Illegal cryptocurrency activity reached an all-time high of $20.1 billion in 2022, increasing from $18 billion the previous year, according to a report released on Thursday by research firm Chainalysis.
The year 2022 was turbulent for cryptocurrency. Tightening monetary policy and geopolitical pressures such as Ukraine-Russia crisis, China-Taiwan conflict, among others, led to a major sell-off in the industry. Besides, the collapse of some of the major crypto firms such as Terra Luna and FTX– and several other firms like Celsius, Three Arrows Capital, Core Scientific, etc. filing for bankruptcy - created shockwaves in the industry.
Researchers at Chainalysis argues that “even as overall crypto transaction volumes fell, the value of crypto transactions related to illicit activity rose for the second year running”.
Transactions associated with sanctioned entities increased more than 100,000-fold in 2022 and made up 44% of last year's illicit activity, Chainalysis said.
Funds received by the Russian exchange Garantex, which was sanctioned by the US Treasury Department in April, accounted for "much of 2022's illicit volume", Chainalysis said. The report found that most of that activity is "likely Russian users using a Russian exchange."
Last year, the U.S also imposed sanctions last year on cryptocurrency mixing services Blender and Tornado Cash, which it said were being used by hackers, including from North Korea, to launder billions of dollars worth of proceeds from their cyber crimes, according to the report which also found that overall transaction volumes fell across more conventional categories of cryptocurrency-related crime, with the exception of stolen funds, which rose 7% year-over-year.
The market downturn may be one reason for this, said the researchers. "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," they said.
Nonetheless, in 2022, the share of all cryptocurrency activity associated with illicit activity has risen for the first time since 2019, from 0.12% in 2021 to 0.24% in 2022, researchers said.
"We have to stress that this is a lower bound estimate — our measure of illicit transaction volume is sure to grow over time," the report said, noting that the figure for 2021 was revised to $18 billion (nearly Rs. 1,46,120 crore) from $14 billion (nearly Rs. 1,13,650 crore) as more scams were discovered.
There have been several instances of illicit crypto activities in the entire 2022, said Chainalysis researchers, the FTX case being a prime example. Also a separate report by Chainalysis in October 2022, detailed the rise in funds stolen from decentralised finance (DeFi) platforms.
“October happens to be the biggest month in the biggest year ever for hacking activity, with more than half the month still to go. So far this month, $718 million has been stolen from #DeFi protocols across 11 different hacks,” researchers at Chainalysis said on Twitter on October 13, 2022. “So far, hackers have grossed over $3 billion dollars across 125 hacks,” it said stating that this makes 2022 the biggest year for hacking on record (till date).
Another report published in November 2022 from crypto data tracker The Block also showed a rise of over 20x year-on-year in crypto funds stolen through DeFi platforms that year. According to the report, attackers exploited coding flaws in flash loans, or non-collateralised cryptocurrency loans, to steal funds.
Further, non-fungible token (NFT) hacks have also led to losses of almost $52 million in the first four months of 2022 alone, compared with less than $7 million over the whole of 2021, a report by Top10VPN, a global digital privacy and research group, published in May 2022.