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Crypto Crime Is Plummeting

Crypto Crime Is Plummeting

Crimes targeting the cryptocurrency sector dropped by more than half in 2020, according to blockchain security firm CipherTrace.

Due mainly to improved security systems, CipherTrace, a cryptocurrency crime and anti-money laundering report, notes that last year revealed that losses from cryptocurrency theft, hacks, and fraud fell 57% to $1.9 billion. 

In 2019, a CipherTrace blockchain forensics report said that cryptocurrency theft had skyrocketed, year-over-year, with losses from digital currency crime hitting $4.4 billion in the first nine months of the year. That was a 150% increase over the first nine months of 2018. 

For last year, a Ponzi scheme called WoToken defrauded investors out of $1.1 billion, accounting for 58% of the year’s major crime volume. 

Last November, a Chinese court sentenced five individuals up to nine years in prison in connection with their involvement in the WoToken scam that defrauded over 700,000 Chinese citizens.

However, CipherTrace noted a surge in decentralized finance (DeFi) related crime last year. 

The majority of those were “rug pulls,” a practice where a token is artificially hyped and inflated, with the creators and early investors pulling the plug after the pump. Those who join later are left with big losses. In other words, a crypto pump and dump. 

“Half of all 2020 crypto hacks were of DeFi protocols—a pattern that was virtually negligible in all prior years—and nearly 99% of major fraud volume in the second half of 2020 stemmed from DeFi protocols performing ‘rug pulls’ and other exit scams in a pattern eerily reminiscent of the 2017 ICO craze,” the report said.

DeFi protocols have many exemptions from traditional enforcement regimes that centralized exchanges, money service businesses and banks face.

According to Defi Pulse, which tracks the industry, the total value locked in Defi is currently $26.7 billion, up from $4 billion in last August. 

Over the past couple of years, cryptocurrency has been linked to criminal activities such as Ponzi schemes, extortion, theft, and money-laundering. And the currency of choice is bitcoin, which accounts for 95% of illicit cryptocurrency transactions.

Still, bitcoin addresses with known criminal connections transferred at least $3.5 billion of the virtual currency in 2020, which is less than 1% of cryptocurrency transactions. The traditional banking system has more rigorous measures, but still major global banks handled trillions of dollars in "suspicious" transactions. 

Last September, BuzzFeed News and the nonprofit International Consortium of Investigative Journalists published classified U.S. government documents reporting that major banks processed $2 trillion in transactions despite suspecting they were connected to illegal activity.

 On the regulatory front, the cryptocurrency sphere has been overwhelmed with new legal attention as regulatory and policy making bodies consider how the space should operate.

Last December, the outgoing Trump administration said it was preparing a regulation that would strip anonymity from cryptocurrency to make it easier to track transactions.  

The U.S. Financial Crimes Enforcement Network (FinCEN) has proposed a new rule that would require cryptocurrency wallets not hosted by financial institutions in the U.S. to be tied to verified identities.

The proposal would require banks and money services businesses dealing in crypto, including the exchanges, to collect and report on crypto owners who use wallets that aren’t held by any custodian.

Under the proposal, crypto companies would have to record and report crypto transactions above $10,000, just as banks are required to.

However, the Biden administration has declared a freeze on all agency rule-making, pending a review by appointees to be made.  

By Michael Kern for Safehaven.com 

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