- Crypto industry rebounds; illicit transactions decline to $24.2 billion in 2023.
- Stablecoins overtake Bitcoin in crypto crimes; illicit transaction share drops to 0.34%.
- Sanctions dominate illicit crypto volume; significant shifts in scamming and ransomware trends.
Crypto monitoring platform Chainalysis published a new report titled “2024 Crypto Crime Trends,” discussing the crypto industry’s rebounded from the “scandals, blowups, and price declines of 2022,” and the upcoming crime trends in the sector. According to the editorial, the resurgence of crypto assets and increased market activities suggested a potential end to the ‘crypto winter’ and the beginning of a new phase of growth.
In terms of cryptocurrency-related crime, 2023 witnessed a decline in the amount of money received by illegal crypto addresses, totaling $24.2 billion. However, it’s important to note that these figures are preliminary and are expected to increase as more illicit addresses are identified and their past activities are included in future estimates. For example, the initial estimate of illicit transactions in 2022 was $20.6 billion, which was later revised to $39.6 billion, primarily due to the discovery of previously unrecognized active addresses and transactions linked to sanctioned services.
A significant revision in the 2022 figures includes the $8.7 billion in creditor claims against the FTX exchange, which was not included in the earlier report. This change follows the conviction of FTX’s former CEO for fraud. Unlike typical inclusions which are based on measurable on-chain activities, the FTX case is an exception due to the difficulty in isolating fraudulent fund movements through on-chain data alone. Consequently, the $8.7 billion figure has been added as the most accurate estimate of the fraudulent activity. Future convictions in similar cases will also be considered for inclusion in these estimates.
The report also clarifies that revenues from non-crypto-native crimes, such as traditional drug trafficking where cryptocurrency is used as payment, are not included in these totals. This is because such transactions are often indistinguishable from legitimate activities in on-chain data, although law enforcement can still investigate using off-chain information and Chainalysis solutions. While some of these transactions are identified and counted as illicit, many remain undetected and are not reflected in the reported figures.
Moreover, in 2023, the proportion of cryptocurrency transactions linked to illicit activities decreased to 0.34%, a decline from 0.42% in 2022. This decrease in the relative share of illegal transactions is noteworthy.
The report also highlights a shift in the types of cryptocurrencies used in illegal activities. While Bitcoin was previously the primary choice for cybercriminals, mainly due to its high liquidity, the last two years have seen a notable change. Now, stablecoins represent the majority of the transaction volume in cryptocurrency-related crimes.
This shift aligns with the overall increase in stablecoins’ usage in both legitimate and illicit crypto activities. However, certain types of illegal activities, such as darknet market sales and ransomware extortion, continue to primarily use Bitcoin. Conversely, activities like scams and transactions related to sanctioned entities have increasingly adopted stablecoins. This preference is particularly pronounced in cases involving sanctioned entities or those in sanctioned jurisdictions, where access to the U.S. dollar is restricted but the stability it offers is desired. Notably, stablecoin issuers have the ability to freeze funds used illicitly, as seen in recent actions by Tether.
The report identifies three primary trends in crypto crime for 2023:
- Reduction in Scamming and Stolen Funds: Both crypto scamming and hacking saw significant declines in revenue, dropping 29.2% and 54.3%, respectively. The report discusses the evolution of scam tactics, noting an increase in romance scams where individuals are targeted for fraudulent investment opportunities. Despite a reported increase in such scams in the U.S., global scamming revenues are trending downwards, correlating with market conditions. The impact of these scams, particularly romance scams, is devastating, though likely underreported.
- Increase in Ransomware and Darknet Market Activities: In contrast to the overall downward trend, revenues from ransomware and darknet markets rose in 2023. This suggests an adaptation by ransomware attackers to cybersecurity improvements and a resurgence in darknet market activity, particularly following the shutdown of major markets like Hydra.
- Dominance of Sanctions-Related Transactions: A significant portion of illicit transaction volume in 2023, amounting to $14.9 billion or 61.5%, was related to sanctions. This includes transactions by entities and jurisdictions under sanctions, with a considerable amount driven by cryptocurrency services in sanctioned areas. It’s important to note that not all transactions within these services are illicit, but their presence poses a risk for platforms under U.S. or U.K. jurisdiction, necessitating vigilant compliance efforts.
