Illicit use of cryptocurrencies hit a record US$20.1-billion (R337-billion) last year as transactions involving companies targeted by US sanctions skyrocketed, data from blockchain analytics firm Chainalysis showed on Thursday.
The cryptocurrency market floundered in 2022, as risk appetite diminished and various crypto firms collapsed. Investors were left with large losses and regulators stepped up calls for more consumer protection.
Even as overall crypto transaction volumes fell, the value of crypto transactions related to illicit activity rose for the second year running, Chainalysis said.
crypto scam
Even as overall crypto transaction volumes fell, the value of crypto transactions related to illicit activity rose
Transactions associated with sanctioned entities increased more than 100 000-fold in 2022 and made up 44% of last year’s illicit activity, Chainalysis said.
Funds received by the Russian exchange Garantex, which was sanctioned by the US treasury department in April, accounted for “much of 2022’s illicit volume”, Chainalysis said, adding that most of that activity is “likely Russian users using a Russian exchange”. A spokesman for Chainalysis said wallets are tagged as “illicit” if they are part of a sanctioned entity.
The US also imposed sanctions last year on cryptocurrency mixing services Blender and Tornado Cash, which it said were being used by hackers, including from North Korea, to launder billions of dollars worth of proceeds from their cybercrimes.
The volume of stolen crypto funds rose 7% last year, but other illicit crypto transactions including those related to scams, ransomware, terrorism financing and human trafficking, saw volumes fall.
“The market downturn may be one reason for this,” Chainalysis said. “We’ve found in the past that crypto scams, for instance, take in less revenue during bear markets.”
Chainalysis said its $20.1-billion estimate only includes activity recorded on blockchain, and excludes “off-chain” crime such as fraudulent accounting by crypto firms.
The figure also excludes when cryptocurrencies are the proceeds of non-crypto-related crimes, such as when cryptocurrency is used as a means of payment in drug trafficking, Chainalysis said.
“We have to stress that this is a lower bound estimate — our measure of illicit transaction volume is sure to grow over time,” the report said, noting that the figure for 2021 was revised to $18-billion from $14-billion as more scams were discovered.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
Since the emergence of Bitcoin in 2009, cryptocurrency has gained significant traction in popularity over the years, with more and more people investing in the now many variations of digital currencies available such as Ethereum, Tether, Binance, and even Dogecoin.
One of the biggest reasons for crypto’s rise in popularity has been the ideal behind the digital currency as a decentralised form of exchange, essentially presenting a form of monetary value with no ties to, or control by, any singular government. The hope for cryptocurrency was that it would put more power, control, and access to more options into the hands of consumers and lead to a more dynamic marketplace.
Cryptos
Today, one in 10 people are investing in cryptocurrency, with around 65% of those investing in crypto having only started doing so in the past year or two. This is largely because it has become easier and easier over time to trade in digital assets and crypto offers a high possibility of growth over a short period of time. Even investors are shifting their priorities over from traditional assets, such as stocks, to digital assets like cryptocurrency.
However, as its popularity continues to grow, so does the risk around it as malicious actors seek to exploit any vulnerabilities associated with the rising interest in digital currencies for monetary gain. Cryptocurrency scams, as well as organised and financial crimes such as money laundering or crypto laundering, are on the rise across the African continent, particularly in South Africa, while cryptocurrency fraud is growing increasingly sophisticated and persuasive. In fact, one of the biggest crypto scams in the world was carried out by Mirror Trading International in South Africa in 2020 where hundreds of thousands of victims were robbed of $588 million in Bitcoin through a Ponzi scheme. The US Commodity Futures Trading Commission (CFTC) has even charged the company and its CEO with defrauding investors of $1.7 billion and is the CFTC’s largest fraud scheme case involving Bitcoin.
According to a recent report released by blockchain analysis firm Chainalysis, South Africa was one of the countries listed as receiving the highest volume of cryptocurrency from illicit addresses alongside countries like Russia, China, the United States, and the United Kingdom. As such, it is crucial that South African consumers are able to recognise any red flags that might indicate fraudulent crypto platforms, scams, and scam artists.
Because investing in cryptocurrency is relatively new to the general public or everyday person, scammers often try to take advantage of people’s lack of knowledge to make them buy into a crypto scam.
The most common methods that scammers use to trick unsuspecting victims is by creating a false sense of legitimacy through fake websites or crypto trading platforms that mimic authentic sites and platforms or investment schemes which claim endorsements from celebrities or people with a high level of authority within the finance sector. Other common crypto scams include rug pull scams where investors cannot withdraw funds after buying in, romance scams through relationships which are built online, phishing scams which aim to trick people into providing their personal or legitimate cryptocurrency wallet information, or giveaway scams.
The easiest way to identify a possible scam is that they often offer significantly high returns or rewards within a short amount of time. They also often assure potential buyers that they’re guaranteed these returns and entice buy-in by offering free money in cash or cryptocurrency. As the old adage notes, when something looks too good to be true, it usually is.
What does legitimate crypto buying and investing look like?
As with any other investment, potential investors should perform their due diligence and conduct research into the site, platform and company they’re looking to invest in and make sure that they have legitimate backers and are sold by reputable firms before buying in.
While not in depth, simple online searches with the company’s name alongside “review”, “scam”, or “complaint” should bring up any information that might indicate its trustworthiness or credibility. Take time to research the names of people on social media sites like LinkedIn to make sure that they are really employed at a company or to see whether their profiles are real or not. There are other small, simple, indicators people can use to ensure they’re investing in something legitimate such as clear and easy to find or understand information around the company, how it works, and the risks involved. It is also less risky to invest in very well-known cryptocurrencies such as Bitcoin and avoid lesser known coins, especially if they are experiencing a sudden upsurge.
Once you’re sure you’ve found a credible crypto investment platform, it’s best to start off with small investments until you’re more comfortable with the way everything works. As such, micro investing is a particularly advantageous option for new and wary crypto investors as it only involves the injection of small amounts of money, frequently. Using trusted, and well established, investment platforms such as upnup, which aims to simplify the process of investing in Bitcoin, will help to reduce the risk of falling into the clutches of the rising number of crypto scams around the world
Justin Asher, Head of Marketing and Strategy at upnup
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
