2021 has seen many shocking events, including cryptocurrency scams. In August, PolyNetwork, a decentralized finance company (DeFi) working on cryptocurrency interoperability was hacked and $ 600 million worth of crypto currency transferred. In November, there were reports of hackers forcing Instagram users to create “hostage videos” in a bitcoin scam that saw nefarious actors access-to their accounts.
Now, new data from blockchain analytics firm Chainalysis reveals that scammers stole $14 billion worth of cryptocurrency in 2021, in part due to the growth of the Decentralized Finance (DeFi) platform.
“DeFi is one of the most exciting areas in the larger cryptocurrency ecosystem, providing enormous opportunities for both entrepreneurs & users of cryptocurrency,” Chainalysis said in its report.
“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also enables widespread fraud & theft.
DeFi transactions grew 912% in 2021, according to Chainalysis. What exactly is DeFi?
DeFi is a platform that effectively removes middlemen from traditional financial transactions by replacing them with a programmable piece of code called a smart contract. However, most of the new protocols launched through DeFi have code vulnerabilities that can be exploited by nefarious actors.
In fact, 21% of all hacks in 2021 were the result of exploiting these codes. “Given the hype around DeFi, people may have been more comfortable using less secure platforms for fear of losing potential revenue,” Kim Grauer, Chainalysis head of research told CNBC.
This has resulted in a 516% increase in cryptocurrency theft since 2020 to reach $3.2 billion in 2021, with 72% of that amount taken from DeFi protocols. On the bright side, Chainalaysis noted that the growth in legitimate cryptocurrency use has far superior that of illegal use thanks to the evolution of law enforcement & blockchain transparency.
“Crime becomes a smaller & smaller part of the ecosystem of cryptocurrency,” concluded report.