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2020 has been a banner year for the crypto market. Despite initially faltering in March with the coronavirus pandemic-induced crash, it recovered and even rallied to new heights with various cryptocurrencies such as Bitcoin smashing their previous records.
But despite the rising crypto prices making them more attractive to cybercriminals, cryptocurrency-related crime surprisingly declined last year. According to CNBC, illicit activities made up only 34 percent of total crypto transaction volume in 2020, a huge decline from the 2 percent of transaction volume in 2019.
“We saw a significant decrease in the share of overall activity associated with illicit entities,” Chainalysis head of research Kim Grauer said. “Still, ransomware was by far the biggest category in terms of activity growth and we’re seeing an all-time high for dark-net market activity.”
Actual losses from cryptocurrency-related crime also fell by 57 percent last year, according to Reuters. Losses from crypto fraud, theft, and hacks fell to $1.9 billion in 2020 compared to the $4.5 billion in losses posted in 2019.
Crypto intelligence company CipherTrace said that the decrease is due to improved security systems in cryptocurrency firms. “Thefts from hacks against centralized exchanges continue to decrease as these financial institutions mature and adopt stronger security measures,” CipherTrace CEO Dave Jevans said in an interview.
Improved crypto industry regulation is also a factor in its reduction. “Regulation and enforcement are restricting centralized fraud schemes, which are pushing criminals to exploit decentralized finance services,” Jevans added.
Just like Chainalysis’s report, CipherTrace also noted an increase in criminal activity in the decentralized finance (DeFi) sector. In fact, $129 million in losses came from hacks tied to decentralized finance.
One factor for the increasing losses in the decentralized finance segment is due to inadequate regulation. “DeFi platforms enjoy many exemptions from traditional regulatory enforcement regimes that centralized exchanges, money service businesses, and banks face,” Jevans added.
“For example, DeFi platforms often do not have to perform customer verification (Know Your Customer) or transaction anti-money laundering,” he explained. “This makes them ideal venues for moving and laundering money.”
