Illicit crypto transactions in 2022 made up 0.24%

With its focus on various aspects of the potential use of cryptocurrency in criminal transactions, the report reveals money laundering, asset theft, scam projects, Pump & Dump tokens, and more.

Opening paragraph is of key importance: "In total, the share of cryptocurrency transactions related to criminal offenses or fraudulent schemes during 2022 is limited to 0.24% ($20.6 billion)."

Correlating with the statistics of the intelligence agencies regarding the use of cryptocurrencies in all committed crimes, their share of digital assets is not much higher, estimated at 1-3%. It is safe to assume that the remaining 97-99% of criminal offenses were committed using fiat currencies: cash and non-cash transfers through bank accounts, mostly offshore. Thus, despite occasional news leaks alleging that criminals around the world are opting for cryptocurrencies (and hence those should be banned as soon as possible), such information again fails to prove true. Felons keep laundering money, purchasing large batches of drugs, along with bribery and illegal arms purchases still held in good old fiat. In such cases, crypto assets are still technically complex and obscure.

Below we'll discuss the most curious data and stats across the report's various chapters.

Ten crypto projects, including Lazarus Group, Ahmad Khatibi Aghada, Amir Hossein Nikaeen Ravari, Alex Adrianus Martinus Peijnenburg, Matthew Simon Grimm, Hydra Marketplace, Garantex, Blender.io, Tornado Cash, and Task Force Rusich, came under the scrutiny of regulators, including the US Office of Foreign Assets Control (OFAC), last year. Those listed above were all sanctioned by the US for holding a significant share of "dirty" assets, money laundering, terrorist collaboration, etc. As for those that pose the greatest danger, only three of them were shortlisted: the Russian marketplace Hydra and the exchange Garantex, plus the crypto mixer Tornado Cash.

The Hydra marketplace, which operated on the darknet, is the most notorious among all of them. The share of dirty crypto was considerable: 68.2% of all transactions were from wallets with criminal ties, while another 12.6% came from high-risk accounts. Within the Garantex exchange, 6.1% of all transactions were of illicit origin, while another 16.1% came from high-risk wallets. A whopping 34% of all funds sent to the Tornado Cash mixer originated from illicit sources too.

During 2022, an intriguing phenomenon was observed. Malicious individuals sought to extort money using specialized programs, but blackmail victims (individuals and legal entities) paid $456.8 million, which is a considerable decrease (-60%) compared to the previous year ($765.6 million).

Another curious fact shows that the reluctance to cooperate with blackmailers has nothing to do with the decrease in ransomware attacks. In fact, over the course of the year, ransomware decreased just slightly, from 2,865 to 2,566 (-10.4%). Turns out, there is another factor in play.

The number of companies prepared for cyberattacks has recently increased. Legal entities are now successfully repelling attempts to hack into their information systems and networks with the help of backups and other tools. Individuals are also considering ways to avoid paying ransoms to blackmailers exploiting ransomware.

Alas, 2022 marked a milestone in the history of the cryptocurrency market, as hackers stole $3.8 billion worth of assets. Perpetrators demonstrated the highest intensity of operations in March and October. As a result of the latest hacker attacks, 32 different hacker attacks were carried out, stealing almost $776 million. The vast majority were focused on DeFi protocols (81.2%) and cross-chain bridges with smart contracts being essentially vulnerable. There were fewer hackers interested in CEX exchanges and wallets this year. 

Although fiat currencies and banks traditionally feature in the largest money laundering schemes involving significant amounts, only a small fraction of such criminal activity has migrated to the cryptocurrency market. 

Laundering may be conducted via intermediary services, namely cryptocurrency mixers, whilst fiat-crypto-fiat transactions typically rely on exchanges, DeFi protocols, exchange offices, p2p or OTC platforms. Regulators complain about mixers most often, since they are used to launder crypto assets stolen by crooks in most cases. Therefore, mixers such as Blender.io and Tornado Cash were sanctioned by OFAC in May and August 2022, respectively.

With smart contracts becoming more widespread, fraudsters have come up with another attack method: rather than looking for a bug in the code, they've focused on oracles: those designed to handle smart contracts, feeding them information from the world of traditional finance.By conducting 41 manipulative attacks targeting the oracles, perpetrators managed to swindle more than $403 million through fraudulent overvaluation and undervaluation. In most cases, DeFi protocols fell victim to these attacks.   

In 2022, the shutdown of Hydra, a major darknet marketplace, resulted in a decline in revenues in this sector. Profit from the sale of goods and services through the darknet in 2022 reached $1.5 billion, though a year ago it was twice as much ($3.1 billion).

The losses caused by fraudulent projects have almost halved, from $10.9 billion in 2021 to $5.9 billion in 2022.

During a bear market, the desire among individuals to invest in dubious startups decreases significantly. ICOs, IDOs, and similar initiatives are no longer as popular as they used to be. In the top ten scam projects that collapsed in 2022, pseudo-investment projects that promised enormous profits (typical Ponzi schemes) predominated. 

Assets developed in 2022 are not as often used in pump & dump schemes as before. Out of all the tokens that appeared on the market, only 24% of assets were used in such schemes during the year.