2021 saw many shocking events including cryptocurrency scams. In August, PolyNetwork, a decentralized finance (DeFi) firm working on interoperability of crypto coins was hacked and $600 million worth of cryptocurrencies were transferred out. In November, reports surfaced of hackers forcing Instagram users to film "hostage-style videos" as part of a bitcoin scam that saw the nefarious actors gain access to their accounts.
Now, new data from blockchain analytics firm Chainalysis is revealing that scammers stole a whopping $14 billion in cryptocurrency in 2021 partially because of the growth of the decentralized finance (DeFi) platform.
“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” Chainalysis stated in its report.
“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”
DeFi transactions rose by 912% in 2021, according to Chainalysis. What exactly is DeFi?
DeFi is a platform that effectively removes the middlemen from traditional financial transactions by replacing them with a programmable piece of code called a smart contract. However, a large amount of the new protocols being launched through DeFi have code vulnerabilities that can be exploited by nefarious actors.
In fact, 21% of all hacks in 2021 were a result of these codes being exploited. “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,” Kim Grauer, Chainalysis’ head of research, told CNBC.
This resulted in a 516% rise of cryptocurrency theft from 2020 reaching $3.2 billion in 2021, with 72% of that amount taken from DeFi protocols. On the bright side, Chainalaysis did note that the growth of legitimate cryptocurrency use was far superior to that of illegal use thanks to the evolution of law enforcement and the transparency of blockchain.
“Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem,” concluded the report.