Cryptocurrency crime is on the rise, as a number of year-end stories have concluded. There was a rise in cryptocurrency losses last year as a result of cyber thefts, bringing the figure to $3.7 billion. Compared to 2021, when malicious actors stole $2.3 billion from traders and exchanges, that is 58% more than the $2.4 billion they stole in 2021, according to a brand new report by Immunefi.
While illicit cryptocurrency transactions reached an all-time high of $20.1 billion in 2022, a $2.1 billion rise from the previous year, illicit cryptocurrency trading reached a new all-time high of $20.1 billion in 2022. In accordance with a recent report released by Chainalysis, the rise in digital currencies has been largely attributed to the increase in U.S. sanctions targeting them.
There are two totally different points in these two stories when it comes to cryptocurrency-related crime. Aside from the fact that you will have criminals stealing crypto funds from your wallet on the one hand, criminals can also use cryptocurrency as an anonymous means of funding illicit actions on the other hand. It is a fact that nefarious businesses are booming all across the board.
Theft of cryptocurrency continues to increase
Approximately 95% of all cryptocurrency thefts are attributed to hacking incidents, according to Immunefi. There are still a number of losses that have been incurred as a result of fraud and different schemes. During the year 2022, researchers tracked a total of 134 hacking circumstances, which was a significant increase over the 104 incidents that had been recorded during the year 2021.
As the year progressed, analysts had been monitoring the growing wave of hacking attempts on digital currencies since the start of the year. This is due to the fact that Chainalysis announced October 2022 as "the most important month in the largest hacking year ever", where the total amount of cryptocurrency stolen amounted to $718 million, according to the website. Hackers had already amassed a total of $3 billion from 125 profitable hacks by October of this year.
Among the worst incidents of 2022 was the theft of $625 million worth of property from Ronin Bridge, a platform that allows the movement of money between blockchains through the movement of foreign currency. It was only later that the U.S. authorities were able to identify the perpetrators of this attack as a North Korean group. Due to the incident, a growing number of national safety concerns have been raised about weaknesses within the crypto industry as a whole. Elliptic, a blockchain analytics agency that has also been linked to the $100 million Horizon Bridge heist that took place in June, linked the attackers to North Koreans.
“The idea of some hacker reaching over $100 million is something I would not even have considered two years ago," remarked Adrian Hetman, the tech lead at Immunefi. “There are, however, a number of circumstances that have been seen in the last two years which are similar to that.”
Crimes Associated with Cryptocurrencies
Cryptocurrency is not simply stolen by criminals - it can also be used as a means of funding illicit activities by criminals. As a result of this ongoing issue, the U.S. government has been extra assertive in curbing unlawful actions by imposing sanctions on companies and individuals as a means of dealing with it. It has been reported that nearly 44% of the $20 billion in illicit transactions can be traced back to sanctioned entities, according to the Chainalysis report.
Several actions have been categorized by the report as illicit, which includes transactions related to child sexual abuse supplies, human trafficking, ransomware, stolen funds, terrorism financing, scams, cyber legal directors, and dark web marketplaces, amongst others.
Despite the efforts of the U.S. authorities, it is evident that the impact of those sanctions has been combined. Based on a chain analysis, it has been discovered that the impact of OFAC sanctions has been uneven. Twister Money, for example, experienced a substantial decrease in inflows after it was sanctioned, as a result of the sanctions. In spite of the sanctions, transactions on the Russian exchange Garantex - which has been sanctioned for its role in cash laundering - have grown considerably, according to CyberScoop. Meanwhile, transactions on the darkish internet market known as the Hydra Market, which is sanctioned by the government, have ceased. There is no doubt that Hydra's infrastructure was also seized by German police.
To put this into perspective, illicit cryptocurrency transactions make up a tiny but growing, the proportion of all cryptocurrency transactions. It is estimated that only 0.24% of all cryptocurrency transactions in 2022 will be associated with illicit activity. As per Chainalysis, this was up from 0.12% in 2021, which was in line with the trend that was observed.
Increasing crypto-crime prompts authorities' response
Treasury Division continues to take action in response to those incidents, such as sanctioning Twister Money in August. The Justice Division's National Cryptocurrency Enforcement Team has also established an international network of federal prosecutors devoted to combating the illegal use of digital property, a community that was formed in September.
While this is happening, the White House has just recently released its "Complete Framework for Accountable Improvement of Digital Belongings." As a part of the Framework, the focus is on the enhancement of methods in order to combat illicit finance. Among the things that the U.S. government will consider during this process is whether or not to ask Congress to amend the Financial institution Secrecy Act (BSA), anti-tip-off statutes, and the legal guidelines regarding unlicensed cash transmission. Digital asset service providers may be explicitly targeted by these measures as well as digital asset exchanges and platforms that provide nonfungible tokens (NFT).
In the White House's Framework, there is also a suggestion that the penalties for certain acts of unlicensed money transmission be increased to a level equivalent to the penalties under other money-laundering statutes for similar crimes. Furthermore, there may be a push for the DOJ to prosecute victims of digital asset crimes in any jurisdiction where they have been discovered to have been victimized by these crimes.
Business Response to Rising Cryptocurrency Crime
In order to combat cryptocurrency-related crime, the non-profit sector is stepping up its efforts. For instance, in 2022, firms that specialize in auditing code for cryptocurrency projects saw a great deal of business from companies that audit code for cryptocurrency projects. According to Immunefi, cryptocurrency bounty funds generated through the use of its platform increased from $13 million in 2021 to over $52 million in 2022. This indicates that organizations have become more proactive in identifying and addressing the vulnerabilities associated with their methods as a result of this data.
Then there is Tigran Gambaryan, Binance's international head of intelligence and investigation and the head of Binance's investigative team. Prior to joining Binance, Gambaryan was a Particular Agent with the Internal Revenue Service-Felony Investigation Unit (IRS-CI) Cyber Crimes Unit for over a decade. In a recent post, the previous agent stated that in the year 2022, Binance will:
Through Binance's International Law Enforcement Coaching Program, law enforcement and prosecutors from around the world can learn how to detect monetary cybercrime. Aside from that, they also play an important role in prosecuting bad actors. It is estimated that throughout 2022, this system will share its insider knowledge and experience with law enforcement and prosecutors around the world through more than 70 workshops and coaching sessions.
The IRS Steps In
The IRS is attempting to work with cryptocurrency companies in order to fight crime within the industry. It was reported in Trade Algo that a top official of the IRS had stated that the agency needs to work with crypto companies more closely.
According to Thomas Fattorusso, the special agent in charge of the IRS's New York field office, the IRS's legal investigations unit is currently recruiting more personnel in order to accomplish this goal. In his statement, he made it clear that the IRS does not see this asset class as a hostile one. Additionally, the IRS is seeking to establish a mutually beneficial relationship between cryptocurrency corporations and the IRS.
There was not too long ago a time when one of the most important factors for adopting cryptocurrency was in order to avoid government oversight. This sort of synergy will only be revealed with time.
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