammers selling fake NFTs that resemble popular collections).
Most hacked protocols
The overwhelming majority (82%) of hackers’ efforts in 2022 targeted DeFi protocols: of the $3.8 billion stolen crypto, $3.1 billion came from this sector.
Unsurprisingly, the most vulnerable part of DeFi was cross-chain bridges, which introduce a centralization point that hackers are always ready to exploit.
North Korea-affiliated hackers are believed to be responsible for $1.7 billion worth of stolen crypto.
Were the OFAC sanctions effective?
The American Office of Foreign Assets Control has been sanctioning crypto-related activity since 2018, but 2022 marked a particularly active year for the agency: North Korean hackers Lazarus Group, Russian darknet market Hydra, Russian high-risk exchange Garantex, cryptomixers Blender and Tornado Cash were some of the notable additions to the sanctions list.
Overall, OFAC’s actions can be considered successful, but only in jurisdictions friendly to the United States.
Thus, Hydra (the world’s largest darknet market at the time) went offline after its Germany-based servers were seized by the German police, while Garantex still operates from Russia (the transactions make up the majority of “sanction” volume in the overall illegal activity figure) .
The sanctioning of smart contracts of a decentralized crypto mixer Tornado Cash has created a massive outrage in the crypto community, and several lawsuits were filed against the Treasury. However, few people are willing to openly defy US authorities, and approval of the mixer has fallen by 68%.
Fighting cryptocrime
Unfortunately, some crypto crimes still go unreported or reported too late, because many people (including law enforcement) still believe that crypto transactions are anonymous.
Of course they are not, and the number of successful police operations fighting crypto-crime is increasing every year. The most notable stories in 2022 include:
- $3.6 billion seized by the FBI from a couple involved in the Bitfinex hack,
- $3.36 billion recovered from a Silk Road theft (seized in late 2021 but not announced until next year),
- $30 million hacked from Ronin bridge seized from Lazarus Group,
- $25 million seized from Hydra,
- The Dutch National Police tricked a Deadbolt ransomware strain into giving up the victim’s decryption keys,
- The London Metropolitan Police used blockchain analysis to track down a drug-trafficking organisation.
As more people understand how the blockchain works, public opinion is slowly shifting from seeing crypto as a tool to aid crimes to seeing it as a tool to prosecute them. Law enforcement is gearing up and learning to investigate cryptocrimes more effectively, and chain analysis is now an integral part of the compliance efforts used by most companies involved in crypto.
Posted by D.Center
