Crypto scams: $7.7 billion stolen in 2021 – report
(Kitco News) Volatility and trust issues bedevil the crypto space, which saw more than $7.7 billion stolen worldwide in scams, according to a report published by blockchain analytics firm Chainalysis.
"Scams were once again the largest form of cryptocurrency-based crime by transaction volume, with over $7.7 billion worth of cryptocurrency taken from victims worldwide," Chainalysis said in the report.
This was 81% higher than last year's total. However, the figure was still below 2019's number of around $9 billion.
"That represents a rise of 81% compared to 2020, a year in which scamming activity dropped significantly compared to 2019, in large part due to the absence of any large-scale Ponzi schemes. That changed in 2021 with Finiko, a Ponzi scheme primarily targeting Russian speakers throughout Eastern Europe, netting more than $1.1 billion from victims," the report noted.
'Rug pulls' were identified as the most popular scams in 2021. These are common within the DeFi space and are described when developers abandon projects after taking investors' funds, Chainalysis said.
"Rug pull generally refer[s] to cases in which developers build out what appear to be legitimate cryptocurrency projects — meaning they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities — before taking investors' money and disappearing," the report described.
This type of scam accounted for 37% or $2.8 billion of the overall total this year. Last year, this type of crime represented only 1%.
"Rug pulls have emerged as the go-to scam of the DeFi ecosystem," the report stated. "Scamming poses one of the biggest threats to cryptocurrency's continued adoption."
Another billion-dollar scam this year was the Finiko Ponzi scheme. This scheme operated from December 2019 until July 2021.
"Finiko invited users to invest with either Bitcoin or Tether, promising monthly returns of up to 30%, and eventually launched its own coin that traded on several exchanges," the report stated. "During the roughly 19 months it remained active, Finiko received over $1.5 billion worth of Bitcoin in over 800,000 separate deposits … Finiko represents a massive fraud perpetrated against Eastern European cryptocurrency users, predominantly in Russia and Ukraine."
Scams are one of the biggest barriers to crypto adoption, which is why all players need to contribute, Chainalysis concluded. "Fighting [crypto scams] can't be left only to law enforcement and regulators. Cryptocurrency businesses, financial institutions, and, of course, Chainalysis have an important role to play as well."