The UK's financial authority has published an official warning to users that Poloniex is not operating under regulation.
A new report from crypto data analytics firm Chainalysis reports that of all cryptocurrency whales, approximately 4% are involved in illicit activity. 4068 cryptocurrency addresses have been associated with illegal or criminal activity online. Between these whales, more than $25 billion USD worth of cryptocurrency is moved around.
According to the Chainalysis report, titled the “Crypto Crime Report, these criminal whale addresses are involved in activities such as scamming people, fraudulent behaviour and malware. Between 2021 and early 2022, the report looks at how the criminals on the blockchain are using the technology to move funds. The report also explores how the cybercriminals are using ransomware, the darknet marketplace and crime related to NFTs.
According to the report, 3.7% of all large-scale cryptocurrency holders (the crypto whales) are criminals in cyberspace:
“Overall, Chainalysis has identified 4,068 criminal whales holding over $25 billion worth of cryptocurrency. Criminal whales represent 3.7% of all cryptocurrency whales — that is, private wallets holding over $1 million worth of cryptocurrency.”
Cryptocurrency cybercrime with large-scale holders
A crypto whale criminal, as defined by the report, is an address that holds more than $1 million USD in cryptocurrency with more than 10% of the total funds coming from illegal sources.
According to Chainalysis’ data, 1374 of the 4068 whales received less than 25% of their total account balance from illegal sources. 846 of the 4068 whale criminals received between 25% and 50% of their total balance from illicit addresses. 296 whales received between 50% and 75% from illegal addresses. 191 whales received between 75% and 90% from illicit sources and 1361 of the 4068 received between 90 and 100% of their accounts from illegal sources.
Where do the illicit funds come from?
According to the data, the majority of illegal funds seem to come from darknet markets, followed by scams and stolen funds in second and third respectively. While darknet represents where the most illicit activity comes from, there has been a massive spike over the past year in an increase of stolen funds.
The threat of a rug pull in cryptocurrency
According to the report, a major part of the stolen funds comes from scamming, with one project in particular accounting for 90% of the total value of stolen tokens.
“We should note that roughly 90% of the total value lost to rug pulls in 2021 can be attributed to one fraudulent centralized exchange, Thodex, whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds.”
Rug pulls as a tactic to get funds from users has increased as the world of decentralised finance has started to see more adoption. Because anyone with blockchain experience can create a project, there is a new chance for scammers to create a project that looks legitimate to steal from vulnerable investors and then disappear with the funds raised. As it stands, decentralised finance does not go through the same regulatory protocols as traditional companies or organisations, making it difficult to weed out the good from the bad projects.
The rise of cryptocurrency overall
According to Chainalysis, theft and scamming has increased over the past few years, with scamming revenue rising by 82% from 2020 to 2021 with $7.8 billion USD worth of cryptocurrency stolen from victims over the year. However, it’s important to note that this increase comes from the increase in DeFi as a market as well as the rise in the cryptocurrency scene overall. As more investors are flooding into the market, there has been an increase in the adoption of both good, functional and genuine projects as well as the uptick in illicit activity in the space.
As noted by the report, the rise in crime is trumped by the increase in the ecosystem overall:
“Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem. Law enforcement’s ability to combat cryptocurrency-based crime is also evolving. We’ve seen several examples of this throughout 2021.”