In early 2023, we published our inaugural Digital Asset, Blockchain Industry, and Crime Trend Predictions. The purpose was to provide insights for policymakers, investigators, and compliance teams to anticipate how criminal activities in the digital asset and blockchain space might evolve in response to enforcement actions, legislation, and technological disruptions.
As a follow-up, we reviewed the developments related to crime, legislation, and technology in the past six months. In this updated report, we’ve assessed the accuracy of our previous predictions and made necessary updates based on recent developments.
Assessing our predictions: did it happen?
Darknet marketplaces and decentralization
We anticipated an increase in the number of darknet marketplaces operating with a preference for decentralization.
This trend has partially materialized, particularly with the emergence of illicit marketplaces on social media platforms. While still present, darknet sites face challenges because of slow loading times and DDoS attacks. Additionally, finding illicit services is difficult on the darkweb and far less convenient when compared with instant messaging or social media.
Therefore, the trend toward more decentralized operations will continue.
Crypto assets in illicit marketplaces
Crypto assets, and notably Bitcoin, remain a popular payment method on illicit marketplaces. Criminals prioritize the ability to convert funds to fiat currency over privacy concerns.
However we do anticipate the early adoption of Layer Two network technologies into illicit platforms, potentially hampering detection by blockchain analytics tools. And criminals may pivot from cryptocurrencies like Bitcoin and USDT to more private options like Monero and ZCash.
More fraud in areas with less regulation
Recent data shows increased localized fraud, especially in regions where there is less regulatory oversight. Fraud, driven by some organized groups, remains profitable because of the lack of f robust regulation.
Crypto asset signal fraud and social media influencers
We expected increasing regulatory and law enforcement scrutiny on crypto asset signal fraud, accompanied by reduced support from social media influencers following fines. However, paid marketing campaigns using social media influencers remain abundant albeit there has been an overall decline. Notable cases include those brought against celebrity endorsements of FTX5, and CryptoZoo6, among others.
Increase in self-custody and theft
Our prediction that an increase in self-custody wallets would lead to more reported thefts remains accurate. Self-custody wallets provide greater control for users but also carry increased risk.
Blockchain analytics – the challenges
Blockchain analytics tools may face challenges to their credibility and reliability. Cases involving the de-mixing of transactions have raised questions about the accuracy of these tools in investigations.
Effectiveness of sanctions
Sanctions in their current form remain limited in deterring illicit activity. Where sanctions have been used, their effectiveness varies, and the application of sanctions may need greater international cooperation to be more effective.
Asset recovery
While there has been a rise in asset recovery efforts, the overall impact is still limited, and the amount recovered is relatively tiny compared to the total amount stolen. Asset recovery efforts continue to evolve.
Blockchain bridges and new illicit services
The prediction that Ren may be forced to shut down and the emergence of new services used by criminals, such as Sinbad and IMTOKEN, has happened to a degree. Ren’s website is down, and various illicit services have gained notoriety.
Layer Two Technologies
We did not anticipate the proliferation of Layer Two technologies like the Lightning Network for Bitcoin and Optimism for Ethereum. Decentralized protocols for automated token swapping and cross-chain transactions are high-risk areas for money laundering. Layer 2 payment systems will soon become more complex, posing challenges for crypto service providers and blockchain analytics tools.
To read our full report, download it here.
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