When it comes to crime, illicit activity is still abundant regardless of crypto volatility, according to a new Chainalysis report.
“Cryptocurrency transaction volumes this year for both illicit and legitimate entities are tracking behind 2021 through July,” the report stated. “Overall, criminal activity appears to be more resilient in the face of price declines: Illicit volumes are down just 15% year over year, compared to 36% for legitimate volumes.”
But there's nuance in the apparent downturn in illicit activity — some subsectors of crypto-based crime have increased in 2022, while others declined.
“The main drivers of declining illicit activity are: macroeconomic conditions, increased law enforcement wins and a general acceptance by consumers that cryptocurrency is not the anonymous source of payment that it once was considered to be,” Kim Grauer, director of research at Chainalysis, said to technewss.
Last week, the U.S. Treasury imposed sanctions on decentralized cryptocurrency mixing service Tornado Cash for its role in enabling billions of dollars worth of laundered crypto through its platform. This action is one of many in recent months looking to regulate or clamp down on the digital asset space.
Total scam revenue through July 2022 fell about 65% year on year to $1.6 billion, according to the report. Scams could pertain to anything from pump-and-dump schemes to malicious links.
The drop in scams seems to be linked to declining prices, the report stated. In addition, the cumulative amount of unique transfers is at the lowest level in the past four years, the report said, which could also affect the pace of scams. Macroeconomic factors tend to impact scamming more than any other type of illicit activity, Grauer noted.
“The reason for this is that a person investing in a scam does not think they are investing in a scam, but they think they are simply investing, period,” Grauer said. “Therefore, if investment is down due to a bear market, then less funds will be flowing to the subset of those investment services that are scams.”
Meanwhile, hacks and exploits currently stand at $1.9 billion, up 58% from $1.2 billion at the same time last year. These are typically defined by bad actors noticeably exploiting a code, project or protocol for their own advantage. Notably, earlier this month, crypto bridging protocol Nomad lost about $190 million in a hack, and, separately, about 8,000 Solana-based wallets were hacked a day later. But given the declining price action in recent months, scammers could be less inclined to search for a quick buck in the crypto market, the report said.
A number of market participants have shared their thoughts on what needs to be done to prevent crypto crime from transpiring further. And as we continue into the back half of 2022, many market players are certain that crypto will continue to rack up even bigger exploits in the space if security isn't prioritized.
“The crypto ecosystem is currently in a nascent stage of adoption,” Nick Percoco, chief security officer at Kraken, previously told technewss. “Despite the surge of interest over recent years, there is an educational divide that still needs to be bridged for crypto adoption to be truly successful.”
Although education is important, Mudit Gupta, the chief information security officer at Polygon, shared with technewss last week that work needs to be done at the code level, too.
The layer-2 blockchain built on Ethereum focuses on open source software “to leverage all expertise in the space,” Gupta said at the time. “We want people to look at our code base and inspect it and find bugs in it so it can be improved. We want everyone to collaborate together.”
But some argue that crime is still inevitable given the crypto ecosystem's growth and criminals looking for the easiest way to cash out.
“In the long term, DeFi hacking will be addressed and industry solutions will emerge to create a safer environment for DeFi investment,” Grauer said. “In the short term, scammers will continue to have their profits hit during the bear market and will be forced to turn to new avenues of attack.”