Crypto crime declined in 2023 as the money lost to scams and hacks fell, even as ransomware and other illicit activity remained lively, according to a new report from Chainalysis.
The research firm reported that illicit activity in global crypto markets dropped from an estimated US$39.6 billion in 2022 to US$24.2 billion last year.
The estimates represent the value of assets received by known illicit crypto addresses and the value lost in hacks. It doesn’t include illegal activity, such as drug trafficking, that uses crypto; suspected money laundering; nor funds associated with platforms accused of fraud but not yet convicted.
As a result, the firm noted that these estimates reflect the low end of actual illicit activity.
“One year from now, these totals will almost certainly be higher, as we identify more illicit addresses and incorporate their historic activity into our estimates,” it said.
Its previous estimate for illicit activity in 2022 increased sharply after it identified more crypto addresses associated with sanctioned services and jurisdictions, and the convictions in the FTX case alone added US$8.7 billion to the total.
At the same time, the firm estimated that the share of all crypto trading volume that involved illicit activity declined from 0.42% in 2022 to 0.34% in 2023.
The fall in illicit crypto activity came as the estimated value of crypto-driven scams declined by 29.2% year over year, and the value of funds stolen in hacks dropped by 54.3% over the same period.
“Many crypto scammers have now adopted romance scam tactics, targeting individuals and building relationships with them in order to pitch them on fraudulent investing opportunities, rather than advertising them far and wide, which often makes them more difficult to uncover,” the report said.
It also noted that the decline in scam activity tracks with the enthusiasm for the crypto sector overall. “[S]camming 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,” it said.
The decline in crypto hacking largely reflects a sharp drop in hacking involving decentralized finance (DeFi) protocols, it said.
“That dropoff could represent the reversal of a disturbing long-term trend, and may signify that DeFi protocols are improving their security practices,” it said. “That said, stolen funds metrics are heavily outlier-driven, and one large hack could again shift the trend.”
While hacks and scams were down last year, ransomware and activity on darknet markets rose, the report said.
“The growth of ransomware revenue is disappointing following the sharp declines we covered last year, and suggests that perhaps ransomware attackers have adjusted to organizations’ cybersecurity improvements,” it said.
At the same time, the rise in darknet activity reflects a rebound, after the dominant market, Hydra, was shutdown in 2022.
“While no single market has yet emerged to take its place, the sector as a whole is rebounding, with total revenue climbing back toward its 2021 highs,” it said.
“We’ll continue monitoring darknet market trends in 2024, and are curious to see what new tactics markets and fraud shops may employ to find more customers,” it added.
The report also noted that stablecoins have become the dominant asset for criminals, usurping Bitcoin, which was long the crypto of choice for cybercriminals.
“This change also comes alongside recent growth in stablecoins’ share of all crypto activity overall, including legitimate activity,” it noted.