Losses from cryptocurrency theft, hacks, and fraud fell 57% in 2020
CipherTrace, the cybersecurity firm which focuses on Anti-Money Laundering (AML), cryptocurrency forensics and blockchain threat intelligence released the ‘Cryptocurrency Crime and Anti-Money Laundering Report 2020’ earlier today. The report reveals that while crimes against digital currencies decreased by more than half in 2020, DeFi-targeted crimes have skyrocketed.
Losses from cryptocurrency theft, hacks and fraud fell 57% in 2020 to $1.9 billion, a fact attributed by the report to the increasing awareness and availability of comprehensive security systems. In 2019, the annual losses from cryptocurrency hacks had hit a record of $4.5 billion. Fraud topped the crypto crime list this year, followed by theft and ransomware.
CipherTrace stated that “massive exit scams” such as the PlusToken Ponzi have dominated the crypto crime space over the last two years with the scammers pocketing $2.9 billion through the Ponzi Scheme alone. This trend continued in 2020 with culprits often called “WoToken” defrauding investors out of $1.1 billion using a similar scheme. This accounted for 58% of the year’s major crime volume in cryptocurrency.
“Thefts from hacks against centralised exchanges continue to decrease as these financial institutions mature and adopt stronger security measures”, Dave Jevans, CipherTrace’s chief executive officer stated.
While a significant decrease was noted in crypto crime, attacks on Decentralised Finance (DeFi), an upcoming space in the blockchain world, witnessed a major surge. Rug Pulls, where a token is artificially hyped and inflated, with the creators and early investors pulling the plug after the pump leaving the latecomers out of pocket, was the most popular DeFi-related crime.
The report further explained the modus operandi of rug pulls, pointing out that bad actors seek to liquidate the entire liquidity pool, leaving the remaining token holders with no liquidity. This will not only ensure that the late investors are unable to trade, but will also wipe out the remaining value of the token.
“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.
Jevans said that DeFi protocols are mostly unregulated and thus exempted from traditional enforcement regimes that centralized exchanges and financial institutions must adhere to. This might potentially be causing the surge in criminal activities, he added.
The report also revealed that the $281 million hack of the centralised exchange KuCoin which is 2020’s largest theft, also had DeFi involvement. Criminals attempted to use Uniswap, the world’s largest decentralised exchange to launder the stolen funds.