Report Indicates Significant Drop in Percentage of Illicit Activities in the Crypto Space

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Crypto Regulation
Report Indicates Significant Drop in Percentage of Illicit Activities in the Crypto Space

A report by cryptocurrency intelligence company, CipherTrace, shows that there has been a significant drop in the percentage of illicit crypto transactions in the last 12 months.

Crypto Grows Over Illicit Activities

According to the report, the crypto space witnessed enormous growth in 2021, with its market cap peaking at nearly $3 trillion in November.

However, in the same period, the sector also experienced increased illicit activities, ranging from smart contract hacks, flash loan attacks, exit scams, rug pulls, and ransomware extortion attacks.

While these fraudulent activities had a much larger dollar value, they still represented a much smaller percentage of all crypto transactions compared to the year before.

The report estimated that in 2021, illicit activities represented between 0.10 and 0.15 percent of all crypto transactions. This is a significant drop from the 2020 figures, which indicated that fraudulent activities comprised between 0.62 percent and 0.65 percent of all transactions in the crypto space. 

2021 Was A Year of Turmoil For Decentralized Finance

By mid-2021, the market value of the DeFi space had broken past the $100 billion mark. Still, the CipherTrace report indicates that the sector faced at least one significant attack per week during that period.

The attacks led to the loss of billions of dollars worth of digital assets and were either system exploits or intentional fraudulent acts. Two of the largest heists in crypto history occurred during this period of growth in the DeFi sector.

In August 2021, the Poly network lost more than $600 million in digital assets. Nearly eight months later, the Ronin network was hacked for $625 million.

Regulators and Policymakers are Trying to Close Loopholes in the Crypto Space

The CipherTrace report also indicated that regulators, policymakers, and law enforcement agencies worldwide were working hard to establish frameworks to protect the crypto space from bad-faith actors.

For instance, the report cites U.S. President Joe Biden’s “Executive Order on Ensuring Responsible Development of Digital Assets” as an apparent attempt to not only protect consumers, investors, and institutions dabbling in crypto but also protect global financial stability, mitigate fraud, and security risks, and reinforce the United States’s leadership in the international financial and technological sectors.

The report also lauded enforcement actions taken against players in the crypto space that have been caught flouting rules and regulations. An example of this includes the charges filed against Tether and Bitfinex by the Commodity Futures Trading Commission (CFTC) for making misleading statements regarding the USDT and engaging in illegal off-exchange transactions. The charges led to the two entities being ordered to pay $42.5 million in fines.

Another example cited in the report of authorities clamping down on illicit activities in the crypto space includes the shutting down of the darknet marketplace Hydra. Earlier in April, German authorities, led by the Federal Criminal Police Office (BKA), seized Hydra’s server infrastructure alongside nearly $26 million in cash and crypto.

Hydra was one of the largest darknet marketplaces for illegal drugs, fake documents, and stolen credit card data.

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