Cybercriminals indeed laundered $8.6 billion in cryptocurrencies last year, representing a 30 percent increase compared to 2020, according to a report by blockchain analysis firm Chainalysis.
Since 2017, more than $33bn worth of crypto has been laundered by cybercriminals, led by the significant growth of both legitimate and illegal crypto activity over the years.
With the global crypto population growing by 178 percent in 2021, according to crypto exchange app Crypto.com, the sharp rise in money laundering activity in 2021 came as no surprise.
“Cybercriminals dealing in cryptocurrency share one common goal: Move their ill-gotten funds to a service where they can be kept safe from the authorities and eventually converted to cash. That’s why money laundering underpins all other forms of cryptocurrency-based crime. If there’s no way to access the funds, there’s no incentive to commit crimes involving cryptocurrency in the first place,” said Chainalysis.
Money laundering – the process of disguising the origin of illegally obtained money by transferring it to legitimate businesses – is a common theme among crypto criminals who are looking to exploit the anonymity of the blockchain.
About 17 percent of the $8.6bn laundered last year went to decentralized finance applications – the sector which facilitates crypto-denominated financial transactions outside of traditional banks.
Mining pools, high-risk exchanges, and mixers also saw substantial increases in value received from illicit addresses, the report said. Mixers combine potentially identifiable or tainted cryptocurrency funds with others in an attempt to cover up the trail to the fund’s source.
The $8.6bn laundered last year represents funds derived from crypto-native crime, such as darknet market sales or ransomware attacks, in which profits are in crypto instead of fiat currencies.
“It’s more difficult to measure how much fiat currency derived from off-line crime is converted into cryptocurrency to be laundered…. However, we know anecdotally this is happening,” said the company.
Due to the transparency of blockchains, how criminals move cryptocurrency between wallets and services can be easily traced – an inherent difference between fiat and cryptocurrency-based money laundering.
Alongside crypto, cybercriminals are also looking towards exploiting NFTs as yet another way to launder money in an unidentified way.
In 2021, NFT popularity skyrocketed, with Chainalysis tracking a minimum of $44.2bn worth of cryptocurrency sent to ERC-721 and ERC-1155 contracts — the two types of Ethereum smart contracts associated with NFT marketplaces and collections — up from just $106 million in 2020.
NFT wash trading is designed to boost perceptions of the value and liquidity of the asset. With the seller being present on both sides of the trade, they repeatedly sell themselves their own NFTs in an attempt to artificially inflate prices.
More than 100 profitable NFT wash traders have collectively made nearly $8.9m in profit from this activity.
“Wash trading has historically been a concern with cryptocurrency exchanges attempting to make their trading volumes appear greater than they are. In the case of NFT wash trading, the goal would be to make one’s NFT appear more valuable than it is by ‘selling it’ to a new wallet the original owner also controls,” said Chainlysis.
“In theory, this would be relatively easy with NFTs, as many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, with no need to identify themselves,” they added.
While conventional wash trading is illegal, NFT wash trading is yet to be explicitly addressed. However, regulators are actively shifting focus and looking to apply anti-fraud laws to the emerging NFT markets.
Also, “More generally, wash trading in NFTs can create an unfair marketplace for those who purchase artificially inflated tokens, and its existence can undermine trust in the NFT ecosystem, inhibiting future growth,” the company said.
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