Why Crypto Theft Is on The Rise — Reasons and Consequences

2023-03-02, 09:34

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![](https://gimg2.gateimg.com/blog/165042832718348369crypto101_web.jpg)
In 2022 crypto crime hit a record $20 billion, a figure much higher than that of 2021.

Apart from direct crypto theft, bad actors use scams like email phishing and rug pulls.

The United States and other countries use sanctions against countries, individuals and entities that commit crypto crimes.

Sanctions have proved to be an effective deterrent to crypto crimes although it is not foolproof.

Keywords: Crypto scam, crypto theft, crypto transactions, sanctions, crypto regulation, email phishing, investment scam, romance scams, rug pulls, cryptocurrency exchanges 
## Introduction 
There is an increase in cases of cryptocurrency thefts during the past three years, a period in which the adoption of digital assets has been increasing.  As a result many national governments stepped up their efforts to fight crypto crime. In this post, we discuss ways in which the government can deal with cases of cryptocurrency illegal activities. 
![](https://gimg2.gateimg.com/image/article/16777492761.png)
Crypto scams exist- Scmp
## Crypto crime hits a record $20 billion in 2022
Chainalysis analysis, a crypto research firm, reports that crime hit a record level of $20 billion in 2022. Most of the reported and recorded crypto illegal activities are carried by companies which are under the United States sanctions.

The transactions associated with these individuals and groups increased by 100,000 fold in 2022, a significant change from that of 2021. For example, Chainalysis reports that illegal activities related to the Russian exchange Garantex accounted for the greater proportion of the illicit volume.

Read also: [What Is a Dusting Attack?](https://www.gate.io/learn/articles/what-is-a-dusting-attack/89 "What Is a Dusting Attack?")

In 2021 the United States imposed sanctions on several crypto organizations that include Blender and Tornado Cash, accused of handling billions of dollars worth of cryptocurrencies stolen by organized cyber criminal syndicates such as the Lazarus Group based in North Korea.

Although the amount of stolen crypto assets increased in 2022 there had been a decrease in other illegal activities like terrorism, human trafficking, ransomware and financial scams.

However, this report excluded some types of crypto transactions. For instance, it does not include cryptocurrencies generated from other illicit activities such as payments made as part of drug trafficking or fraudulent accounting done by crypto firms. Also, Chainalysis has not taken into account the loss which investors make because of implosions of crypto projects such as FTX, [Luna and Terra USD](https://www.gate.io/explore/terra-luna "Luna and Terra USD").

It is important to note that there was a change in the inflow of cryptocurrencies as well as their destination. For instance, during 2021 the main recipients of the stolen cryptocurrencies were wallets of individuals. However, in 2022 much of the proceeds from the illegal activities were sent to cryptocurrency exchanges, especially those sanctioned by the United States.

Read also: [Is the FTX Crash by SBF a Ponzi Scheme or Fraud?](https://www.gate.io/explore/ftx-sbf "Is the FTX Crash by SBF a Ponzi Scheme or Fraud?")
## How crypto thefts occur- Direct theft and scam
Basically, we can categorize ways in which cyber criminals steal digital assets. The two broad categories are scams and direct theft. 
### Direct thefts of digital assets
Direct theft involves stealing directly from individuals and platforms such as crypto exchanges and DeFi protocols. For example, Chainalysis reports that in 2021 a total of $3.2 billion of cryptocurrencies were directly stolen. The increase in the number of decentralized finance (DeFi) platforms and exchanges has lured criminals to increase their efforts.

Read also: [Secret Service Seizes Over $100 Million Worth Of Crypto Assets](https://www.gate.io/blog_detail/1273/secret-service-seizes-over-100-million-worth-of-crypto-assets "Secret Service Seizes Over $100 Million Worth Of Crypto Assets")

There has been a remarkable increase of digital assets stored on cryptocurrency exchanges. In this case, the digital assets are kept in custodial wallets since the users do not have private keys as the exchanges keep the digital assets on their behalf.

However, the exchanges keep part of the cryptocurrencies on-chain and the off-chain, in cold wallets. Now, the current problem is that the governments do not have control on the digital assets which the exchanges store. Therefore, if an exchange or any DeFi protocol fails or is hacked the users lose their crypto holdings.

The best way for consumers to safeguard their cryptocurrencies and other digital assets is to keep them in non-custodial wallets like the apps they install on their smartphones or computers. 
### Crypto scams
Cryptocurrency scams are indirect ways in which malicious actors steal from crypto holders  through gaining unauthorized possession of important personal data. For example, they [trick the users to give them their personal details](https://www.gate.io/blog_detail/674/top-crypto-scams-to-avoid "trick the users to give them their personal details") or send them cryptocurrencies. These activities include ponzi schemes as well as investment and phishing scams. 
![](https://gimg2.gateimg.com/image/article/16777495872.png)
Crypto theft and scams - Financeyahoo

As the diagram shows, in the first quarter of 2022, there were more direct thefts than scams. 
### Types of crypto scams
Let’s briefly discuss examples of cryptocurrency scams that are common these days. These include crypto romance scams, rug pulls, email phishing and investment scams

**Email phishing**: In this case, scammers send emails that may have links that contain malware that steal personal details of the user. If the person opens any such links the malware may infect his/her gadget. In some circumstances, they promise crypto users certain rewards for joining specific  programmes. However, they do this to lure people in order to steal their personal data.

Read also: [Watch Out for Scams Targeting Gate.io Users](https://www.gate.io/help/guide/22533/watch-out-for-scams-targeting-gate.io-users "Watch Out for Scams Targeting Gate.io Users")

**Investment scam**: With this type of scam, the malicious actors ask individuals to invest in certain projects. They may advertise fake businesses on social media platforms or even send personal messages. If a person deposits his/her cryptocurrencies, he will be unable to withdraw it. At times, these malicious actors  pretend to be successful crypto trading brokers and promise high returns.

**Romance scams**: This involves con artists and other malicious individuals who set fake profiles on social media platforms. In some situations, they use dating applications to lure the users to send them cryptocurrencies or their personal data.

Usually, the scammer chats with an individual for a long time until they get used to each other. Once the scammer creates a close personal relationship with an unsuspecting individual he/she will use a clever way to solicit cryptocurrency from the targeted person.

**Rug pulls**: With rug pulls, the malicious actor creates a token and launches it on various crypto exchanges. The team advertises the cryptocurrency in an aggressive manner. They also create hype for the cryptocurrency, attracting the attention of innocent and unsuspecting investors. As a result, many investors put their funds in that cryptocurrency. When its price rises to their target level they exit the project, taking with them all the money invested in the cryptocurrency.

Read also: [The Biggest Crypto Heist in History](https://www.gate.io/blog_detail/2158/the-biggest-crypto-heist-in-history "The Biggest Crypto Heist in History")

## Why it is safe to keep cryptocurrency at Gate.io
There is no doubt that Gate.io is one of the most secure platforms to keep one’s cryptocurrencies. This is because Gate.io’s Wallet.io supports both cold and hot wallets.

It uses high intensity encryption where the users have passwords which cannot be accessed by Wallet.io and are hidden behind strong cryptography, making it impossible for hackers to get them. 
 
In addition, Gate.io has additional protection layers in the form of Google Authenticator and email codes.  
## What governments are doing to reduce crypto crime?
In the wake of crypto scam revenue, several governments have put in place measures to protect their citizens from cryptocurrency theft.

**Use of sanctions**: There are countries, like the United States which use sanctions against individuals, countries and entities that are involved in fraudulent crypto activities. For example, the Office of Foreign Assets Control (OFAC) of the U.S Department of the Treasury has sanctioned many crypto organizations like Tornado Cash and Blender over their illicit crypto activities. Sanctions act as a deterrent to cryptocurrency theft activities. 
![](https://gimg2.gateimg.com/image/article/16777494943.png)
OFAC sanctioned Tornado - Biznews

**Regulations**: Many countries including the United States and United Kingdom are in the process of creating crypto regulation. When countries enforce these regulations they help to reduce the number of crypto thefts.

**INTERPOL**: The International Criminal Police Organization will play a big role in curbing crypto thefts. However, it can only be effective once countries have introduced their crypto regulations.

**Partnerships among countries**: Some governments have forged partnerships aimed at preventing and dealing with crypto crimes.  For example, Singapore and the Netherlands have forged a partnership that can help them to track and punish the offenders. 
## Conclusion
According to Chainalysis, crypto crimes increased  in 2022. Although there were several direct crypto thefts during the year some bad actors were involved in scamming activities. However, governments can institute various measures to prevent and control incidences of such thefts. They can enforce relevant regulations and sanctions.

<div class="blog-details-info">
<div>Author: **Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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