The Current State of the Crypto Crime Web

Cryptocurrencies have long been associated with illicit activities, criminals, and the dark web, but the current state of illicit crypto use may surprise you. The narratives driven by the mainstream media have been in question, shedding new light on the true extent of illegal crypto activity and cybercrime.

Chainalysis’ 2022 Crypto Crime Report covers interesting analytics and statistics regarding dark web sites' use of cryptocurrencies, painting a clearer picture of criminal activity using tools such as the Tor dark web browser.

DeFi has been a wild west of risk regarding exploits and scams, but centralized exchanges have also had their fair share. Let us go through the report's main findings, demystifying the current state of criminal crypto usage and what you should do to stay safe while engaging in DeFi.

Crypto cybercrime is trending downward

Chainalysis' 2022 crypto crime report generally describes a downward trend in the use of cryptocurrencies for criminals. While mainstream crypto adoption and regulations are taking place to understand the technology better, the traceability of blockchain transactions has allowed authorities to locate transactions in the dark part of the internet.

While the growing cryptocurrency adoption has grown dramatically in recent years, Chainalysis reports that “illicit activity’s share of cryptocurrency transaction volume has never been lower”. 

If the share and volume of transactions related to cybercrime and the deep web are so low, why would the myth associating cryptocurrencies with the dark web perpetuate?

The report highlights that an increase in the average size of transactions is one reason why illicit transaction volumes have decreased in proportion to overall transaction volumes. A concrete example is, “from 2016 to 2021, the average payment size has leaped from $160 to $493 worth of cryptocurrency”.

Scams, rug pulls, and money laundering in DeFi

Beyond the sheer volume and value of transactions, more trends and data are yielding insight into both the dark web and the surface web (indexed search engines) online crypto crime and illegal activities.

For instance, revenue from scams and rug pulls has risen to $7.8bn, with over $2.8bn of that number coming from rug pull theft. The ease of developing and pushing a new token to market has contributed to why these types of fraud are so prevalent.

On the other hand, a rather striking statistic is the prevalence of scams and money laundering in DeFi. Among all types of platforms for exchanging crypto, DeFi has seen the highest growth for laundering illegal funds, with a 1,964% increase from 2020 to 2021, as seen in the diagram below.

It is helpful to look at the big picture to really understand the extent of crypto cybercrime. According to the report, money laundering accounted for just 0.05% of all cryptocurrency transaction volume in 2021. This highlights the relative volume of those who use the dark web for illicit activity in comparison with the total volume of cryptocurrency use.

DeFi theft is on the rise

Theft has been another trend in cryptocurrency, but who is really the victim here? Centralized custodial authorities have demonstrated weak resistance against cryptocurrency theft for years, but in 2021 the narrative switched to DeFi, as the report shows.

Open-source software—common in DeFi—comes with risks and advantages. Unfortunately, it acts as a window where anonymous hackers can view code and think of ways to exploit it.

In fact, code exploit is the most impactful type of attack as it represents the majority of theft in 2021, followed by security breaches and undisclosed reasons.

Opportunities for the security experts

However, with risks come opportunities. Security is much more important in a world driven by the open web, free access, and decentralization. Therefore, audited code and trustworthy development teams (lots of coders keep their identity hidden in this space) are a must when investing in DeFi. Genuine security-minded teams have the opportunity to win the long-term trust of users and investors by investing in solid security practices.

Law enforcement and darknets

Darknets, which are overlay networks not indexed on search engines (such as the Tor browser/the Onion Router), have been one of the places where cryptocurrency use is relatively high. The Silk Road fiasco was a perfect example of using the dark web for crime.

Unexpectedly, in contrast to the record high of $2.1bn in crypto revenue generated by the dark web in 2021, the number of services has decreased. 

This can be explained by the improved ability of legal authorities to trace any given individual's wallet and IP address. Contrary to popular belief, on-chain transactions are 100% traceable and searchable on any search engine, which can be leveraged by law enforcement like Homeland Security.

Protect yourself using decentralized trading tools on Orion

Chainalysis' 2022 crypto crime report illustrates that DeFi can be dangerous, but no less than centralized exchanges. Alarmingly, it states that centralized authorities are, in fact the main destination for the dark web's withdrawals while being a strong target for cryptocurrency theft.

This is part of the beauty behind Orion's aggregator technology - users get to enjoy liquidity from multiple exchanges while maintaining custody of their digital assets. No other service offers trading tools with similar resources and security.

Self-custody is undeniably important to mitigate the risks of third-party negligence and interference. While no solution is perfect, we pride ourselves at Orion on our commitment to the original crypto ethos that prioritizes decentralization, and security (as audited by industry leaders CertiK) as a consequence of that. Try us today!