According to a report published by researchers at Chainalysis, illicit cryptocurrency activity hit a record high of $20.1 billion in 2022, up from $18 billion the previous year, mostly owing to rising U.S. sanctions targeting digital currencies.
Chainalysis categorized illegal cryptocurrency activities by including transactions related to child sexual abuse materials, human trafficking, ransomware, stolen funds, terrorist funding, frauds, cybercriminal administrators, dark net markets, and penalties.
Surrounded by sanctions
Nearly 44% of the $20 billion in unlawful transactions assessed by Chainalysis can be traced to transactions linked to sanctioned entities, as the U.S. government became more active in its sanctions against cryptocurrency-related business owners and persons last year.
According to Kim Grauer, chief of research at Chainalysis, “this was the year that [Treasury Department’s Office of Foreign Assets Control] kind of started to come out pretty hard with their sanctioning of services.” “And we’re seeing that in our numbers this year.”
Tornado Cash was one of ten cryptocurrency-related organizations sanctioned last year by the Treasury Department’s Office of Foreign Assets Control in reaction to the North Korean hacker group Lazarus’ use of the technology to launder more than $500 million in stolen cryptocurrency.
Being the first decentralized system to be sanctioned by OFAC, the decision against Tornado Cash was met with strong backlash from blockchain industry executives and privacy advocates who said the Treasury Department had overstepped its bounds by taking action.
According to the report, job losses are another factor contributing to the sector’s woes. One of the largest cryptocurrency exchanges, Coinbase, announced layoffs of 20 percent of its staff on Tuesday. These layoffs represent the third wave of layoffs at the company in the past eight months.
“While crypto is already more transparent than traditional finance, these collapses demonstrate there are opportunities to connect off-chain data on liabilities with on-chain data to provide better visibility,” Grauer added.