Illegal crypto transactions hit high of US$20 billion: Chainalysis

A new report by Chainalysis shows despite the downturn in crypto, the illicit transaction volume rose for the second consecutive year hitting a high of US$20 billion.

The Chainalysis Crypto Crime report takes a look at cryptocurrency crime trends after the market tumult of 2022 and the implosion of several large firms such as Celsius, Three Arrows Capital, and FTX. 

The report also highlighted that the share of all cryptocurrency activity associated with illicit activity has risen for the first time since 2019, from 0.12 percent in 2021 to 0.24 percent in 2022.

Eric Jardine, cybercrimes research lead, Chainalysis told Digital Nation, “We also found that illicit transaction volume fell across more conventional categories of cryptocurrency-related crime, except for stolen funds, which rose 7 percent year-over-year.

“This decrease could be partly due to the market downturn, given users’ scepticism over a scam’s promises of high returns when asset prices decline.”

The collapse of FTX and the general volatility of the market in the past six months has plummeted users’ trust.

Research has shown that scams represent a significant threat to building trust in cryptocurrency, Jardine said.

“Most recently, investors reeling from the losses caused by the bankruptcy of FTX are the target of a new scam, where impacted investors are prompted to log into a fake website with their FTX username and password to withdraw funds after paying legal fees,” he explained.

“However, despite the many scams, blockchain analysis tools can identify and investigate many stealing billions from users around the world. With additional training, such tools can help exchanges, law enforcement agencies, and other impacted stakeholders track down bad actors and potentially recover victim funds.”

Ultimately, investigations software is only as good as the underlying data that’s powering it, Jardine noted.

Amidst the current crypto bear market, the silver lining is that illicit cryptocurrency activity has fallen along with legitimate activity, albeit not as sharply, Jardine said.

“In regards to scams, the decrease in market hype seems to mean fewer are fooled by scammers. In darknet markets, law enforcement’s shutdown of Hydra Market in April of 2022 dampened the entire sector, at least for a while.”

He said, “Ransomware and other illicit activities are posing significant threats to the crypto industry. The diversity and impact of these threats underline the importance of blockchain analysis training for local and regional law enforcement.

“Effective collaboration of the public and private sectors is critical to weed out bad actors, build trust in blockchains, and pave the way for the more mainstream adoption of cryptocurrencies.”