Crypto scammers steal almost $8bn from investors in 2021

·3 min read
An employee works at the data centre of the BTC KZ crypto mining company located near the coal-fired thermal power plant outside the town of Ekibastuz, Kazakhstan November 6, 2021. Picture taken November 6, 2021. REUTERS/Pavel Mikheyev
The data centre of a crypto mining company in Kazakhstan. Photo: Reuters

As crypto assets gain popularity, crypto scams are also on the rise – over $7.7bn (£5.7bn) worth of cryptocurrency was stolen from victims worldwide in 2021, new data revealed.

Chainalysis, a blockchain data firm, said scams were the largest form of cryptocurrency-based crime by transaction volume and there has been an 81% rise in these when compared with 2020.

Chart: Chainalysis
Chart: Chainalysis

2020 saw scamming activity dropped significantly compared to 2019, in large part due to the absence of any large-scale Ponzi schemes.

But chat changed in 2021 with Finiko, a Ponzi scheme targeting Russian speakers throughout Eastern Europe, netting more than $1.1bn from victims. It invited users to invest with either bitcoin (BTC-USD) or tether, promising monthly returns of up to 30%.

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Another change that contributed to 2021’s increase in scam revenue was the emergence of 'rug pulls'.

These are particularly common in the DeFi ecosystem and includes developers of a cryptocurrency project — typically a new token — abandon it unexpectedly, taking users’ funds with them.

The biggest rug pull of the year centered on Thodex, a large Turkish centralised exchange whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds. Users lost over $2bn worth of cryptocurrency

Another recent example of this was when a crypto currency inspired by the hugely popular South Korean Netflix (NFLX) series Squid Game has turned out to be a scam, with its developers reportedly making off with around $3.4m.

Read more: Squid Game based crypto collapses in $3m scam

Rug pulls have emerged as the go-to scam of the DeFi ecosystem, accounting for 37% of all cryptocurrency scam revenue in 2021, versus just 1% in 2020, the report said.

They took in more than $2.8bn worth of cryptocurrency from victims in 2021.

“As the largest form of cryptocurrency-based crime and one uniquely targeted toward new users, scamming poses one of the biggest threats to cryptocurrency’s continued adoption,” the Chainalysis report said.

It added that some cryptocurrency businesses are taking steps to leverage blockchain data to protect their users and nip scams in the bud before potential victims make deposits.

Watch: Why bitcoin's value is probably zero

The report also found that the number of deposits to scam addresses fell from just under 10.7 million to 4.1 million, which means there were fewer individual scam victims but the average amount taken per victim has gone up.

Scammers’ money laundering strategies haven’t changed all that much, the report said. As was the case in previous years, most cryptocurrency sent from scam addresses ended up at mainstream exchanges.

The number of financial scams active at any point in the year —meaning their addresses were receiving funds — also rose significantly in 2021, from 2,052 in 2020 to 3,300.

Crypto is an unregulated industry and governments around the world are trying to understand how to regulate it as it gains popularity.

Watch: How crypto-lobbyists are 'dictating terms in Washington'

In September, China said all transactions of crypto-currencies are illegal.

There have been reports that the Russian central bank also wants to ban investments in cryptocurrencies in the country, as it sees risks to financial stability in the rising number of crypto transactions. Some say authorities in Russia believe cryptocurrencies can be used for money laundering and to finance terrorism.

And India's parliament is considering a bill that “seeks to prohibit all private cryptocurrencies in India."

The government has in the past considered criminalising the possession, issuance, mining, trading and transference of crypto assets. The new rules could also discourage the marketing and advertising of cryptocurrencies.

The Financial Conduct Authority in the UK In January, has issued a warning that "investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money,” adding that "if consumers invest in these types of product, they should be prepared to lose all their money.”

Watch: What are the risks of investing in cryptocurrencies?