Crypto scammers stole a record $14 billion in cryptocurrency in 2021

2021 was a great year for cryptocurrency investors around the world as the frenzy for bitcoin and other crypto-assets reached new highs. However, crypto investors are not the only winners. Crypto scammers also had a blockbuster year with a windfall of $14 billion in stolen cryptocurrency during the year, thanks in large part to the rise of decentralized finance (DeFi).

According to new data from blockchain analytics firm Chainalysis, crypto scammers from around the world took home a record $14 billion in cryptocurrency in 2021. Compared to a year ago, the losses from crypto-related crime rose 79 percent, driven by a spike in theft and scams.

Chainalysis report further shows that scamming was the highest form of cryptocurrency-based crime in 2021, followed by theft — most of which occurred through hacking of cryptocurrency businesses. The report further confirms the story we wrote back in December 2020. More than $12 billion of crypto assets were stolen in the past 11 years, according to the data released by Atlas VPN.

However, a large portion of the crypto theft took place in 2021 due to the DeFi, an emerging financial technology that has been hailed as a new way for users to lend, borrow and save while bypassing traditional gatekeepers of finance such as banks and government regulations.

DeFi was built on the premise that the technology will potentially eliminate financial middlemen by utilizing smart contracts to run code that governs the rules between two counterparts. However, DeFi failed to live up to the hype as fraud and theft at DeFi platforms totaled $10.5 billion so far in 2021.

In its 2021 annual Crypto Crime report, Chainalysis wrote:

“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike. But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”

Another research showed that fraud and theft at DeFi platforms totaled $10.5 billion in 2021. The research further lays bare the risks in the fast-growing tech space but still a mostly unregulated area of cryptocurrencies.

As may you recall back in August, cyber hackers stole $600 million in the biggest DeFi hack ever reported.  The interoperability protocol PolyNetwork was exploited on Binance Smart Chain, Polygon, and Ethereum. The perpetrators have set a record within the decentralized finance space by swiping more than $600 million from at least three wallet addresses.

However, fraud and thefts have not stopped investors from pouring billions of dollars into the unregulated space. With historically low or sub-zero interest rates, are drawn to DeFi because of the promise of high returns on savings.

As Reuters further reported, citing London-based blockchain analytics firm Elliptic, crime is booming in the mostly unregulated sector. “Users have suffered over $12 billion in losses through crime at DeFi apps, lending platforms and exchanges since 2020, with the majority of losses coming in 2021 alone.”

Bugs in code and design flaws allow criminals to target DeFi sites, Elliptic found, with deep pools of liquidity also allowing criminals to launder proceeds of crime while leaving few traces. Scams are also common, it added.