- More and more investors invested in cryptocurrencies in 2021, but so did scammers who discovered the cryptocurrency industry for themselves.
- The number of cryptocurrency scams and thefts has increased sharply and the damages amounted to more than $ 7.7 billion in one year.
Cryptocurrencies have achieved significant traction among investors. Investment in the global cryptocurrency market has increased, and this trend is expected to continue soon. The cryptocurrency market size is expected to rise from $ 1.6 billion today to $ 2.2 billion in 2026, with an average annual growth rate of 7.1%. These figures come from a report from April 2021 by Markets and Markets Research.
In many countries, banks have even started buying cryptocurrencies, according to the report. Banks in the United States are now creating their own blockchain-based systems, including digital currencies, to enable B2B cryptocurrency payments among their customers.
However, growing interest in cryptocurrencies has led to an increase in financial crime, according to the 2021 Crypto Hacks & Scams Report from Crystal Blockchain, a company that provides research analysis of blockchain and cryptocurrencies. Crystal Blockchain report, published on December 21, shows that there were 115 security attacks, 40 attacks on DeFi protocols and 26 fraud crimes stolen as a result of the theft of about $ 10 billion in crypto assets. As a result, crypto-related assets have been severely lost, and a recent International Monetary Fund research report claims that cryptocurrencies pose a threat to global financial stability.
The market value of the ecosystem increased dramatically in 2021. According to the IMF report, financial stability issues related to cryptocurrencies primarily include operational, cyber-governance and governance risks, integrity risks (market risks and AML / CFT), issues on data availability and reliability, and cross – border transaction issues. So with the increase in crypto crime, especially fraud, the financial system becomes more vulnerable.
Significant increase in crypto fraud in 2021
With an 81% increase in crypto scams, more than $ 7.7 billion was lost in cryptocurrencies worldwide in 2021, according to a recent report by Chainalysis.
One of the most common scams is the so-called carpet tug, a new type of fraud in which promoters and operators of crypto projects – usually new cryptocurrency – suddenly and easily disappear, with fiat funds deposited by clients, of course. Despite a significant drop in crypto scams between 2019 and 2020, the number of carpet tug scams skyrocketed in 2021. In total, investors lost more than $ 2 billion of cryptocurrencies, nearly 90 percent of that. That was about «carpet pulling.»
According to the Chainalysis report, the number of active financial fraudsters increased by more than 60%, from 2,052 in 2020 to 3,300 in 2021. Being active in this context means that the funds have been directed to their portfolios.
Madan Sabnavis, chief economist at credit rating agency Care Ratings, comments:
Readable people invest in these dummy currencies and lose money because every trade is a game without interest. Cryptocurrencies are opaque because there is no underlying asset to support the price. For gold there are metals, for stocks there is a title, but for cryptocurrencies there is no such thing.
In 2021 the largest theft of crypto assets took place
With asset thefts worth more than $ 10 billion, 2021 saw the largest crypto asset losses to date, according to the Crystal Blockchain report. It also shows that the amounts being stolen are constantly increasing.
DeFi hacks are the most common type of crypto theft in 2020-2021, and their total number has doubled, the report explains. To date, $ 2.86 billion has been stolen through the exploitation of security vulnerabilities, while $ 6.8 billion has been damaged by fraud. Thus, crypto fraud accounts for more than 65% of relevant crimes.
According to data from Crystal Blockchain, 39 percent of all stolen funds were laundered and distributed through fraudulent exchanges.
Anonymity of crypto assets and lack of global security regulations have led to significant data gaps for national regulators. The problem is that all of these transactions are opaque and you cannot be sure whether the money is being diverted to drugs or other illegal activities. Currently, many financial savings are diverted to the cryptocurrency markets, which is not good for the affected countries.