Cryptocrime: New Scams Are Emerging, Cryptocurrency

Here’s the price of success: Cryptocurrencies are increasingly being adopted, with total transaction volume increasing 567% in 2021 compared to 2020, but the illegal activities using them are also increasing, according to Chainalysis’s latest “Crypto Crime Report” research. , a company specialized in the analysis and prevention of cyber risks.

However, crypto crime is progressing at a slower pace. It represented $14 billion in 2021, an increase of “just” 79% from the previous year, according to the document published this week.

As the problem increases in absolute value, it decreases proportionally: “Crime becomes proportionate less and less important in the cryptocurrency ecosystem”, the authors write. Their preliminary estimate of the share of transactions related to illegal activities in 2021 is 0.15%, but the figure will certainly be revised upwards later. Last year it was initially 0.34% but was re-rated at 0.62%.

In fact, the use of bitcoins, ethers, tethers and other XRP for terrorist financing has been reduced to a trickle, according to the study. “We have identified a number of terrorist organizations that have attempted to fund their operations with cryptocurrencies. What’s harder to find, though, are groups that have had success with it. † The armed wing of Hamas (Al-Qassam Brigades) collects almost all transactions in this fringe category devoted to “terrorist financing”, but the majority of the amounts were seized by the Israeli government in July.

DeFi Warning

On the contrary, the criminal activities that are experiencing strong growth are scams and theft of funds, especially with the increasing use of decentralized financing (or “DeFi” for decentralized financing). DeFi makes it possible to offer new services to cryptocurrency users, including credits, remunerated savings, wagering or the facilitated issuance of new tokens thanks to “smart contracts”. The use for money theft increased by 1,330% to 2.2 billion dollars.

Specifically, two methods were used for this. The first is simply taking advantage of errors in the computer code. This is a classic hack. “But with the rise of DeFi and the expanded capabilities of smart contracts that [l’]feed, deeper vulnerabilities came to light. † Because the code is often freely available for consultation in the interests of transparency and fostering adoption, it also provides an opportunity for hackers to identify and exploit flaws.

The second technique used to steal money is price manipulation. The operation actually consists of misleading the financial data provider, “the oracle”, which is used by the DeFi platform to display the price of a token. In 2021, for example, $364 million was stolen (particularly during the Cream Finance hack).

Finally, the increasingly common scams consist of promising monts-et-marvel through a DeFi service and then disappearing with the money. This process, called “rug pull”, involves the issuance of a token for which each buyer will sequester a sum of money. Usually fair protocols ensure that these bets cannot be moved without the consent of the participants, but the criminals cleverly implement the ability to do without their consent. “While code audits to detect these vulnerabilities are common in the ecosystem, most are not required [plateformes d’échange décentralisées] †, the report says. The latter are intended to be fully automated and unattended to users.

However, the biggest scam of 2021 did not have to resort to these kinds of schemes. The boss of Turkish exchange platform Thodex has disappeared with some $2 billion worth of cryptocurrency from his customers. A case that represents 90% of the scams last year.

The key lesson of the report, then, is to keep a very close eye on DeFi, especially as it “ takes the leading role in money laundering “. An activity that involved a whopping $33 billion, but it must be seen in light of the minimum $800 billion laundered annually in the world “i.e. 5% of global GDP”

However, the authors are optimistic about the fight against crypto crime: “The inherent transparency of blockchains makes it easier for us to track illegal movements. † In fact, the accounts are not anonymized, but mostly pseudonymized and the transactions are tracked on the blockchain, which makes it possible to trace the activity and find an identity through cross-references to information.


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