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Cryptocurrency Crime Drops Significantly In 2020

Image via Eftakher Alam on Unsplash

It's ironic that during the same week the stock market has been exposed as a complete clown show, none other than the Bank for International Settlements warned that "bitcoin is increasingly vulnerable" and it could "break down altogether."

"Above all, investors must be cognisant that Bitcoin may well break down altogether," BIS general manager Agustín Carstens said in a speech on digital currencies this week. "Scarcity and cryptography alone do not suffice to guarantee exchange. Bitcoin needs a hugely energy-intensive protocol, called 'proof of work', to safely process transactions."

It's not digital currencies that are bad, it's just ones that aren't issued by central banks, or "the guardians of stability," are as the BIS tweeted "If #digitalcurrencies are needed, central banks should be the issuers, as they are best placed to provide sound money."

Despite the constant negative takes on bitcoin and cryptocurrencies as a whole, such as being riddled with fraud, crypto crime dropped by 57% in 2020, according to CipherTrace's Cryptocurrency Crime and Anti-Money Laundering Report.

The $1.9 billion in total crypto crime last year was a steep drop from 2019's $4.5 billion, which was the most on record, and is marginally higher than the $1.7 billion lost as a result of crypto thefts, hacks and frauds in 2018.

A WoToken scheme that cost investors $1.1 billion accounted for 58% of last year's total major crime volume. This is similar to 2019 where a PlusToken scheme, which was run by some of the same people from the WoToken scheme, accounted for 64% of the year's total major crime volume. Major fraud volume declined last year but still represented 73% of all of 2020's total crime.

"Thefts from hacks against centralized exchanges continue to decrease as these financial institutions mature and adopt stronger security measures," CipherTrace CEO Dave Jevans said. "Regulation and enforcement are restricting centralized fraud schemes, which are pushing criminals to exploit decentralized finance services."

CipherTrace noted an increase in DeFi related hacks and scams in 2020 as half of all crypto hacks last year were of DeFi protocols.

"DeFi platforms enjoy many exemptions from traditional regulatory enforcement regimes that centralized exchanges, money service businesses and banks face," Jevans said. "For example, DeFi platforms often do not have to perform customer verification (Know Your Customer) or transaction anti-money laundering. This makes them ideal venues for moving and laundering money."

Last year $3.5 billion worth of bitcoin was sent to criminally associated bitcoin addresses, which is less than 1% of the total value of all cryptocurrency transactions for the year.

While regulators continue to put pressure on bitcoin and other cryptocurrencies, its reputation as a tool for criminals is likely to remain despite data showing cryptocurrency crime is declining.

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