Crypto fraudsters score $1.3 billion in illicit funds in 2020 alone

The year has so far observed $1.36 billion worth of crypto-related fraud, according to a report from blockchain analysis firm CipherTrace. 

The report, published today, indicates that 2020 could be on track to be the second-highest year on record for crypto related crimes, surpassed only by 2019, when the firm found that $4.5 billion was stolen in crypto-related thefts.

Fraud comprised nearly 1.3 billion—or 98%—of crypto-related theft in the first half of this year. CipherTrace reported that the alleged billion-dollar Ponzi scheme, WoToken, was largely responsible. One operator, who has been linked to purported Ponzi scheme PlusToken, took home $1 billion worth of crypto from 715,000, said CipherTrace. 

Large exit scams, hacks, exploits and insolvencies bumped up the figures. Crypto exchange FCoin’s insolvency added $130 million to the pile; $50 million came from the “exit scam” of crypto wallet EOS Ecosystem and a Chinese crypto scheme offering cosmic peace managed, somehow, to wrangle $11 million from investors within three weeks. 

The coronavirus pandemic also played a big part, said CipherTrace. “While governments funnel resources into mitigating the impact of the pandemic, criminals are taking advantage of the lack of oversight, resulting from the need for urgent action,” it wrote. 

Most of the coronavirus-related scams involved leading people into chat rooms and requesting payments in Bitcoin. (By comparison, dark web sales of personal protective equipment have been “mostly unsuccessful,” it found). The pandemic also inspired COVID-themed ransomware and hackers have also repurposed old scams into those more appropriate for the pandemic. 

Hackers are changing tactics

Though levels of crypto-fraud are still high, criminals are getting smarter about how they move their money around, found CipherTrace, due in part to increased anti-money laundering restrictions put in place by crypto exchanges.

The bulk of thieves are no longer sending their stolen Bitcoin directly to exchanges, found the firm. It disclosed in its report that the amount of crypto that criminals are sending to exchanges dropped by 47% last year. Just 0.17% of funds sent directly to exchanges had anything to do with crime. 

Still, 12.1% of all crypto sent to Finnish exchanges came straight from criminals—99% of which went to LocalBitcoins, a peer-to-peer crypto exchange based in Finland. (It’s the third year in a row that LocalBitcoins has held pole position). On Russian exchanges, 5.23% of all crypto is coming from criminals. After that was the UK, with 0.69%—CipherTrace said that’s because of the “pervasive presence of Russian dark markets on UK exchanges.” 

Though just 44% of the top 500 crypto exchanges have strong know-your-customer checks, found CipherTrace, that number is likely to increase when the “travel rule,” a piece of regulation that requires exchanges to share information about customers among each other, goes into place, likely later this year. 

Already, criminals “are finding it harder to offload their illicit funds directly into cryptocurrency exchanges, indicating effective implementation of AML measures around the world,” CipherTrace wrote in its report.

But “criminals seem to be getting better at obfuscating the origins of their stolen funds prior to cashing out on exchanges,” it found. In an endless game of cat and mouse, crypto’s finest blockchain forensics analysts will have their work cut out for them this year.