With Falling Value, Cryptocurrency Crimes Decline in 2022
- on Aug 16, 2022
The dramatic decline in cryptocurrency dampened activity around specific types of financial crimes – most notably, investment scams and illegal transactions on the Dark Web – resulting in lower consumer losses for the first half of the year 2022.
This is according to an analysis published on August 16 by blockchain data provider Chainalysis.
Overall, the cumulative revenue collected by scammers fell by two-thirds – 65% – for the first seven months of the year, according to the company. The decline is only partially related to the decline in the value of major cryptocurrencies. Bitcoin, for example, plunged 51% between January 1 and July 31, and that still doesn’t represent the full decline.
The number of scam-related filings also fell by more than two-thirds, suggesting that fewer consumers were falling prey to these efforts, says Kim Grauer, director of research at Chainalysis.
“Most scams are investment scams, and if investments across the board are down, then less money will go to services that are, in fact, scams,” she says. “We’ve also seen a lot of law enforcement wins over the past year, which has further deterred scammers.”
Since their peak last November, major cryptocurrencies have fallen precipitously in value, hitting lows in June. Bitcoin fall nearly 72%, from its close of $67,567 on November 7, 2021 to $19,018 on June 17. Similarly, Ethereum plunged nearly 80% to close at around $994 on June 17. Both digital assets have recovered from these lows over the past couple of months.
Cryptocurrency is the financial backbone of most online crimes, Chainalysis stated in its mid-year update, so the drop in cryptocurrency has impacted other major cybercrimes, such as money laundering and ransomware. Both have fallen 20% to 25% since the start of the year, according to cybersecurity firms.
That said, crimes that do not rely on luring victims with cryptocurrency were less affected by volatility. Business Email Compromise (BEC), for example, still accounted for 35% of dollar losses in 2021, compared to 0.7% for ransomware, according to the FBI’s Internet Crime Complaint Center (IC3).
“No one likes a bear market in crypto, but the only bright spot is that illicit cryptocurrency activity has declined along with legitimate activity, but not as sharply,” the company said. “This is particularly encouraging in scams, where diminishing hype seems to mean fewer scammers are being duped, and in darknet markets, where law enforcement [shutdowns of major markets] seems to have held back the whole industry.”
DeFi services are still hot targets
A constant? Hacking of digital wallets and decentralized financial services (DeFi) continued to grow. Overall, cybercriminals have stolen at least $1.9 billion in cryptocurrency by hacking online services so far in 2022, an increase of around two-thirds from the same period in 2021 .
The majority of hacking profits come from hacking DeFi protocols, Chainalysis said in the mid-year report.
“DeFi protocols are particularly vulnerable to hacking, as their open source code can be studied ad nauseam by cybercriminals looking for exploits – although this can also be useful for security as it enables auditing of the code,” the company said. “[I]It is possible that the protocols’ incentives to reach the market and scale quickly lead to breaches of security best practices.”
Specific regions have also focused on specific types of crime. North Korean nation-state actors have compromised specific DeFi protocols, resulting in massive gains for the sanctioned government. Attackers have stolen around $1 billion so far in 2022, accounting for the majority of the $1.9 billion in losses from exchanges and services in July 2022.
“We’ve seen ransomware attacks from North Korea, but right now DeFi hacking is the most profitable thing for North Korean hacking organizations to do,” Grauer says. “North Korean hacking organizations realized how profitable this type of hacking can be if done correctly, and therefore continued to carry out attacks throughout 2022.”
Financial institutions, consumers and cybersecurity professionals should not expect the decline in cryptocurrency fraud to continue, Chainalysis pointed out. Consumers need to be better informed of the risks, while the cybersecurity of decentralized financial protocols needs to be strengthened and audited. Finally, legitimate exchanges should have protections in place to prevent the transfer of money to known scams, and law enforcement should develop their capabilities to seize cryptocurrency from bad actors, the company said.