A recent report from blockchain analytics company Chainalysis revealed that illicit crypto activity hit an all-time high in 2021, largely due to sanctions violations. The report estimated that there were roughly $20 billion worth of illicit crypto transactions in 2021 and warned that this is a lower bound estimate. The authors noted that as more data becomes available on-chain, more illicit transactions may be detected. The report also covered ransomware, which saw a significant decline in crypto transactions related to it in 2021, but still totaled over $450 million USD. The authors speculated that ransomware attackers are trying to make it harder to be tracked and that almost 50% of crypto-related ransomware continues to be cashed out using centralized exchanges.
Crypto Crime: How Bad is It and Is It Getting Worse?
Cryptocurrency has been under scrutiny by regulators for years. But how bad is crypto crime, and is it getting worse? In a recent report by blockchain analytics company Chainalysis, it was revealed that illicit crypto activity hit an all-time high in 2021. This finding could have major consequences on crypto regulations and the industry’s market. In this article, we’ll summarize the report, explain its findings in simple terms, and discuss the possible consequences of these revelations.
Chainalysis released its 2022 version of the annual Crypto Crime Report, highlighting many alarming trends. The report begins by noting that elicit crypto volumes reached an all-time high in 2021 due to a surge in sanctions designations and hacking. The authors did not count the activities of crypto companies like FTX as illicit since the allegations are still being settled in court, and the authors only analyzed on-chain data. However, the increasing decentralization of cryptocurrency may lead to more data being on chain, potentially providing companies like Chainalysis with complete visibility.
Illicit Crypto Transactions in 2021
Chainalysis estimated that there were approximately $20 billion worth of illicit crypto transactions in 2021. The authors cautioned that this is a lower bound estimate and that this figure would likely be revised higher as more criminal crypto wallets are detected.
Sanctions Related Crypto Transactions
The authors note that crypto crime continued to increase even during a decline in the crypto market. The biggest contributor to this growth was sanctions violations. The authors specified that 43% of all illicit crypto transactions were associated with sanctions in 2021 due to the crypto sanctions imposed on Russia by the U.S. The authors call these sanctions ambitious and difficult to enforce. Nonetheless, only around 0.24% of cryptocurrency transactions in 2021 were linked to illicit activity, but that figure was double that of the previous year. The authors note that illicit crypto transaction volume was falling slower than legit crypto transaction volume in August 2021.
Ransomware-Related Crypto Transactions
Ransomware-related crypto transactions fell significantly in 2021, but the figure was still quite high, at over $450 million USD. The authors note that almost 50% of crypto-related ransomware continues to be cashed out using centralized exchanges, representing a 10% increase compared to 2021. Nonetheless, most ransomware operates as ransomware as a service, meaning that ransomware groups sell their software to criminal actors or governments.
The Chainalysis Crypto Crime Report for 2022 reveals a significant increase in illicit crypto activity. Sanctions violations were the biggest contributor to this abnormal growth, and much of the report addresses sanctions-related crypto transactions, which may have major consequences for crypto regulations and the industry’s market. Ransomware-related crypto transactions fell significantly, though they still remain high. As the industry becomes more decentralized, the possibility of complete visibility for companies like Chainalysis could lead to greater scrutiny of crypto transactions.