Last year may have been the worst for cryptocurrency users as a prolonged bear market saw many abandon their digital assets, but it was perhaps the best year yet for hackers who stole a record $3.8 billion of user funds.
The theft surged 15 percent in 2022, defying globally concerted efforts to combat illicit activity in the unconventional industry.
Scrutiny by New York-based block chain analysis company Chainalysis indicated that criminals majorly targeted Decentralised Finance (DeFi) protocols and centralised exchanges, from where almost 98 percent of the stolen funds originated.
David Schwed, the Chief Operating Officer of block chain cybersecurity firm Halborn, told Chainalysis that DeFi protocols were mostly targeted by the hackers due to “lack of investment in security.”
But stolen funds were just a small percentage of the estimated $20.1 billion illicit transaction volume recorded in the crypto industry last year, which also surged from the $18 billion recorded in 2021, raising safety concerns in a market that is already battered by a year-long slump.
Others are scams or Ponzi schemes, ransomware, terrorism financing, cybercriminal administration, fraud shop and money laundering.
Also, for the first time since 2019, the illicit share of all cryptocurrency transactions grew, doubling from the 0.12 percent in 2021 to 0.24 percent in 2022, pointing to a growing criminal sector in crypto.
This growing trend has sparked sanctions and tight regulations from the world’s leading economies, but they are yet to curtail perpetrators.
Just last week, the US and the UK jointly sanctioned seven Russians believed to be part of a syndicate that has been cyber-attacking companies in the two countries, demanding ransom payment that is then laundered through cryptocurrencies.
The sanctions bar US and UK citizens from conducting business dealings with the individuals and freezes their assets in both countries.
According to estimates, 44 percent of last year’s illicit crypto transactions came from sanctioned entities, meaning the punishments failed to stop perpetrators of crypto crime.
“Almost half of the $3.8 billion stolen user funds have also been traced to sanctioned North Korea-based hackers, who shattered their own records for theft, stealing an estimated $1.7 billion worth of cryptocurrency across several hacks,” Chainalysis said.
Aside from the sanctions, many jurisdictions have formulated regulations to curb the criminal use of crypto assets. The EU last March adopted a new legislation to ensure crypto transactions, as well as traditional money transfers, can be traced.
However, crypto illicit activity continued to surge, with the $20.1 billion in 2022 transaction volumes being a conservative estimate.
“Our measure of illicit transaction volume is sure to grow over time as we identify new addresses associated with illicit activity, and we have to keep in mind that this figure doesn’t capture proceeds from non-crypto native crime,” Chainalysis said in a blog.
Experts urge that regulation should focus on the security standards of exchanges and decentralized finance protocols to ensure there is not illicit flows.