Crypto scams fall 65%, but show no sign of stopping, says Chainalysis

Illicit activities involving cryptocurrency is down 15% in volume so far this year, according to a recent report by blockchain intelligence firm Chainalysis, which noted a sharp decline through July, in line with the slump in digital asset prices. Total scam revenue in the year to July was $1.6 billion, down 65% from around $4.46 billion in the same period last year, it said. 

The researchers reasoned that the dip in scams is mainly because of the crypto downturn, besides, the many law enforcement wins against scammers as well as advanced technology solutions exchanges are adopting to fight scamming. 

While scam-related proceeds have dipped in line with the price of Bitcoin, Chainalysis said, since January 2022, the cumulative number of individual transfers to scams was also the lowest in the past four years. It suggests that fewer people than ever are falling for cryptocurrency scams, the blog said. 

"One reason for this could be that with asset prices falling, cryptocurrency scams — which typically present themselves as passive crypto investing opportunities with enormous promised returns — are less enticing to potential victims."

Though the number of scams may be down, Chainalysis reported that losses resulting from cryptocurrency hacks jumped nearly 60% in the first seven months of 2022 to $1.9 billion, propelled by an increase in funds stolen from decentralised finance (DeFi) protocols. 

DeFi applications, many of which run on the Ethereum blockchain, are financial platforms that enable crypto-denominated lending outside of traditional banks. 

According to a blog post from blockchain analysis firm Chainalysis, stolen funds from hacking amounted to $1.2 billion in the same period last year. 

The blockchain analysis firm noted that the trend is not likely to reverse any time soon, given the $190 million hacking of cross-chain bridge Nomad and $5 million hacking of several Solana wallets already in the first week of August. 

"DeFi protocols are uniquely vulnerable to hacking,  and we shouldn’t expect theft to drop based on cryptocurrency market movements the way scamming does,” the report said. “As long as crypto assets held in DeFi protocol pools and other services have value and are vulnerable, bad actors will try to steal them.”

Much of the funds stolen from DeFi protocols can be attributed to bad actors associated with North Korea, especially elite hacking units like Lazarus Group, it mentioned. Chainalysis further estimated that from January to July, North Korea-affiliated groups have stolen approximately $1 billion of cryptocurrency from DeFi protocols.