Cryptocurrency scammers bilked investors of $14 billion U.S. in 2021, according to data from blockchain analytics firm Chainalysis.
Losses from cryptocurrency-related crime rose 79% from a year earlier due to a combination of scams and thefts, said Chainalysis.
Thefts predominantly occurred through the hacking of cryptocurrency businesses, with decentralized finance playing a big part in taking money from investors.
Decentralized finance, or DeFi, is a rapidly growing sector of the cryptocurrency market that aims to cut out middlemen such as banks from financial transactions such as loans.
With DeFi, banks and lawyers are replaced by a programmable piece of code called a smart contract. This contract is written on a public blockchain and executes when certain conditions are met, negating the need for a central intermediary.
Worldwide DeFi transactions grew 912% in 2021, according to Chainalysis. But there are a lot of red flags when it comes to dealing with this relatively new cryptocurrency ecosystem.
Cryptocurrency theft rose 516% in 2021 from 2020, to $3.2 billion U.S. Of this total, 72% of stolen funds were taken from DeFi protocols, according to Chainalysis. Meanwhile, losses from scams rose 82% to $7.8 billion U.S. worth of cryptocurrency.
Over $2.8 billion U.S. of this total came from a relatively new but very popular type of scheme known as a “rug pull,” in which developers build what appear to be legitimate cryptocurrency projects, before ultimately taking investors’ money and disappearing.
While crypto-related crime is at an all-time high, Chainalysis did point out that the growth of legitimate cryptocurrency usage far outstrips the growth of criminal usage. Transactions involving illicit cryptocurrency represented an all-time low of just 0.15% of the $15.8 trillion U.S. in total cryptocurrency trade volume in 2021, cites the report.
