SINGAPORE - The volume of scams and fraud in the cryptocurrency ecosystem may have fallen in 2023 on the back of lower trading volumes and more scrutiny, but illicit drugs sold for crypto online have picked up, said a report.
Data compiled by blockchain intelligence firm TRM Labs on March 27 showed that total global payments into addresses connected to fraud or scams dropped to US$12.5 billion (S$16.8 billion) in 2023 from US$13.9 billion in 2022.
However, scams and fraud still made up about a third of all cryptocurrency crimes, and the firm warned that the number is likely to rise further as more information is gathered over time.
The decline corresponds to a drop in illicit fund volumes.
Illicit fund volumes fell by almost 30 per cent to US$34.8 billion in 2023. The fall surpasses the 22 per cent decline in total crypto volumes during that period.
Accordingly, the share of illicit funds as a proportion of total crypto value also fell, to 0.6 per cent in 2023 from 0.7 per cent the previous year.
Ms Angela Ang, senior policy adviser at TRM Labs, said the overall fall in illicit crypto activity is clear evidence that crypto-related crime can and will be disrupted.
She said that as global law enforcement agencies build up crypto-related capabilities, they will realise that crypto-related crime is easier to trace and disrupt than traditional financial crime because of the immutable record of transactions on public blockchains.
However, the report found that sales of illicit drugs on the Dark Net – a hidden part of the Internet that can be accessed only with specialised software – grew to US$1.6 billion in 2023, up from US$1.3 billion in 2022.
It added that proceeds from hacking fell by more than half to US$1.8 billion in 2023. This was because hackers linked to North Korea, responsible for nearly a third of all funds stolen in crypto attacks, made off with 30 per cent less than what they did in 2022.
The report said the total value of funds subjected to sanctions by the US Treasury’s Office of Foreign Assets Control fell to US$16.2 billion in 2023 from US$25.4 billion the year before, even though the number of sanctions rose threefold to 33 in 2023.
The growth rate of sales by online crypto-denominated vendors linked to the opioid fentanyl dropped by 150 per cent in volume in 2023, the report said.
But it noted that the overall vendor sales volumes rose by over 97 per cent year on year to US$33 million in 2023 from US$16 million.
Ms Ang said the data continues to validate the importance of looking beyond Bitcoin when trying to get a complete picture of crypto-related crime.
She said businesses and governments need to make sure their crypto-related capabilities keep pace and present a comprehensive picture of cross-chain crime.
“TRM’s estimates of illicit crypto activity are higher than existing industry estimates as we capture higher volumes across different blockchains and risk categories,” said Ms Ang.
As for the fall in some of the crypto crimes, TRM Labs said it could be due to greater scrutiny from governments and law enforcement bodies. For instance, the United States alone tripled the number of crypto crime-linked entities and individuals subject to sanctions. Other key factors that likely contributed included more vigilance from businesses and greater fraud awareness among the public. Sophisticated criminals may also have become better at avoiding detection, the report noted.
