A report by Chainalysis has put the cost of crypto scams at the whopping $14bn in 2021 alone.
The blockchain analytics firm has reported that the losses were 79% higher than a year prior, in 2020.
Scamming and theft were the two main culprits of the losses experienced in the cryptocurrency sector. Businesses, for the most part, were hacked rather than scammed, the company explained.
DeFi or decentralized finance proved a particularly lucrative opportunity for crypto scammers who had been looking to steal money or promise quick riches to gullible investors.
In its Crypto Crime report, Chainalysis stated: “DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike. But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”
DeFi’s transaction volume grew by 912% in 2021 alone, Chainalysis statistics revealed. However, the protocols based on DeFi are vulnerable, explained Chainalysis head of research Kim Grauer. For one, they are launched with code that is prone to vulnerabilities and exploitation.
“Twenty-one percent of all hacks in 2021 took advantage of these code exploits”, he stated, essentially arguing that one-fourth of all DeFi hacks could have been avoided should the projects have invested in properly developing their products.
However, a fear of missing out has been instilled among companies as well. On comparative terms, Chainalysis explained that crypto theft increased by 516% from 2020 to $3.2bn.
Some 72% of this was stolen from DeFi projects and protocols. Losses from scams increased to 82% to $7.8bn. A good percentage of that, around $2.8bn of losses, came from a scam known as a “rug pull”.
A rug pull is a scam in which people are asked to invest in a crypto project just to find out that the owners have disappeared overnight.
Mark Cuban, a Shark Tank investor and proponent of crypto, made a bit of a fool of himself when he fell for one such scheme.
If there is some good news here, it is the fact that the use of legitimate cryptocurrencies far outstrips any use of underhand and ill-gotten funds, Chainalysis said. However, for crime and fraud to be eliminated, regulators would need to step in.