A study by the Complexity Science Hub Vienna and the University of Montreal has revealed that there have been an increasing number of criminal crypto incidents in recent years. In total, the resulting damage amounts to several billion US dollars.
• Criminal activities in the crypto sector are increasing
• Billions in damage
• Technical weaknesses as the main reason
The dream of quick money
Strong returns, quick wealth and financial independence – promises from crypto investment products often seem too good to be true. And often they are. According to a study conducted by the Complexity Science Hub Vienna and the University of Montreal, there were at least 1,155 criminal incidents in the crypto industry between 2017 and 2022. “But that doesn’t mean that there couldn’t be more cases,” commented Bernhard Haslhofer, head of the Cryptofinance research group at the Complexity Science Hub, on the study results in a statement. “Therefore, all of our results are minimum values.” Still, the 1,155 cases identified represent the largest crypto fraud investigation to date, added Catherine Carpentier-Desjardins of the University of Montreal. “This is the first step in assessing the size and scope of the DeFi crime landscape,” said the researcher.
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Criminal crypto incidents are on the rise
The scientists also came to the conclusion that criminal activity in the crypto sector has increased in recent years. The institutes led by Haslhofer and Carpentier-Desjardins recorded 16 cases in 2017, but in 2018 there were already 69 activities. Things also increased in the following years, from 103 cases of fraud in 2019, 224 in 2020 to 308 in 2021. For last year, the researchers identified as many as 435 criminal activities in the area of cryptoassets.
Billions of dollars in damage were caused
In total, criminal incidents between 2017 and 2022 caused at least $30 billion in damages, the Complexity Science Hub Vienna and the University of Montreal found. This roughly corresponds to the income that the state of Luxembourg was able to record in 2022. In about 50 percent of cases, damage of at least $356,000 was incurred. In the worst-case scenario, those affected suffered a loss of $158. However, the most expensive case, recorded in connection with the South African crypto exchange Africrypt, cost victims $3.6 billion. According to the Bloomberg news agency, the brothers Ameer and Raees Cajee, who were behind the trading platform, told their customers that they had been hacked, but that users should not report this to lawyers and authorities as this would make it difficult to recover the lost money . Ultimately, the founders of the service disappeared with billions of dollars of customer money in their luggage.
Technical vulnerabilities and manipulated cryptocurrencies
As part of the study, scientists from the two research institutions also examined the reasons for the increasing and often expensive security incidents. In 52.4 percent of the events examined, Decentralized Finance (DeFi) services, such as crypto exchanges, were the target of criminal activity. It was almost always a technical vulnerability on the part of the provider. In only 2.6 percent of all cases the error was caused by humans. In addition, attackers use DeFi providers to directly attack users in 40.7 percent of all cases. “If this happens, in over 70 percent of cases it is a case of manipulated cryptocurrencies that have some kind of back door through which criminals can withdraw money,” warned Stefan Kitzler from the Complexity Science Hub.
Analysis tool aims to curb crypto crime
The DeFi Trace project, which the Vienna institute is currently implementing under the direction of Haslhofer, is intended to provide a remedy. “Over the course of two years, we want to develop methods to automatically track illegal payment flows in the DeFi sector and thus curb criminal activities,” said the scientist. This is currently not possible because transactions on the blockchain are often not traceable or are highly anonymized. In order to quickly identify criminal cases of fraud, algorithmic models should automatically analyze DeFi systems, as the project description states. The Complexity Science Hub is supported by various Austrian ministries, but also by the Financial Market Supervisory Authority, the Austrian National Bank (OeNB), the University of Innsbruck and the Central Office for Cybercrime Bavaria.
Editorial team finanzen.net