Chainalysis report reveals decrease in value of cryptocurrency crime in 2023

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What are the most significant trends in crypto-related crime observed over the last year?

Our tracking of crypto crime includes both direct activities, such as stealing, scamming, market manipulation, and so on, as well as indirect activities such as money laundering, ransomware, sanctions evasion and more, where cryptocurrencies are utilised by criminals to realise financial gain from their activities.

Our most recent analysis of the crypto crime landscape has shown positive developments. The value received by illicit cryptocurrency addresses through 2023 totalled $24.2bn, a significant decrease compared to the all-time high of $39.6bn in 2022. Crypto crime only made up an estimated 0.34 per cent of total on-chain transaction volume last year.

Additionally, $14.9bn of the total – the largest portion (61.5 per cent) of the illicit transaction volume – was related to sanctioned entities, indicating that part of these transfers may be from average crypto users in sanctioned jurisdictions using local services.

Nicola Buonanno Image: Supplied

What led to the significant decrease in value received by illicit cryptocurrency addresses last year?

Crypto scamming and hacking revenues notably declined last year, with total illicit revenue dropping 29.2 per cent and 54.3 per cent respectively. Global on-chain metrics indicate a downward trend in scamming revenues since 2021. This trend aligns with the observation that scams are most successful during market peaks and periods of high enthusiasm when individuals seek quick riches.

The decrease in stolen funds from crypto hacking is primarily attributed to a significant drop in DeFi hacking. This decline may signal an improvement in security practices within DeFi protocols. However, stolen funds data can be heavily influenced by outliers, and a major hack could reverse the trend.

While there were exceptions to the overall decline, such as ransomware and darknet markets experiencing revenue growth in 2023, the increase in ransomware revenue is concerning given the declines seen in the previous year. This indicates that ransomware attackers may have adapted to cybersecurity enhancements in organisations.

Does the decrease in crypto crime transaction volumes reflect the effectiveness of law enforcement agencies? Have these entities successfully cracked down on crypto crime?

The declining trend suggests a maturing ecosystem where regulations, improved controls, customer screening, transaction monitoring, and public awareness have contributed to reducing crypto crime.

However, tracking and addressing crypto crime remains challenging for law enforcement agencies. Investigations often involve tracing funds across multiple tokens or chains. While blockchains offer transparency for deep analysis of crypto crimes, raw on-chain data only shows transactions between crypto addresses without identifying the associated organisations or entities. Institutions need appropriate tools to extract actionable insights from on-chain data.

What measures or regulations have the GCC governments implemented to combat crypto crimes, and what impact have they had?

The UAE has been proactive in adopting new technologies. By establishing specialized regulatory frameworks like the Financial Services Regulatory Authority of Abu Dhabi Global Market and the recently formed Virtual Assets Regulatory Authority (VARA) in Dubai, the UAE has demonstrated a forward-thinking approach to managing and regulating the crypto industry. Few countries in the region have as comprehensive crypto regulations as the UAE. VARA, with its 12 rulebooks, outlines guidelines on market conduct, marketing, data management, and anti-money laundering laws.

Clear regulations have provided virtual asset service providers (VASPs) with certainty regarding the UAE government’s stance, enabling them to plan their business strategies with confidence. This has led to many large crypto enterprises establishing operations in the country.

The positive impact of progressive regulations is evident in consumer behavior as well. The significant presence of institutional investors in the UAE indicates growing confidence and a willingness among entities and high-net-worth individuals to include cryptocurrencies in their investment portfolios. The increasing popularity of DeFi further showcases the country’s success in attracting sophisticated market participants.

As cryptocurrencies gain mainstream acceptance, how can individuals safely use them for investments and transactions without falling prey to scams?

Scams often target the human element, exploiting trust rather than technological vulnerabilities. In addition to robust security solutions and reputable service providers, awareness, education, caution, and due diligence are essential to protect against scams. If an opportunity sounds too good to be true, it likely is.

Urgency-driven requests are common tactics used to deceive users into acting quickly and lowering their guard.

Staying informed about the latest threats and scams will benefit both individuals and businesses.

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