Crypto Scams Reach A Record• January 16, 2022 3:17 pm • Comments
In 2021 alone, cryptocurrency scams reached a total of $14 billion most likely due to the increased awareness of the crypto industry in general as well as the rise of many decentralized finance platforms which have enabled some of the scams.
Scams are considered the leading type of crime and is followed by theft as far as crypto-related crimes go.
As of right now, these scams that are frequently happening are seen as one of the major obstacles that could slow down the adoption of crypto and DeFi technologies.
— newsoftheworld (@newsoft53759560) January 9, 2022
To give some insight into DeFi, it is essentially a very new growth sector within the crypto market that allows users to cut out the middleman such as banks from traditional financial transactions.
Instead, this middleman is replaced by a programmable piece of code on the blockchain called a smart contract which essentially allows you to send money with various conditions attached to it.
However, there are potential downsides to doing it this way as one might imagine.
One problem with DeFi, according to Kim Grauer, Chainalysis’ head of research, is that many of the new protocols being launched have code vulnerabilities that hackers are able to exploit.
Twenty-one percent of all hacks in 2021 took advantage of these code exploits.
Grauer tells CNBC that while there are third-party firms that perform code audits and publicly designate which protocols are secure, many users still opt to work with risky platforms that bypass this step if they think they can get a large return.
Cryptocurrency theft rose 516% from 2020, to $3.2 billion worth of cryptocurrency. Of this total, 72% of stolen funds were taken from DeFi protocols.
Losses from scams climbed 82% to $7.8 billion worth of cryptocurrency.
More than $2.8 billion of this total came from a relatively new but very popular type of scheme known as a “rug pull,” in which developers build what appear to be legitimate cryptocurrency projects, before ultimately taking investors’ money and disappearing.
“Given the hype around DeFi, people may have been more OK with using less secure platforms due to a fear of missing out on potential gains,” explained Grauer.
Although the amount of crime may be growing, it does not mean that the industry itself is necessarily a bad thing for the average user however.
Many have argued that the reason for why the amount of crime is increasing is due to the fact that the industry itself is growing at a rapid rate and that the benefits of actual use of the new technologies far exceed the illegitimate usage.
This can be proven with the statistic that the increase of crypto scams had only increased by 79% over the past year which is actually less than the increase in the rate of overall adoption of DeFi and crypto.
As with any new industry, the technology always comes before the rules and regulations catch up.
Over time, once they do catch up, the rate of crimes like scams related to DeFi and crypto will be almost the same as the rate as they are today with traditional financial systems.
Fantastic writeup on Web3.
'The Wild West was decentralized. And we soon discovered that towns need sheriffs and central protocols. Theft runs rampant on web3. Losses from crypto scams and thefts totaled $14 billion in 2021.' & much more by @profgallowayhttps://t.co/z9aIFSt68e
— Faisal Qamar (@qam_f) January 15, 2022
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