While crime looms over cryptocurrency and blockchain projects, there is some light at the end of the tunnel. According to security firm CipherTrace, thefts, hacks, and fraud went down in 2020 to $1.8 billion. Crime in the DeFi sector increased, however.
The $1.8 billion figure represents less than half of the $4.5 billion of crypto crime in 2019. While this seems significant, the $1.8 billion only represents the first ten months of the year, and more crime could be uncovered.
According to Dave Jevans, CipherTrace’s CEO, exchanges and other crypto companies have upped their security. The cause of the decline is not a lack of criminals. Rather, companies have heeded the word of security experts, Jevans told Reuters.
In addition to fraud and theft, CipherTrace has reported that Dark Web markets are growing.
The criminal environment of darknet markets is extremely turbulent. Numerous darknet markets are launched every year and just as many are constantly exiting, being seized, or otherwise going defunct. But there are more dark markets online than ever. https://t.co/Q13IcL12iK
— Dave Jevans (@davejevans) October 26, 2020
Crypto Crime Breakup
While the $1.8 billion represents crypto crime in general, different sectors and types of crimes have been fluctuating in value. For example, losses and theft (excluding fraud) grew to $468 million by November. This represents an increase of 30% from 2019’s $361 million.
The hot topic of DeFi continues to play an increasing role. About $98 million in losses and theft came from Defi platforms. DeFi exploded in 2020, with $12.6 billion in loans locked, according to DeFi pulse. This is up from only $4 billion in August.
The most popular DeFi platforms run with open smart contracts, allowing anyone to audit the code and ensure the safety of their funds. Because these platforms are automatic and, “trustless,” users feel safe on these platforms. However, CipherTrace said that criminals take advantage of this attitude.
CipherTrace believes that the uptick in DeFi popularity drew hackers to the sector. Many DeFi products have been rushed without proper security verification, Jevans said. Consequently, bad actors are finding weaknesses in code or simply taking advantage of naïve users.
Likewise, most DeFi protocols do not have customer verification or Know Your Customer (KYC) processes. Therefore, there is no regulatory compliance or oversight in the case of fraud. Jevans said this makes DeFi a “haven” for criminals.