Crypto Winter Didn’t Chill Fraudsters Ability to Score $20 Billion in 2022
Even the criminals have felt the chill of the crypto winter.
Kim Grauer, director of research at Chainalysis, told PYMNTS that the state of crypto-related fraud … depends on where you look.
The interview came against the backdrop where Chainalysis said last month that the money the bad actors made off with from various scams — NFTs and romance schemes for example — was cut roughly in half. The 46% plunge took the tally of scam-related hauls to $5.9 billion.
“Scams are connected to market prices,” she told PYMNTS, “and because we’re in a bear market, scamming trended down.”
And, she noted, “the bread and butter crimes,” she said, “the Darknet marketplaces and fraud shops saw massive declines in 2022.”
That’s due primarily to the shutdown of Hydra, which had operated as a marketplace for drugs and illegal goods and services. Hydra was shut down by authorities a bit less than a year ago, and millions of dollars’ worth of bitcoin were seized.
But altogether? Crypto crime hit an all-time high of $20.6 billion last year, up from $18 billion in 2018. And that’s what Grauer noted is a “lower bound” estimate, almost sure to be revised upwards. More than 40% of 2022’s volume can be traced to sanctioned entities — the exchanges and the individuals and services targeted by the Office of Foreign Assets Control (OFAC) — that lie behind hacking, ransomware, drug trafficking, money laundering and terrorist financing.
The amount of illicit transaction volume from that segment more than doubled last year, Grauer said, and helped push the overall figures higher. High-risk crypto exchanges, largely based in Russia, are “off ramps” for these crime networks, she said.
Following the Money in the 21st Century
That $20 billion tally, she said “does reflect how much of the volume associated with, and moving the blockchain, is illicit in nature.” The immutable electronic trail left by the blockchain makes it possible to — in the old catchphrase from Watergate 50 years ago — follow the money. To that end, it’s been possible, Grauer said, to crack cases that are six or seven years old — and based on new information ties to those transactions that eventually come to light.
Drilling down a bit into what following the money has uncovered, geographically speaking:
“North Korea is, by far, the most prolific hacking industry,” she noted, “and they took $1.7 billion in 2022 alone out of the $3.8 billion that was stolen [from hacking]. … What’s special or unique about the North Korean hacking organizations is how they lean into the use of new technologies to launder money.” That includes ransomware and NFT fraud, she observed.
Where Crypto’s Being Used — Legitimately
The headlines may be focused on the bad actors, but it’s important to note, as Grauer related, that the illicit activity in cryptocurrency remains a small share of total volume, at less than 1%. There are plenty of use cases that underscore the interest in, and value that lies in using, crypto for a variety of use cases.
Grauer said that Chainalysis’ data shows that a broad range of services are popular in certain parts of the world. NFTs are popular in India. In Argentina, individuals are using stablecoins to protect against the ravages of inflation.
“People all around the world are using cryptocurrencies to meet different needs that are specific to their social, political and economic circumstances,” she said.
Scams are Still a Concern
Despite the lingering impact of the crypto winter, scams are still an area of concern.
“Usually we’d just put scams in one category,” Grauer said, “and for a long time, that was sufficient because the vast majority of scams were investment scams.” Looking ahead, and with a nod to where the criminals are finding opportunity, Chainalysis has found that “pig butchering” is growing as a favored approach by criminals.
Those scams blend elements of romance scams and investment scams, where fraudsters create social profiles and personas that manipulate victims to invest in/send crypto. Instead of waiting for victims to come to them, the scammers are prodding and prying and being proactive as they reach out across apps and text messages to find new targets.
“The scammers may not have been making as much money as before,” said Grauer, “but they’re not going to give up … and we know that criminals are among the fastest to adapt and pivot” to new opportunities.