India is the 9th largest market for darknet-based illicit cryptocurrency activity with over $42 million worth of trades taking place on the dark web using cryptocurrencies in 2020, according to a report by Chainalysis, a New York-based blockchain analysis company. Globally, the total value of cryptocurrency related crime has reduced by half as illicit entities conducted around $10 billion worth of crypto-transactions compared to $21.4 billion in the previous year, the report said.
With increasing regulations around the world on cryptocurrency trading, mining and investments, the quantum of illegal activity using decentralised currencies is falling. This is the clearest example of how regulations can mitigate risks that have traditionally been associated with cryptocurrencies. Particularly, that it can be used for the sale and distribution of narcotics, terrorism financing, money laundering and other activities. However,
According to Chainalysis, “crypto-currency remains appealing for criminals, primarily due to its pseudonymous nature and the ease with which it allows users to instantly send funds anywhere in the world, despite its transparent and traceable design.” Since the use of cryptocurrencies for illegal activities is only 0.34% of the total market, the proportion of illicit funds being moved through crypto-networks is much smaller than in traditional financial networks which still dominate much of the worlds’ financial system, the report added.
Breaking down crypto crimes
According to the report, crypto scams, darknet markets and ransomware accounted for most of the illegal crypto activity in 2020. While crypto-scams accounted for 54% or $2.6 billion of cryptocurrency crimes in 2020, darknet markets accounted for $1.7 billion worth of crypto-crimes and ransomware at $350 million. The report says that going forward, ransomware payments through cryptocurrencies will grow exponentially from here on.
While the total value of crypto-scams decreased from $9 billion in 2019 to around $2.6 billion in 2020, the number of victims surged from 5 million to 7.3 million during the same period. Ponzi-like schemes have run out of fashion unlike in previous years where it was the dominant modus operandi for scammers. In 2020, investment-related scams were the only method used by scammers to dupe people.
While such attacks account for just 7% of all funds received by criminals, the value of crypto-payments due to ransomware stood at under $350 million in 2020, around 311% above the levels in 2019. Around 15% of ransomware payments made in 2020 went to countries on whom the United States’ government has imposed sanctions. Mainstream crypto-exchanges received more than $32 million from ransomware-based attacks.
- Darknet Markets
Such markets brought in $1.7 billion worth of crypto-currencies in 2020, with 75% of all darknet market revenue worldwide flowing to one particular darknet website called Hydra, which serves only Russian-speaking countries. Standard crypto-exchanges, peer-to-peer exchanges and high-risk exchanges accounted for nearly all the crypto-currencies sent to darknet markets. While the US received/sent a total of $179 million worth of crypto-currencies via darknet market places, India sent;/received $42 million worth of cryptocurrencies in 2020.
- Money Laundering
A group of 1,867 deposit addresses received 75% of all crypto-currency value sent from illicit addresses in 2020. Around 270 deposit accounts received 55% or $1.3 billion of all crypto-currency transactions related to money laundering. This means that cyber criminals are increasingly relying on a small group of brokers, high-risk exchanges and other intermediaries to use crypto-currencies for laundering money.
- Stolen Funds
A total of $523.3 million worth of crypto-currencies were stolen in 2020, compared to $343.8 million in the previous year. But while the amount of crypto theft through exchanges remains high at nearly $300 million, decentralised finance platforms encountered the most number of attacks leading to a little over $150 million in crypto theft.
- Terrorism Financing
In March last year, Indian authorities arrested a Kashmiri couple, who received Bitcoins from a Syria-based ISIS Operative. While the number of terror plots in India involving crypto-currencies is low, in the US over $1 million worth of Bitcoins were recovered from purported terrorists. In fact, around $500,000 was transferred to members of alt-right groups that participated in the January 6, 2021 US Capital building riot, according to Chainalysis.
Recent crypto-scams in India
- Social Media Scam
Last week, the Economic Times reported that a few social media accounts related to Korean Pop sensation BTS were urging users to engage with shady crypto-related accounts. These crypto accounts would rope in members for dubious ‘giveaway’ contests. Personal data and financial data of users who followed BTS-related fan accounts and then joined the crypto accounts either directly or indirectly is then extracted through phishing attacks .
- The Notorious Hacker
In January, the Karnataka Police apprehended a 25 year old hacker from Bengaluru who was in possession of Rs 9 crore worth of Bitcoins. The hacker reportedly hacked three Bitcoin exchanges and 10 poker websites and also confessed to hacking government e-procurement sites, ANI reported. According to the Times of India, the hacker was also involved in illicit drug trade and hawala operations through which he converted Indian currency into Bitcoins.
- An Obscure Trading Platform
In January, the Saket District Court in New Delhi agreed to hear grievances of investors who invested in crypto currencies through an online trading platform called IQ Option. The platform allegedly has duped many customers in India by restricting withdrawals. The investors were promised returns of upto 900% on investments, even with a $1 minimum investment, the petition says.
- 3-Year Old Ponzi Scheme
On January 1, Umesh Verma, a greetings card maker and jeweler was arrested at Indira Gandhi International Airport by the Economic Offences Wing of the Delhi Police for duping around 45 people of ₹2.5 crore through a cryptocurrency scheme promising returns of 20-30%. Verma along with his son created an app called Pluto Exchange through which they sold a crypto-token or coin called ‘COIN ZARUS’ since 2017. Verma was arrested after investors complained that he had issued them post-dated cheques and constantly shifted his address to avoid the investors, according to an ANI report.
- Fake Crypto-Coins
In October last year, the Karnataka Police announced that it was investigating three companies that duped over a million customers from across the country to invest in a crypto-token called ‘Morris Coin’. The Police said that through three entities, investors were lured into investing ₹15,000 each and in return they would receive gains of ₹270 per day for the next 300 days. The scamsters offered 10 Morris coins to investors after the 300-day lock-in period and if they got more people to invest in the token investors could receive commissions of up 40%, the New Indian Express reported.
- Hacked Crypto-Wallet
In July last year, London-based cryptocurrency firm Cashaa tweeted that one of its crypto-wallets with around 336 Bitcoins was compromised and the funds were transferred elsewhere. The company, which also has Indian operations and works with local crypto-exchanges, has filed a case with the Delhi Police.
MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.
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