2021 marks the 12th year since the first cryptocurrency was publicly launched and, in that time, the technology has seen substantial advancement in addition to mainstream adoption. However, despite its economic benefits, cryptocurrency is not entirely void of security vulnerabilities.
In this article, we take a walk through some of the highlights of cryptocurrency crime for the year. But just before we dive into the main subject matter, let’s take a look at the cryptocurrency outlook for 2021
Cryptocurrency outlook 2021
The year 2020 marked a surge in interest in the cryptocurrency industry, attracting millions of users. Notably, between January 2020 and November 2021, the number of blockchain wallet users climbed by more than 85% to about 80 million – up from 44.4 million at the end of 2019.
Similarly, Triple-A – a cryptocurrency payment service that provides key statistics to assist businesses in better understanding the cryptocurrency market – indicated that there were at least 300 million cryptocurrency users worldwide. The report also estimated that the cryptocurrency ownership rate was currently at 3.9%, with a significant increase expected in the near future.
In the same vein, the number of cryptocurrency assets has soared significantly, with hundreds of new tokens emerging every month. According to Statista, the total number of crypto assets available globally has nearly topped 8,000, with the year 2021 seeing the most addition thus far.
While there were only 2,817 crypto assets in the globe as of November 2019, the amount quickly grew to more than 4,000 and 8,000 by the end of 2020 and 2021, respectively, representing a 100% growth rate over the past two years.
It is also important to note that the cryptocurrency market cap hit an all-time high of $3 trillion back in November. However, it currently sits at about $2.27 trillion.
Sadly, despite the tremendous growth seen in the crypto industry thus far, the rate of crime has continued to rise in unison.
Cryptocurrency crime review
The last two years have been a progressive one for the crypto economy. However, not without a sad tale of cyber hack as well as other illicit activities. Notably, scam and darknet markets continue to dominate cryptocurrency transactions as the crime rate takes an uptrend after a major year-on-year decline between 2019 and 2020.
According to a crypto crime report by Chainalysis, the total value of funds received by criminal entities in 2019 stood at little above $21.4 billion with scams alone contributing more than 80% to that course.
In comparison, the overall value of funds received by criminal entities in 2020 fell by almost 55%, putting total illicit crypto funding at around $10 billion. Furthermore, similar to the previous year, scams – although reduced – dominated by approximately 53.8%, while the darknet market rose to approximately 35%, up from 15% in the previous year.
Other major sources of illicit cryptocurrency funding include domestic extremism, terrorism financing, stolen funds, sanctions, and ransomware.
In general, 2.1% of the entire crypto transaction volume of 2019, and 0.34% of that of 2020 put at $2.9 trillion was received by illicit entities. The reason for the massive downtrend, according to Chainalysis can be attributed to the fact that overall economic activity almost tripled between 2019 and 2020.
Looking ahead to the 2021 fiscal year, there appears to be a dramatic reversal of the year-on-year downward trend, given the significant increase in the value received by criminals during the period.
According to the most recent crypto crime report by Chainalysis, the revenue generated from cryptocurrency scams rose by 81% year on year, putting the total cryptocurrency value used in unlawful activities at about $7.7 billion.
In comparison, 2021 saw a significant upshot in the crypto crime rate from 55% recorded in 2020. A major contributing factor to this setback, according to Chainalysis’ report was the penetration of large-scale Ponzi schemes in the crypto market.
Finiko, a well-known large-scale Ponzi scheme that predominantly targets Russian speakers throughout Europe, was discovered to be a significant perpetrator of this illegal conduct, amassing $1.1 billion from victims.
Other major contributing factors to the rise in crypto crime also include the emergence of rug pulls, a relatively new scam peculiar to the DeFi ecosystem. ‘Rug pulling’ is a situation where victims are made to invest in the pre-launch sales of a token which will eventually not make it to the exchange market. In 2021 alone, a total of $2.8 billion was lost by the victims of rug pulls across the world.
Ultimately, crypto crime remains a major barrier to mainstream cryptocurrency adoption, and unless the crime rate significantly decreases, global adoption may stall.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.