Survey: Is crypto really plagued by scams?

Often singled out for its scams and the risks of money laundering, is the crypto market as sulphurous as we sometimes hear? Beyond dogma and preconce

 Often singled out for its scams and the risks of money laundering, is the crypto market as sulphurous as we sometimes hear? Beyond dogma and preconceived ideas, let's see what it really is, with supporting figures. To illustrate this article, we used the Chainalysis report which presents figures on crypto-crime each year .

Survey: Is crypto really plagued by scams?

2021: A record year for crypto scams?

$14 billion . This is the volume of fraudulent transactions observed on the crypto market in 2021. This raw figure is frequently taken up by anti-cryptos. With more or less intellectual honesty. Because if the volume of scams has increased by almost 80% between 2020 and 2021, it is necessary to put this data into perspective. Indeed, at the same time, the use of digital assets has seen an even greater jump: +576%.

In relation to the total volume of transactions, the proportion of doubtful transactions was therefore historically low: 0.15%. Either the lowest level ever recorded on the crypto market. In 2020, this rate was 0.62% while it reached 3.37% in 2019, the highest scam / transaction volume ratio ever recorded.

Rug sweaters on the rise!

2021 has also seen rugpull scams explode. These scams of a new kind see one or more developers set up a project before leaving with the fund , sometimes leaving thousands of investors on the floor.

A few months ago, the “Big Daddy Ape Club” NFT rugpull was making headlines in crypto news . On an even larger scale, the Thodex affair also weighs heavily on the volume of “rugpull” type scams in 2022.

The advent of DeFi (decentralized finance) and its sometimes staggering returns facilitates scams of this type. The Chainalysis report also specifies that the volume of DeFi transactions has multiplied by more than 10 between 2020 and 2021. The strong growth in the number of crypto projects associated with the absence of audit on certain tokens before listing also facilitates the emergence of this type of scam.

Unfortunately, if these audits are reassuring, they are not systematic. For the investor, the absence of this type of audit is to be classified as a red flag. Some crypto players are also calling for the adoption of common rules concerning the placing on the market of a token. And why not the obligation to audit the codes of each new project.

DeFi: Between decentralization and security

We see it in the articulation of blockchain protocols which must constantly juggle between decentralization, security and scalability: these themes act as opposing forces.

A problem that the DeFi sector also faces because decentralization tends to limit security . This is also the heart of the problem and the debates around the Proof of Work and the Proof of Stake. In any case, for the democratization of the DeFi sector on a larger scale, this is obviously an issue to consider. Especially since 2021 was the year of the explosion of money laundering cases for DeFi protocols: + 1,964%.

The NFT sector also affected!

Like the crypto market, 2021 has been a particularly booming year for the NFT sector. More transactions and therefore more scams or fraudulent maneuvers. Today, the NFT sector seems to be mainly the victim of two types of scams :

money laundering

Wash trading makes it possible to artificially increase the price of an NFT or a collection. Its principle is very simple. The buyer and the seller are one and the same person. This method involves tricking potential investors into believing that a coin or collection is in high demand.

This is made possible in particular by the low costs generated by an NFT transaction, compared to the sale price at which these digital assets can be sold.

The second scourge in the NFT sector is money laundering . On this point, we could compare digital art to physical art, a sector also highly prized by criminals for money laundering. But unlike physical art, blockchain transparency makes it easier to trace fraudulent transactions. As the diagram below suggests:

The explosion of the NFT sector in the second part of 2021 has therefore materialized in an increase in scams. In the second half of 2021, scams in this sector accounted for nearly $3 million. Over this semester, the majority of funds are classified in the “ Scam ” category.

For the most part, these were actually addresses associated with fraudulent transactions that sent funds to NFT marketplaces to purchase non-fungible tokens. On the NFT or digital asset segment, here are several methods to avoid scams!

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