Eric Jardine, blockchain analytics expert and co-author of the Chainalysis 2023 Crypto Crime Report, discusses the overall drop in crime last year. We explore ransomware, dark market, and pig butchering activity. Only 0.34% of all blockchain activity is criminal. You don't want to miss this one!
Crypto crime accounted for only 0.34% of all blockchain activity in 2023, challenging the perception that cryptocurrencies are primarily used illegally.
Scams and stolen funds saw a decline in 2023, but ransomware and darknet markets experienced increased activity.
Stable coins constitute approximately 65% of criminal transactions, while Bitcoin remains heavily used for ransomware payments.
DeFi-related stolen funds decreased in 2023 due to improved security measures and code audits.
The value of DPRK-related stolen funds decreased, but the number of events increased, suggesting reduced opportunities rather than a decline in criminal activity.
Pig butchering scams present challenges in identification and tracking due to underreporting and the personalized nature of the scams.
Deep dives
Decrease in Crypto Crime Rate in 2023
According to the Chain Analysis 2023 Crypto Crime Report, the overall rate of crypto crime decreased last year. In 2023, crypto crime accounted for 0.34% of all on-chain activity, down from 0.42% in 2022. This contradicts the notion that cryptocurrencies are primarily used for illegal activities, as crime accounted for less than 1% of on-chain activity. This data challenges the claims made by politicians like Senator Elizabeth Warren, who argue that crypto is mainly used for money laundering and illicit transactions.
Different Trends in Illicit Activity
The report highlights that specific forms of illicit activity, such as scams and stolen funds, saw a decline in 2023. Scams, for example, had a reduction in activity for the second consecutive year. However, not all categories experienced a decrease, as ransomware and darknet markets showed an increase in activity. The closure of Hydra, the largest darknet market, in 2022 had a temporary impact, but the ecosystem managed to recover and new contenders emerged throughout 2023.
Stable Coins and the Changing Landscape
Stable coins have become the preferred choice for illicit activity, constituting approximately 65% of criminal transactions, according to the report. However, certain types of crime, like ransomware, still heavily rely on Bitcoin. The increased use of stable coins comes with risks for criminals, as stable coin issuers have the ability to freeze or monitor funds. This added layer of security presents challenges for ransomware operators, as the risks of using stable coins outweigh the advantages.
Improving Security in DeFi
The report notes a decline in funds stolen or lost due to DeFi hacks in 2023. This decrease in DeFi-related stolen funds can be attributed to several factors, including improved security measures. The adoption of code audits for smart contracts and growing emphasis on security by market participants are contributing factors. However, the real test for DeFi security will come during the next bull market, as new protocols and participants enter the space, determining whether security remains a priority.
North Korea's Involvement in Crypto Crime
The report mentions the activities of the Lazarus group, a hacking group allegedly supported by North Korea. While the value of DPRK-related stolen funds decreased in 2023, the number of events increased. This indicates that there may be less to steal rather than a decline in criminal activity. Furthermore, the declining value is due to various factors, including a decrease in the total value locked in DeFi protocols that can be targeted by hackers.
Challenges in Tracking Pig Butchering Scams
The report discusses the pig butchering scam, which involves scammers building relationships with victims and leveraging those connections to engage in investment-related scams. Tracking these scams presents challenges due to the social stigma associated with being scammed, leading to underreporting. Additionally, the individualized nature of these scams makes on-chain identification and attribution difficult.
Data Substrate for Public Policy Discussions
Chain Analysis aims to provide data that contributes to public policy discussions surrounding cryptocurrencies. By quantifying illicit activities on-chain, they offer valuable insights and challenge misconceptions. Their research helps provide policymakers with a factual basis for discussions and policymaking around blockchain technology.
Securing the Future of DeFi
As DeFi grows and evolves, the focus on security must remain a priority. While improvements have been made, challenges remain, especially during bull markets with the emergence of new market participants. It is crucial for the community to maintain a security-first mindset to ensure the long-term sustainability and trust in DeFi protocols.
Educating the Public on Crypto Crime
The report and research conducted by Chain Analysis aim to educate the public about the reality of crypto crime. By providing insights and data, they contribute to a more accurate understanding of the prevalence and trends in illicit activities within the crypto space.
Monitoring and Addressing DPRK-Related Activities
While the value of DPRK-related stolen funds decreased, it is important to recognize that this may be due to factors like reduced opportunities rather than a decline in the group's activities. Vigilance and continued efforts to track and address DPRK-related crypto crimes remain crucial.
The Role of Stable Coins in Illicit Activity
Stable coins have become increasingly favored by criminals for their utility in illicit transactions. However, the nature of stable coins, involving centralized issuers and the ability to freeze or monitor funds, poses operational risks for illicit actors. This makes certain types of criminal activities, like ransomware payments, less feasible or potentially more problematic.
The Need for Long-Term DeFi Security
While recent improvements in DeFi security measures have contributed to a decline in stolen funds, sustainability can only be ensured through a continued focus on security during future bull markets. The entry of new participants and protocols will be a critical test for maintaining robust security practices within the DeFi space.
Tracking and Countering Pig Butchering Scams
Pig butchering scams pose challenges in terms of identification and tracking due to their interpersonal nature and underreporting. These scams involve building relationships and exploiting them to engage in investment-related fraud. Combating such schemes requires increased awareness, education, and individual vigilance.
Promoting Fact-Based Discussions on Cryptocurrencies
Chain Analysis plays a crucial role in providing data and research to facilitate fact-based discussions and public policy considerations related to cryptocurrencies. Their reports contribute to a more informed understanding of the crypto ecosystem, challenging misconceptions and promoting evidence-based decision-making.
Eric joins the show to talk about the Chainalysis 2023 Crypto Crime Report. We discussed to overall drop in crime last year as general blockchain-based activity was down. Still, only 0.34% of all blockchain activity is criminal, according to Chainalysis. We also talked about ransomware, dark market and pig butchering activity. You don't want to miss this one!
