In recent years, cryptocurrency has become increasingly more mainstream, the team at Chainalysis noted.
Although illicit activity on-chain previously revolved heavily around cybercrime, Chainalysis pointed out that cryptocurrency is now also being used to “fund and facilitate all kinds of threats, ranging from national security to consumer protection.”
As cryptocurrency has gained greater acceptance, “illicit on-chain activity, too, has become more varied.”
Chainalysis also mentioned that some illicit actors primarily “operate off-chain, but move funds on-chain for laundering.”
Chainalysis report on certain defined categories — stolen funds, darknet markets, and ransomware, to name a few — on an annual basis.
However, with the diversification of crypto crime to include all types of crime, the on-chain illicit ecosystem “has witnessed increasing professionalization, with a broadening array of illicit actor organizations and networks using cryptocurrency, as well as increased complexity in their operations.”
In particular, Chainalysis claims that they have seen the “emergence of large-scale on-chain services that provide infrastructure for numerous types of illicit actors to help them launder their ill-gotten crypto.”
According to Chainalysis metrics, it looks like 2024 “saw a drop in value received by illicit cryptocurrency addresses to a total of $40.9 billion.”
However, 2024 was likely a record year for “inflows to illicit actors as these figures are lower-bound estimates based on inflows to the illicit addresses we’ve identified up to today.”
A year from now, these totals will “be higher, as Chainalysis identify more illicit addresses and incorporate their historic activity into our estimates.”
For instance, when Chainalysis released last year’s Crypto Crime Report, we reported “$24.2 billion for 2023.”
One year later, their updated “estimate for 2023 is $46.1 billion.”
Much of that growth came from “various types of illicit actor organizations, such as vendors operating through Huione, which provide on-chain infrastructure and laundering services for high-risk and illicit actors.”
Chainalysis further noted that it stands to reason that 2024’s illicit cryptocurrency volume will “exceed that of 2023.”
Since 2020, their annual estimates of illicit activity — which “include both evidentiary attributions and Chainalysis Signals data — have grown by an average of 25% between annual reporting periods.”
Assuming a similar growth rate between now and next year’s Crypto Crime Report, Chainalysis annual totals for 2024 “could surpass the $51 billion threshold.”
In general, Chainalysis said their totals “exclude revenue from non-crypto-native crime, such as traditional drug trafficking and other crimes in which crypto may be used as a means of payment or laundering.”
Such transactions are virtually indistinguishable from licit transactions in on-chain data, although law enforcement “with off-chain information can still investigate these crimes using Chainalysis solutions.”
In cases where we’re able to confirm such information, Chainalysis count the transactions as illicit in their data.
For example, since the conviction of FTX’s former CEO of fraud, their 2022 figures have included the “$8.7 billion in creditor claims against the exchange.”
However, there are almost certainly many instances where Chainalysis do not have such confirmation, and “therefore the numbers would not be reflected in our totals.”
As noted in the update, $40.9 billion received “by illicit addresses known today, but Chainalysis estimate the total may be closer to $51 billion given historical trends.”
Through 2021, BTC was unequivocally the “cryptocurrency of choice among cybercriminals, likely due to its high liquidity.”
Since then, however, Chainalysis have observed “a steady diversification away from BTC, with stablecoins now occupying the majority of all illicit transaction volume (63% of all illicit transactions).”
This new reality is part of a “broader ecosystem trend in which stablecoins also occupy a sizable percentage of all crypto activity, demonstrated by total growth YoY in stablecoin activity around 77%.”
In Chainalysis 2024 Geography of Cryptocurrency report, they “covered the wide array of practical use cases for stablecoins in a range of markets, such as storing value, sending remittances, facilitating cross-border payments, and international trade.”
Additionally, stablecoin issuers often “freeze funds if they are made aware of their use by illicit actors.”
For instance, Tether has frozen addresses of concern “linked to scams, terrorist financing, and sanctions evasion, which can make stablecoins a poor tool for the transfer of value by illicit actors.”
Nonetheless, Chainalysis pointed out that “despite these ecosystem-wide trends, some forms of crypto crime, such as ransomware and darknet market (DNM) sales, remain BTC-dominated.”
Other illicit activity, such as “scamming or laundering stolen funds, often take a more eclectic approach and spread out across all asset types.”
Others, such as transactions “associated with sanctioned entities, have shifted primarily to stablecoins.”
Chainalysis further noted that sanctioned entities, including individuals operating in sanctioned jurisdictions, often “have a greater incentive to use stablecoins due to challenges otherwise accessing the U.S. dollar through traditional means amid a desire to benefit from its stability.”