Crypto Crime Report: What Are They Doing With Crypto!?

Crypto crime how bad is it and is it Getting worse well earlier this month a Blockchain analytics company released a Report that detailed all the crypto Criminality of 2022 it found that Illicit crypto activity hit an all-time High last year and these findings could Influence crypto regulations and affect The crypto Market That's why today I'm going to summarize This report explain what it says in Simple terms and tell you what the Consequences of it could be Foreign the report in question is chain Analysis's 2022 version of its annual Crypto crime report and it's linked to Below should you want to read it through Yourself so it begins with a brief Introduction wherein the authors reveal Their biggest finding quote elicit Cryptocurrency volumes reach all-time Highs amid surge in sanctions Designations and hacking The authors note that they did not count Activity by crypto companies like FTX as Being illicit activity this is in part Because the allegations against these Entities are still in the process of Being settled in court and in part Because the authors only analyzed On-chain data that said as Cryptocurrency continues to decentralize More data will be on chain so the Authors will have quote complete

Visibility If you watched our video about Blockchain analytics firms you'll know That companies like chain analysis can Literally see everything you're doing on Chain The idea that they'll eventually be able To see more doesn't sit well with Everyone especially not with wealthy Institutional investors who want privacy Anyways the authors highlight the fact That crypto crime continued to increase Despite the decline in the crypto Market This makes sense when you realize that The biggest contributor to this abnormal Growth is sanctions violations which Have mushroomed since Russia's invasion Of Ukraine In any case the authors estimate that There were roughly 20 billion dollars Worth of illicit crypto transactions in 2022 and they cautioned that this is a Lower bound estimate they note that this Figure will likely be revised higher as More criminal crypto wallets are Detected as was the case in 2021. Regarding the over-representation of Sanctions the author specified that 43 Of all illicit crypto transactions were Associated with sanctions in 2022 now This is obviously due to the crypto Sanctions the U.S has imposed on Russia Which the authors call quote ambitious And difficult to enforce all in all only

Around 0.24 of cryptocurrency Transactions in 2022 were associated With illicit activity the caveat is that This figure is double that of the Previous year And the authors note that they noticed That illicit crypto transaction volume Was falling slower than legit crypto Transaction Volume last August Now the first part of the report Addresses the biggest chunk of the Illicit crypto activity which is again Sanctions related crypto transactions The authors start by saying that Sanctions compliance in crypto is Possible due to centralized entities in The crypto industry who are terrified of Getting wrecked by the office of foreign Assets control or ofac the authors Reveal that the first time ofac Announced crypto-related sanctions was Back in 2018. these sanctions were Related to two Iranian hackers more Importantly in 2018 there were two Crypto wallets per sanctioned entity in 2019 it was four per entity and in 2020 It was 9 per entity This trend went parabolic in 2021 with The number of sanctioned crypto wallets Per sanctioned entity spiking to over 100 and then to over 300 in 2022 Most of the 2022 sanctions relate to the Dark net Marketplace Hydra the crypto Mixer tornado cache and the Russian

Crypto Exchange guarantechs The authors then explain how sanctions Affected these three entities for Hydra Sanctions resulted in the shutdown of The marketplace for tornado cash it Continues to operate and the authors Underscore the fact that nobody can be Held accountable for its use since its Immutable code now this is a not so Subtle condemnation of the continued Incarceration of Alexa in the Netherlands who has reportedly been Charged with facilitating money Laundering by Dutch authorities nobody Ever talks about how tornado cash had a Regulatory Compliance tool built into Its code base anywho much like tornado Cash The guarantex Exchange continues to Operate as normal now here you can see The percentage of illicit transactions Each entity received prior to sanctions For Hydra it was 68 for guarantex it was 6.1 percent and for tornado cash it was 34 due to Big spikes now whereas most of The illicit transactions being received By Hydra and guarantext were from Ransomware attacks most of the illicit Transactions being received by tornado Cache were from crypto hacks and scams If you watched our video about the Lazarus group you'll know they love Tornado cash In terms of post-sanctions cryptoflows The number of crypto transactions going

To Hydra basically went to zero and for Tornado cash they declined significantly For guarantex however the number of Crypto transactions actually increased After the sanctions mainly because Russia doesn't enforce U.S sanctions as You might have guessed this has led to a Significant spike in illicit crypto Transactions being sent to guarantex a Little later the authors reveal that Cyber criminal administrators lost the Most money from crypto sanctions whereas So-called fraud shops actually saw a Small increase in income Now the second part of the report covers The most popular talking point with Anti-crypto politicians and that's Ransomware the good news is that crypto Transactions related to ransomware fell Significantly in 2022 the bad news is That this figure is still quite high at More than 450 million USD what's Fascinating is that the authors break Down the type of ransomware by strain They note that the number of ransomware Strains has increased and the number of Days they last for is much lower they Speculate that this is because Ransomware attackers are trying to make It harder to be tracked what's Concerning is that almost 50 percent of Crypto related ransomware continues to Be cashed out using centralized Exchanges the authors note that this is

A 10 increase compared to 2021. now this Of course begs the question of which Exchanges are involved unfortunately the Authors do not note this in their report What's interesting is that the authors Argued that the number of people in the Ransomware ecosystem is quite small Despite all the strains they also Explain that most ransomware operates as Ransomware as a service meaning that Ransomware groups sell their software to Criminal actors or governments What's crazy is that the criminal group Behind Conti the most popular ransomware Strain in 2021 turned out to be Connected to Russia's Federal Security Service which is analogous to the CIA in The USA This was discovered shortly after the Conti group announced their support of The Ukraine war what's even crazier is That the Conti group has since split up Into different ransomware groups which Leads the authors to ponder whether it's Appropriate to say that the Conti strain Was Defeated they cite the opinion of a Ransomware expert who says it's been the Same few hundred people all along I couldn't help but be reminded of the Cyber attack simulations that were Carried out by the world economic forum And Russia's largest bank in 2022 and 2021. we covered these Cyber attack Simulations in depth in two videos and

You can find the link to episode 1 in The description episode 2 coming soon Now the authors go on to reveal that They consulted with multiple ransomware Experts to understand why ransomware Revenues were down despite the same Number of ransomware attacks the short Answer is that victims are scared of Paying the ransoms because of ofac Sanctions on related entities The authors then do a deep dive into a Ransomware strain called deadbolt which Targeted individuals and smaller Institutions in 2021 they discuss how Dutch authorities were able to trick the Ransomware into returning the Information of victims without having to Pay a single Satoshi the tldr is that The ransomware would release data when It saw that a BTC Ransom had been sent But not yet confirmed on the Bitcoin Blockchain so authorities would send a BTC transaction and then simply redirect It back to the victim before the Transaction was confirmed on the Bitcoin Blockchain the catch is that authorities Couldn't do this one person at a time Otherwise the ransomware group would Notice that there was a flaw in their Software as such the authorities reached Out to as many people as they could Who'd been affected by the ransomware And exploited the loophole in tandem Funnily enough it seems that chain

Analysis included this in their report Highlight the importance of blockchain Analytics companies well played Now the third part of the report talks About another touchy subject in crypto And that's money laundering the authors Start with an eye-opening statistic and That's that over one billion dollars in Illicit crypto transactions were Deposited to four crypto wallet Addresses belonging to crypto exchanges The authors then explain that laundering Ill-gotten crypto gains is a two-step Process the first step is to use Intermediary wallets and mixing services To try and cover the on-chain tracks of These transactions the second is to find A crypto to Fiat off-ramp that lets you Convert These funds into Cash What's terrifying is that crypto Transactions related to money laundering Exploded in 2022 with almost 24 billion Dollars of crypto being laundered the Authors reveal that most of these funds Went to mainstream centralized exchanges Even those that are regulated which is Truly terrifying indeed It's not just centralized exchanges Either the authors note that D5 Protocols are becoming an increasingly Popular part of the money laundering Process the authors explained that this Is because D5 Protocols are the number One destination for stolen coins and

Tokens naturally the third most popular Destination for crypto money launderers Is mixers the authors reiterate that the Amount of funds going through mixers Declined because of sanctions this is Because mixers were being used by lots Of regular people for on-chain privacy And they listened to the sanctions but Back to the centralized exchanges the Authors reveal that no fewer than 915 Exchanges and other crypto to Fiat Off-ramps received illicit Cryptocurrency in 2022 a whopping 68 Percent went to just five of them What's frustrating is that the authors Don't reveal which exchanges are in the Top five and on that note if you're Uncertain whether the crypto exchange You're using is legit check out our Video about the top 5 safest exchanges Using the link in the description I Digress now another eye-opening insight About crypto money laundering is that Just a small group of people are making Or rather laundering most of the money What you're looking at is the Distribution of these money laundering Gains over one billion dollars of Illicit crypto went to just four wallet Addresses this ties into what the Authors call underground money Laundering Services which are third Parties who help crypto criminals clean Their money using cryptocurrency

Exchanges the authors admit that these Services are hard to track but data Suggests that they received six billion Dollars of illicit crypto in 2022 when It comes to how much crypto criminals Are holding this figure fell from almost 12 and a half billion to Less Than 3 Billion in 2022 because of the crypto Bear Market The authors speculate that one of the Reasons why criminals haven't been able To cash out is because of crypto Twitter Investigations so nice work Zac xbt and Friends the authors also touch on the Record amount of crypto that's been Seized by law enforcement agencies in Recent years the two largest seizures Were in 2022 and 2021. the first was the Seizure of the 3.6 billion dollars in BTC stolen from bitfinex and the second Was the 3.3 billion in BTC from Silk Road respectively now the fourth part of The report ties into the third and That's all the stolen cryptocurrency the Authors start with yet another juicy Statistic and that's that 2022 was a Blowout year for crypto thieves Almost four billion dollars of crypto Was stolen primarily from D5 protocols And primarily by North Korea in Percentage terms 82 percent of all Crypto stolen in 2022 came from D5 Protocols with 64 of that stolen crypto Coming from cross-chain bridge hacks the

Authors say that this is because Bridges Allow for a large accumulation of assets And quote a more desirable Honeypot Could scarcely Be Imagined the authors Argued that the transparency of Defy is Ultimately what makes it so vulnerable And they take some time to show some Blockchain security firms well not to Burst their bubble but it seems that Chat GPT will be the solution to Preventing smart contract issues in the Future it knows how to read crypto code More about chat GPT and how it could Affect crypto using the link in the Description moving on The authors then offer a tongue-in-cheek Congratulations to the North Koreans for Managing to beat their own crypto Hacking record 1.7 billion dollars Stolen in 2022 versus 430 million in 2021. It's believed that this money is being Used to fund The Hermit Kingdom's Nuclear weapons program As expected most of the crypto the North Korean steel gets exchanged for a more Liquid cryptocurrency like eth using Decentralized exchanges and is then Mixed to try and cover their tracks North Korea's use of tornado cash was Actually the reason why the mixer was Sanctioned but it hasn't stopped them North Korea has since started sending Funds to other mixers primarily because

Less funds on tornado cash means it's Harder for companies like chain analysis To track transactions the authors go on To provide a detailed example of how the North Koreans have been moving funds Around using dexes and mixers the fifth Part of the report relates to the fourth And that's Oracle manipulation attacks This is a reference to flash loans which Are big Arbitrage trades that can be Done between ethereum blocks in some Cases flash loans have been used to Manipulate on-chain prices for profit Hence the attack Over 400 million dollars of crypto was Stolen using flash loan attacks but There's a debate to be had about whether Flash loan attacks are criminal Acts This is raised when the authors cite the Recent criminal charges against avraham Eisenberg the infamous mango markets Exploiter more about that colorful Character using the link in the Description now the sixth part of the Report dives into the topic of dark net Markets the authors start by showcasing How dark net markets have seen a decline In revenues in 2022 they explain that Alternative dark-net markets haven't Thrived in hydra's absence due to their Lack of features the authors also Finally explain what fraud shops are Quote fraud shops are a unique segment Of dark net markets that sell

Compromised data such as stolen credit Card information and other forms of Personally identifying information that Can be used for fraudulent activity the More you know oddly enough the largest Fraud shop saw its Revenue suddenly drop To zero for unknown reasons last October This contrasts with the revenues of Darknet markets which have been climbing Since the hydro Crackdown meanwhile So-called single vendor shops which sell Drugs have seen their revenues crash the Authors take this as evidence that Different types of dark net markets are Duking it out another nugget of evidence They note is a massive DDOS attack Against an up-and-coming darknet Market Called OMG and the hack of the Subsequent incumbent the black Sprat Darknet Market these names wow The authors then spend quite a bit of Time covering the competition between Different Dark Net markets the only Takeaway worth noting is that many of These marketplaces are starting to offer Crypto money laundering Services OMG Also seems to have maintained its Relative dominance After explaining how London's Metropolitan Police use blockchain Analytics to track down cyber criminals The authors switched to the subject of Crypto scams which is the seventh part Of the report like the revenue from

Other kinds of crypto crime the revenue Of crypto scams fell significantly in 2022 chainalysis estimates that the Total revenue from crypto scams was Almost 6 billion dollars with 1.3 Billion coming from a single scam called The hype verse the average loss varied Depending on the type of scam with Romance scams raking in the largest Average loss of nearly 15 and a half Thousand US Dollars love sure does hurt In all seriousness romance scams are Extremely lucrative bringing in Multiples more than other types of scams On average the authors reveal that There's a sub-genre of romance scams Called quote Pig butchering scams which Combine elements of romance scams and Investment scams Great Name the silver Into the scam situation is that Scam-related Revenue has been falling Sharply ever since Terror collapsed last May The authors point out that scam-related Revenue is perfectly correlated to btc's Price so don't go out there falling in Love with a scammer because of this Recent pump If you're wondering who's falling for All of these scams the authors provide This infographic which reveals which Countries are the most likely to fall For different types of scams the one That sticks out the most is nft scams

Where the United States Australia and Japan take the lead by a wide margin Consistent with other illicit crypto Activity crypto exchanges are the Primary point of contact for scam Payouts the authors note the presence of Crypto ATMs in these statistics before Exploring the possibility that most of These scams are coming from a small Group much like ransomware the authors Do this by looking at five crypto scams That were identified by U.S Regulators All of which were based in Los Angeles California it turns out that three of The five crypto scams are related to a Much larger Network consisting of over 200 crypto scams at least according to Chain analysis's analysis what's Wild is That all five after crypto scams Identified by U.S Regulators are part of A much larger sub network of 86 scams Which have almost 1700 crypto wallets That have sent scammed crypto to Exchanges the authors admit that this Isn't concrete evidence of a small group Operation but it's close following a Very Vivid breakdown of those Pig Butchering scams the authors pivot to Pump and dump tokens which is the eighth And final part of the report lo and Behold almost a quarter of all Cryptocurrencies that were introduced in 2022 were pump and dumps to get this Statistic the authors narrowed down the

More than 1.1 million tokens minted on Ethereum and the BNB chain to around 40 000 by only counting those that saw more Than 10 trades on a decks within four Days 24 of these tokens fell by 90 which the Authors consider a pump and dump to Double check their data the authors used A free service called token sniffer Which lets you see whether a new token Is trustworthy or not based on the 25 Largest pump and dumps their analysis is Correct I'll leave a link to that tool In the description and I am definitely Going to be using it from now on now the Authors estimate that the pump and dump Puppeteers made around 30 million Dollars in 2022 like ransomware and Scams the 9900 pump and dumps were Conducted by only around 400 individuals Or groups the most successful of them Launched a staggering 264 pump and dumps If you want to make sure you don't get Wrecked check out our video about how to Spot a coin that will be down in The description So this brings me to the big question And that's what channel is this crypto Crime report means for crypto Regulations and for the crypto Market Well from where I'm standing it looks Like chain analysis findings are going To result in a lot more scrutiny of Centralized exchanges and other crypto

To Fiat off-ramps this is because Centralized exchanges somehow continue To play a major role in crypto crime While it's true that some of these are Located in Rogue territories like Russia The fact that even regulated Cryptocurrency exchanges are being used Is a big red flag that Regulators are Going to notice speaking of Russia the Increase in crypto sanctions following Its invasion of Ukraine is likely the Beginning of a much bigger Trend Assuming that countries like China and India continue to directly and Indirectly support Russia we could see The United States double down on crypto Related sanctions this is guaranteed if Sanctioned countries like Russia and Iran start using cryptocurrency for Cross-border trade some of you might Recall that Iran gave the green light to Businesses to use crypto for this exact Purpose last autumn now Hong Kong is in The process of legalizing crypto2 which Will introduce more usage make no Mistake an increase in crypto related Sanctions from the United States could Start to cause serious issues look no Further than the dusting phenomenon of Tornado cash for evidence of that Tornado cash users were sending small Amounts of crypto to popular wallets to Get them in trouble imagine this kind of Dusting on a global scale you could see

Russian Iranian and North Korean crypto Users dusting the wallets of Western Crypto users to cause Mayhem given all The kyc that centralized exchanges are Collecting it wouldn't take more than a Hack or two for them to find all this Information The increased likelihood of a crypto Exchange Crackdown combined with Increasing crypto sanctions would Disrupt the crypto market and that's Putting it lightly the worst part is That the crypto Crackdown in the US has Already begun and these findings will Only add more fuel to the fire if you Watched our video about operation choke Point 2 you'll know it could take until 2025 for U.S politicians to pass Reasonable crypto regulations for what It's worth the EU the UK and other Jurisdictions are well on their way to Passing crypto regulations that should Support the crypto market so with all That said chain analysis is crypto crime Report makes it clear that the crypto Industry has a lot of work to do when it Comes to cleaning up its illicit Underbelly the same however is true for The traditional Financial system and you Can bet that the problem is much worse Over there so when regulation huh Foreign [Music]

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