A recent study carried out by blockchain data platform Chainalysis, has found that the illicit volume of crypto transactions are down 15% year-over-year, as the firm describes crypto as appearing “to be more resilient in the face of price declines”.
The crypto market is currently experiencing a ‘Crypto Winter’ as prices of tokens such as Bitcoin and Ethereum have plummeted over the course of the last several months.
Chainalysis highlights that, whilst the lowering amount of crypto crimes seems on the surface as a positive, this may just be a cause of the current bear market.
The blockchain data firm has revealed that total scam revenue sat at $1.6bn in July, 65% lower than the figure the same month last year. Also noted in the findings is that scam revenue has fallen ‘more or less in line with Bitcoin pricing’, with the cumulative number of transfers to scams in 2022 being the lowest in the last four years.
“Those numbers suggest that fewer people than ever are falling for cryptocurrency scams,” stated the Chainalysis in its study.
“One reason for this could be that with asset prices falling, cryptocurrency scams are less enticing to potential victims. We also hypothesise that new, inexperienced users who are more likely to fall for scams are less prevalent in the market now that prices are declining.”
Large outliers, such as PlusToken which netted $2bn from scam victims in 2019, or Finiko who gathered $1.5bn in 2021, drove scam revenue to a level that hasn’t been remotely reached in 2022 as of yet.
The biggest crypto scam Chainalysis has identified in 2022 came to $273m, 24% of Finiko’s revenue in 2021. However, research has suggested that a possible outlier could emerge before the end of 2022 and reverse the trend of current declining scam revenue.
Crypto hacks have seen an upwards trajectory since last year however. Through July 2022, $1.9bn worth of cryptocurrency has been stolen via hacks of services, compared to $1.2bn in the same period last year.
Chainalysis stated that this trend doesn’t appear to reverse any time soon. Solana recently experienced a hack of $5m to several of its crypto wallets, whilst Nomad was hit with a $190m hack in the first weeks of August.
Research attributed this rise in hacks to when funds were stolen from DeFi protocols which began in 2021.
Chainalysis explains: “DeFi protocols are uniquely vulnerable to hacking, as their open source code can be studied ad nauseum by cybercriminals looking for exploits and it’s possible that protocols’ incentives to reach the market and grow quickly lead to lapses in security best practices.
“Furthermore, much of the value stolen from DeFi protocols can be attributed to bad actors affiliated with North Korea, especially elite hacking units like Lazarus Group. We estimate that so far in 2022, North Korea-affiliated groups have stolen approximately $1bn of cryptocurrency from DeFi protocols.”
The study draws a silver lining in its conclusion that illicit crypto activity has fallen along with legitimate activity too. Chainalysis believes this is encouraging but also reiterates that crypto companies must not rest on their laurels.
Chainalysis concludes: “The public and private sectors must continue to work together and hone their ability to fight cryptocurrency-based crime. We look forward to diving deeper on all forms of cryptocurrency-based crime and seeing if current trends hold when we release our 2023 Crypto Crime Report early next year.”