Navigating the Evolving Landscape of Crypto Crime

Navigating the Evolving Landscape of Crypto Crime

by February 21, 2024

In the ever-evolving cryptocurrency market landscape, 2023 marked a pivotal year that saw significant shifts in the nature and scope of illicit activities.

The report by Chainalysis provides a deep dive into these changes, highlighting the decline in certain types of crypto crimes and the persistence, if not growth, of others, such as ransomware and darknet markets.

Despite the shadows cast by the fallout of FTX and other scandals, the sector has rebounded and initiated a phase of strategic regulatory enhancements.

Amidst this complex backdrop, regulatory efforts, particularly in jurisdictions like Singapore, have taken center stage, offering a glimpse into the future of crypto governance and its potential to shape the industry’s trajectory toward greater safety and integrity.

Decline in Scamming and Hacking

One of the most notable trends in 2023 was the significant reduction in the volume of crypto assets associated with illicit activities, which plummeted to US$24.2 billion (SG$ 32.51 billion).

The introduction of more sophisticated fraud detection technologies and a growing awareness among investors about the risks of scamming tactics contributed to this downward trend.

Advancements in blockchain analytics and crime prevention technologies have been pivotal in identifying and combating illicit activities. These tools have enabled law enforcement agencies to trace the flow of funds, unmasking the networks behind criminal operations. As these technologies evolve, the ability to preempt and prevent crypto crimes is expected to improve, marking a new era in digital asset security.

However, the decrease in scamming and theft does not tell the whole story. The evolving nature of crypto crimes, with scammers adopting more sophisticated methods such as romance scams, presents new challenges.

These tactics, which blend social engineering with fraudulent investment opportunities, underscore the need for continuous vigilance and education within the crypto community.

In addition, stablecoins have emerged as the preferred medium for a significant portion of these illicit activities, driven by their perceived stability and ease of use.


Crypto crime

Regulatory responses and the Singapore example

Regulatory bodies worldwide have ramped up their efforts to safeguard the ecosystem in response to the shifting dynamics of crypto crime. Singapore’s approach to cryptocurrency regulation in 2023 exemplifies the proactive and stringent measures adopted globally to curb crypto crimes.

The Monetary Authority of Singapore (MAS) played a pivotal role in shaping a safer and more innovative environment for digital assets. This recovery and regulatory enhancement period saw a notable shift in crypto crime trends, reflecting the industry’s evolving dynamics.

Singapore’s commitment to establishing a robust regulatory framework for cryptocurrencies was underscored by its adherence to the Payment Services Act (PSA), initially enacted in 2019 and amended in 2020 to include digital payment token (DPT) service providers. 

Under the PSA, DPT service providers must obtain a license from MAS and comply with strict standards related to anti-money laundering, consumer protection, cybersecurity, and governance. This regulatory foundation established further measures to safeguard investors and ensure market integrity.

In 2023, MAS introduced additional regulations targeting DPT service providers, particularly those catering to retail customers. These included prohibitions on accepting locally issued credit card payments for cryptocurrency transactions, offering incentives to trade in cryptocurrencies, and providing financing, margin, or leverage transactions for retail customers. Such measures were designed to discourage speculative trading and mitigate financial risks for retail investors.

MAS mandated that DPT service providers safe keep customer assets under a statutory trust and required them to disclose the risks and fees associated with their services.

This move aimed to enhance the transparency and security of customer transactions. Providers were also obligated to assess customers’ risk awareness before granting access to their services and to provide regular statements and reports, ensuring that investors were well-informed about their crypto engagements.

A significant regulatory development in 2023 was MAS’s finalisation of a stablecoin regulatory framework. This framework is applied to single currency stablecoins pegged to the Singapore Dollar or any G10 currency and issued in Singapore.

It imposed essential requirements on issuers, such as redemption at par, reserve management, and disclosure, aiming to bolster the stability and reliability of stablecoins as digital payment methods.

The persistent challenge of ransomware and darknet markets

Despite a general downturn in illicit crypto transactions, ransomware and darknet markets have shown a tenacious ability to thrive, with their revenues experiencing a notable increase in 2023.

The resurgence of ransomware highlights the cunning adaptability of cybercriminals, who have refined their tactics to bypass improved cybersecurity defenses.

Similarly, the revival in earnings from darknet markets, particularly after decisive actions were taken against platforms like Hydra, underscores a continuing demand for the illicit goods and services that cryptocurrencies can obscurely purchase. These developments underline the persistent and sophisticated challenge of addressing the ever-evolving cyber threats in the crypto realm.

In 2023, ransomware payments peaked, breaking past the US$1 billion (SG$1.35 billion) threshold for the first time. This surge, contrasting with the dip seen in 2022, plots a concerning upward trajectory for ransomware from 2019 through 2023, signaling its growth into a more significant menace.

Crypto crime

In a striking revelation, a survey among cybersecurity leaders in Singapore unveiled that 84 percent of organisations in the nation encountered at least one ransomware attack between March 2022 and March 2023,

It’s crucial to recognise that this figure merely scratches the surface, omitting the broader economic toll, including losses in productivity and the expenses tied to mitigating attacks.

Sanctions-related transactions

Transactions with sanctioned entities and jurisdictions represented a significant portion of illicit transaction volume in 2023, totaling US$14.9 billion (SG$20.06 billion). 

This trend emphasises the geopolitical dimensions of crypto crime, with sanctions evasion emerging as a significant use case for cryptocurrencies in certain regions. 

Despite sanctions, the continued operation of platforms like Garantex in Russia underscores the global challenges in enforcing regulatory and legal measures against illicit crypto activities.

Governance, Safety, and Regulation

Looking ahead to 2024, implementing regulatory frameworks introduced in 2023 will shape the regulatory landscape for digital assets. 

Chengyi Ong,

Chengyi Ong

“Lighthouse jurisdictions like Singapore, Hong Kong, and other countries such as Australia and South Korea are pivotal in setting global regulatory standards. It’s always an interesting time when the rubber hits the road. Once these frameworks are implemented and enforced, we then need to see what the impact is on the industry,”

said Chengyi Ong, Chainalysis Head of Policy for APAC.

The focus will shift towards assessing the impact of these frameworks on industry dynamics, balancing risk management, consumer protection, and fostering innovation.

The evolving tactics of cybercriminals, particularly in scamming and ransomware, will test these regulatory frameworks, highlighting the need for a dynamic and responsive regulatory environment that balances innovation with consumer protection.

The crypto community, including exchanges, wallet providers, and users, plays a vital role in safeguarding the ecosystem. Increased emphasis on education and awareness can empower individuals to recognise and avoid potential scams and threats. Community-driven initiatives, alongside regulatory measures, form the cornerstone of a robust defense mechanism against crypto crime.

While the industry has seen a decline in overall illicit activities such as crypto crime, challenges remain in combating ransomware, darknet markets, and sanctions evasion. Singapore’s regulatory framework offers a glimpse into the crypto industry’s potential for governance and safety, providing critical insights into how global standards might evolve.

As we move into 2024, the crypto sector’s ability to adapt to these changing dynamics will be crucial in mitigating the risks associated with illicit activities while fostering a safe and innovative digital asset ecosystem.