In 2023, the value received by illicit cryptocurrency addresses amounted to US$24.2 billion, representing a 39% year-over-year (YoY) decline from US$39.6 billion in 2022, new data released by blockchain analysis firm Chainalysis reveal. Despite the notable drop and improvements, the prominence of sanction-related transactions and the growth of ransomware attacks remain key challenges for the industry to tackle.

These data, released preliminarily in anticipation of the upcoming Chainalysis 2024 Crypto Crime Report, reveal that 2023 was a year of recovery for the cryptocurrency industry as the sector rebounded from the scandals, business collapses and price declines that took place in 2022.

Value received by illicit crypto addresses dropped significantly in 2023, driven by a decline in crypto scamming and hacking revenue by 29.2% and 54.3%, respectively. Chainalysis partly attributes this trend to  market dynamics and changes in criminal tactics.

In particular, the report notes that scamming is most successful when markets are up, exuberance is high, and people feel like they are missing out on an opportunity to get rich quickly. Additionally, many crypto scammers are moving towards romance scam tactics, making these scams more difficult to uncover.

Stolen funds are also on the decline, a drop that was driven largely by the decrease in decentralized finance (DeFi) hacking. This decrease could signal the start of a reversal of a long-term trend, and may imply that DeFi protocols are improving their security practices.

In addition to the reduction in absolute value of illicit activity, Chainalysis highlights improvements in fraud prevention and detection, noting that the share of crypto transaction volume associated with illicit activity fell to 0.34% in 2023, against 0.42% in 2022.

Conversely, the data reveal an increase in ransomware attacks and darknet markets, indicating challenges in cybersecurity and a resurgence in these illicit activities. The growth of ransomware revenue suggests that ransomware attackers are adjusting to the new cybersecurity improvements that organizations have made. Meanwhile, the growth of darknet market revenue gives the impression that the market is rebounding after the shutdown of leading platform Hydra, with total revenue climbing back towards its 2021 highs.

Chainalysis also notes that transactions associated with sanctioned entities and jurisdictions accounted for a substantial portion of illicit activity. Together, sanctioned entities and jurisdictions made up a combined US$14.9 billion worth of transaction volume in 2023, representing 61.5% of all illicit transaction volume measured during that year.

Most of this total came from cryptocurrency services that are sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control, or are located in sanctioned jurisdictions. The rest represents activities from average crypto users who happen to reside in those jurisdictions.

Another trend outlined in the report is the shift in asset preference. While bitcoin had long been the preferred crypto for criminals, stablecoins became in 2022 the dominant choice for illicit transactions, a shift that’s in part attributed to their overall growth and larger share in crypto activity.

The crypto market rebounded in 2023, with bitcoin rallying more than 150% for the year, data from Coinmarketcap show. The boom represented a major recovery from 2022 during which crypto prices plummeted and major companies collapsed.

Crypto exchange FTX, once valued US$32 billion, went belly up in December 2022 after a spike in customer withdrawals exposed a US$8 billion hole in the company’s accounts. In November 2023, a jury in New York convicted the company’s founder, Sam Bankman-Fried, on seven criminal counts. Bankman-Fried is now facing a maximum sentence of 115 years in prison.

The crypto rally is carrying on this year, with the market starting 2024 on a high note. On January 10, 2023, the US Securities and Exchange Commission (SEC) gave approval to 11 spot bitcoin exchange-traded funds (ETFs), marking a watershed moment for the crypto industry.

The move is expected to offer convenience by widening access to the crypto market, reducing the technical complexities associated with managing wallets and navigating exchanges. This accessibility appeals to investors more familiar with traditional investment avenues. Spot bitcoin ETFs also enhance liquidity, enabling investors to buy and sell bitcoins through standard brokerage accounts, similar to trading traditional assets. Finally, these ETFs are subject to regulatory oversight, ensuring transparency and investor protection, unlike individual bitcoin purchases.

Bitcoin is currently trading above US$47,000, a level last seen in December 2021, data from Coinmarketcap show. The crypto is up 9% from the start of 2024.

Featured image credit: Edited from freepik

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• Source: https://fintechnews.sg/85415/crypto/crypto-crime-drops-39-but-challenges-persist-including-ransomware-attacks-transactions-with-sanctioned-entities/