According to a new report, increased investment in cryptocurrencies and crypto markets has resulted in a huge increase in crypto frauds and thefts, with a global loss of over $10 billion last year.
Crystal Blockchain, a corporation that specializes in investigative analytics for blockchain and cryptocurrencies, launched the “Crypto Hacks & Scams Report 2021” and it indicated an increase of more than 80% in crypto frauds and thefts.
The Central Bank of Nigeria (CBN) has outlawed other banks and financial institutions from transacting in cryptocurrency.
The crypto currency markets had a tumultuous 2021, according to the latest report, starting with a strong gain that drove some prices to all-time highs in the spring before collapsing in May and attempting a recovery over the summer. Bitcoin reached a new all-time high in November before reversing course in December, contradicting expectations that it would continue to rise.
Despite the CBN prohibition, Nigeria was ranked as the second most interested countries in bitcoin, behind El Salvador, despite the country’s difficulty in obtaining the trillion-dollar cryptocurrency. South Africa and Kenya have also been listed as two of Africa’s leading crypto currency markets.
According to the new research, as of December 17, 2021, there were 115 security attacks, 40 DeFi protocol attacks, and 26 fraudulent schemes, resulting in the theft of about $10 billion in crypto assets.
According to the Crystal database, about a third of all stolen funds (in Bitcoin or BTC) were distributed through fraudulent exchanges, which are described as having been involved in exit schemes, criminal behavior, or having had cash seized by the government. Exit scams entail a cryptocurrency making money off of early investors by “drawing out” all of their money from the market.
Cryptocurrencies, such as Bitcoin and Ethereum, have gained increasing popularity among investors as a result of the mounting uncertainty caused by the COVID-19 pandemic.
According to a report released in April 2021 by Markets and Markets Research, a market research firm, the cryptocurrency market size is predicted to expand from last year’s $1.6 billion to $2.2 billion by 2026, at a compounded annual growth rate (CAGR) of 7.1 percent. Many countries and banks have begun to buy cryptos, according to the report. The report went on to say that banks in the US were developing their own blockchain-based systems, which included digital currencies, to enable B2B crypto-currency transfers between their customers.
While it was highlighted that crypto assets had resulted in a massive loss of value, the International Monetary Fund (IMF) assessed that crypto constituted a threat to global financial stability in its most recent research report.
In 2021, the ecosystem’s market worth skyrocketed, expanding far beyond Bitcoin. According to the IMF report, operational, cyber, and governance risks, integrity and Anti-Money Laundering and Counter-Financial Terrorism (AML/CFT) hazards, data availability/reliability issues, and cross-border obstacles are all part of the financial stability challenges posed by crypto.
The financial system will be more exposed as a result of a surge in crypto scams and frauds, according to the report.
Chainalysis also emphasized that crypto crimes increased by 81 percent last year. The cryptocurrency exchange platform also lost over $7.7 billion in crypto money worldwide. The advent of “rug pulls,” as outlined in the research, was one of the primary factors that contributed to the growth in crypto scams. Rug pull is a new sort of scam in which “developers of a cryptocurrency project, generally a new token, abruptly depart it, taking customers’ funds with them.”
The research highlighted that rug pulls increased in quantity in 2021, despite a large drop in crypto scams between 2019 and 2020, that is to say, customers lost over $2 billion in cryptocurrency in all scams, accounting for approximately 90% of all value taken in rug pulls. According to the Chainalysis analysis, the number of financial scams active at any given time has never been higher.
The Chief Economist, Care Ratings, a Credit Rating Agency, Madan Sabnavis, said, “Several gullible people are investing in this fictitious currency and will be losing money as all trading is a zero-sum game.
“Crypto is fuzzy as there is no underlying that backs the price. For gold there is a metal, for equity there is share but for crypto, there is no such thing.”
The quantity of money stolen through crypto assets has been steadily increasing. According to the Chainalysis research, decentralized finance (DeFi) attacks became the most popular means to steal crypto in the period 2020-2021, with the total value of stolen virtual assets in crypto doubling. Rug pulls, a relatively new scam type, helped to fuel the growth of DeFi hackers. Crypto scams and security breaches, in addition to DeFi breaches, are prevalent.
As a result, crypto scams or frauds account for more than 65 percent of all stolen funds. Regulators face severe data gaps due to the anonymity of crypto assets and the lack of worldwide norms.
“The problem is that all such transactions are opaque,” Sabnavis continued, “and one cannot be certain whether the money is being diverted to narcotics or other unlawful activity.” A lot of money is being siphoned to the crypto markets these days, which is bad for the country.”