By
Chimamanda U. Martha
April 25th, 2024
Despite the massive crypto haul by scammers in 2021, reports state that legitimate crypto usage still outweighs criminal usage.
According to a Chainalysis report, crypto scammers pillaged a record $14 billion in 2021, representing a 79% rise in crypto crime. This theft was primarily a result of the rise in decentralized finance (DeFi) platforms. The blockchain analytics firm put DeFi transaction volume growth for last year at 912%.
Crypto-related crimes surged by about 516% from 2020 to a massive $3.2 billion worth of digital currencies last year. In addition, Chainalysis asserts that most crypto-related crimes in 2021 were scams, accounting for 82% or $7.8 billion in crypto. Following this was theft – especially via hacking crypto businesses such as DeFi platforms, representing 72% of stolen funds. According to the blockchain analytics firm, this trend should serve as a red flag to those looking to venture into the DeFi space. Chainalysis admitted that it understands why that segment of the crypto industry is so appealing – due to an abundance of presented opportunities.
However, the crypto information firm also stated that the current scourge of associated cybercrimes might also inhibit DeFi’s potential. As Chainalysis put it:
“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike. But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”
DeFi Was a Preferred Hunting Ground for Crypto Scammers in 2021
The DeFi space is a fast-emerging and evolving one in the crypto industry. Part of what makes it so appealing to users and facilitators alike is that it looks to remove middlemen. A typical example of this is cutting out banks from typical financial transactions such as securing a loan. This translates to fewer hassles for the prospective beneficiary and also works out faster and cheaper.
Smart contracts replace banks and lawyers in the world of DeFi. These contracts are programmable bits of code written into a public network like Ethereum or Solana. Smart contracts are designed to execute upon certain stipulations – hence being the core of the prescribed ‘decentralization’ of financial transactions. Or as Joey Krug, CIO at Pantera Capital described using smart contracts:
“The financial system is basically sending money around with various terms and conditions attached to it.”
However, according to Chainalysis’ head of research Kim Grauer, code vulnerabilities make the DeFi space highly susceptible to hackers. Grauer asserts that several newly-launched protocols are easily breachable to hackers. In fact, the Chainalysis research head stated that 21% of total attacks in 2021 exploited this weakness.
Legitimate Crypto Usage Still Trumps Criminal Usage
Although crypto-related crime seems to be on the rise, researchers assert that this still pales in comparison to legitimate crypto usage. Statistics suggest that criminal crypto usage accounted for just 0.15% of the $15.8 trillion total crypto trade volume last year. According to the report, “Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem.”