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Chainalysis: Bitcoin’s Illegal Activity is Only 0.15% of Transaction Volume but Has High Value

March 18, 2022

Illegal activity and cybercrime are a shrinking part of the crypto economy, according to research from blockchain analytics firm Chainalysis. The percentage of illegal activity fell to just 0.15% of the total transaction volume in 2021, even as the total value rose to a new high. Blockchain analytics firm Chainalysis reports annually on crypto- and bitcoin-related cybercrime. They probably lift a corner of the veil of the upcoming 2022 Crypto Crime Report on their blog. If you are interested in bitcoin trading, visit immediate-edge.

It shows that illegal activity is an increasingly smaller part of the crypto economy. Although the popularity of bitcoin and other cryptocurrencies increased sharply in 2021, the proportion of transactions to addresses related to illegal activity increased significantly. For example, all cryptocurrencies’ transaction volume grew 567% last year to $15,800 billion. Still, according to Chainalysis estimates, the number of transactions to addresses related to illegal activity increased by ‘only’ 79% to $14 billion over the same period.

‘Transaction volume’ in itself says little about the actual economic traffic. For example, exchanges regularly send large amounts between their wallets, and cybercriminals often move their funds through different addresses. However, each blockchain transaction is counted when calculating the transaction volume, even if the funds have not changed hands.

In total, all illegal activity together, according to Chainalysis, was only 0.15% of the total transaction volume. Except for 2019, the year in which the large-scale PlusToken scam took place, an annual downward trend seems to be visible. Nevertheless, Chainalysis said that $14 billion in illegal activity is significant despite a declining trend. Chainalysis also emphasizes that the figures are estimates that can be adjusted upwards as additional information becomes available. Last year, for example, illegal activity was initially estimated at 0.34%, but that was later revised to 0.62%.

DeFi

Although the percentage of illegal activity decreased in 2021, the total value of the funds rose to a new high. Most of the growth is due to the rise of scams and theft via ‘DeFi’ protocols, according to Chainalysis. Those are altcoin projects unrelated to Bitcoin.

Scammers launch tokens with big promises via altcoin DeFi protocols in which unsuspecting victims invest, after which the scammers disappear with the invested money. Launching tokens via such protocols is easy, and there is no checking whether the projects are trustworthy or fraudulent.

Also, the value of lost funds due to theft increased in 2021, primarily via DeFi platforms. Usually, these are bugs in the code that malicious parties exploit to get their hands on users’ funds. Chainalysis estimates that by 2021, a total of about $3.2 billion was stolen from users, of which 72% ($2.2 billion) via DeFi platforms.DeFi is also increasingly popular with money launderers. In 2021, a whopping 1964% more illicit funds were sent to DeFi platforms than the year before. Exact amounts were not mentioned in the blog post but are presumably in the upcoming report.

Better detection

Chainalysis says it is promising that agencies can detect crypto-related crime. Chainalysis gives various examples of successful investigative actions. For example, a department of the US tax authorities that detects crime confiscated $3.5 billion in cryptocurrencies in 2021, a staggering 93% of all funds they confiscated that year. Justice and counter-terrorism services also achieved various successes.

The exact amount of funds held by criminals is challenging to estimate, but Chainalysis has about 10 billion dollars in funds related to illegal activity in its sights. Although the funds can be traced back to illegal activities, a significant value, according to Chainalysis, does not come from the activity but the result of price appreciation.

Chainalysis

Chainalysis is the market leader in blockchain analysis and works with agencies, governments and exchanges worldwide. Among other things, they provide software that can identify addresses and transactions suspected of illegal activity. Investigation services and exchanges use this to track down, block or confiscate illegal funds. In addition, Chainalysis regularly releases reports such as the Crypto Crime Report, with which they provide insight into their data. The full 2022 Crypto Crime Report is scheduled to be published in February.