We will talk about the reasons why cryptocurrencies are interesting for criminals. That being said, many things have changed to the good over the last few years.
Some cryptocurrencies like Bitcoin became easier to trace, major darknet platforms were taken down by law enforcement, and internal financial crime investigation units have upgraded their technological, financial crime prevention solutions. However, the amount that is connected to illicit activity still accounts for more than is good.
In the past, cryptocurrencies have been thought of as anonymous, something that criminals can use, and that no one will find their money so the reasons why cryptocurrencies are Interesting for criminals exists. There are quite some infamous examples, which make this very apparent.
Reasons Why Cryptocurrencies Are Interesting For Criminals
The cryptocurrency frenzy is reaching epic proportions, with cryptocurrency usage surging and Bitcoin valuations reaching all-time highs. However, not all aspects of this phenomenon are positive that may be one of the reasons why cryptocurrencies are Interesting for criminals. As cryptocurrencies gain traction among consumers as legitimate transactions, they are also increasingly being used by criminal actors, with a global total of $10 billion in illicit activities in 2020.
As the blockchain changes the nature of financial investigations, the rise of cryptocurrency crime is a major issue confronting law enforcement agencies. Financial cryptocurrency investigations have become a new standard, making it critical to understand the motivations of crypto criminals.
What is Silk Road?
To be able to understand the reasons why cryptocurrencies are Interesting for criminals, we must know what is silk road.
Silk Road was launched in 2011 and then taken down by the FBI in 2013. It was a huge marketplace where you could buy pretty much everything from drugs to firearms. Wildlife trafficking was also present there.
This gave Bitcoin a bad reputation to start with. As the years have evolved, the industry and the community have struggled to shake Bitcoin’s bad reputation because of Silk Road. Other dark markets attempted to take Silk Road’s place after it was taken down. AlphaBay launched in 2014 and was shut down by law enforcement in 2017. This was the start of the big economy of dark markets and one of the reasons why cryptocurrencies are Interesting for criminals
Aside from the pseudo-anonymous nature of crypto, some other elements are less spoken about. Still, they’re important to understand to capture your risks correctly. You hear a lot about peer-to-peer payments in the traditional systems, but Bitcoin itself is genuinely peer-to-peer. With Bitcoin, you can make a payment with absolutely no intermediary.
Instead, you use someone’s address and send them a certain amount of Bitcoin. The transaction is broadcasted on the blockchain, and the receiver gets the funds. That’s all good and well, but what if someone can come along and unplug the main server that this great currency runs on? Of course, in Bitcoin’s case, it’s completely decentralized and can be one of the reasons why cryptocurrencies are Interesting for criminals. There is no one central switch that you can turn off and then shut down Bitcoin or cryptocurrency. This makes it a bit more attractive than some other options available.
Then you’ve got the final bit that more recently has been coming to the limelight because of the many institutions creating their cryptocurrency and their payment route system on blockchain. This is something where someone can block payments. Whereas traditional cryptocurrencies, Bitcoin and Ethereum, for example, are permissionless and censorship-resistant. On the blockchain, a payment between two parties can’t be blocked.
That’s important to understand because it means that any anti-financial crime controls and any attempts to stem the illicit use of cryptocurrency have to happen at the entry point. It has to happen with the exchanges, the banks, and the ATM providers before getting onto the actual Bitcoin blockchain. After that point, you can’t stop those transactions.
When cases of Bitcoin and crypto assets being used in crime first started appearing a few years ago, there was generally a perception that you had a perfect mechanism for online criminality. The pseudo-anonymous nature of the transactions was the perfect thing that criminals could dream of. However, there was a catch in all of this.
What made Bitcoin less ideal for crime than is sometimes acknowledged is that crypto-asset transactions are recorded on the blockchain. Public ledgers provide a complete and total history of transactions. As a result of those blockchains being open, visible, and constantly updated with new information, it became possible to more effectively analyze the history of transactions, follow the flow of funds, and begin to unmask those behind certain payments.
Back in the days, Silk Road accounted for about 30% of crypto assets or Bitcoin transactions at the time. Today, illicit transactions in the Bitcoin ecosystem – not speaking about other cryptocurrencies here – are just under 1% of all activity. The reasons for this are manifold. One reason is that more and more legitimate people have become interested in blockchain technology and use cryptocurrencies for a wide variety of cases also, become one of the reasons why cryptocurrencies are Interesting for criminals. In relativity, the criminals have been crowded out as a proportion of the entire flow of funds.
What Are The Omnipresent And Quite Apparent Illicit Activities?
Let’s look at what is included in this illicit activity that is still omnipresent and quite apparent.
Reasons why cryptocurrencies are Interesting for criminals is that it can be observed that dark web marketplaces make up about half of all crypto activity. Dark web markets are still quite accessible. They do rely heavily on Bitcoin and other cryptocurrencies to facilitate the dealings. Also, scams and Ponzi schemes make up an additional third of illicit activity in Bitcoin. Credit card schemes make up just under 10% of the overall illicit activity.
Illicit activity around credit cards usually relies on websites on the dark web or sometimes in the open web where criminals that have stolen credit card details can sell those credit card details. Thefts and hacks of exchanges also contribute to this picture. Then, there is a portion of various activities like money laundering in general, terrorist financing, and sanctions evasion.
If criminals use a cryptocurrency like Bitcoin, it has become a lot easier to trace back the funds than it has been in the past so it is one of the reasons why cryptocurrencies are Interesting for criminals. Nowadays, there are many tools out there that help internal financial crime investigation units to follow the money—especially law enforcement with the possibility to trace back the funds with a reasonable amount of effort.
Final Thoughts
However, technology is also emerging on the criminals’ side and it is one of the reasons why cryptocurrencies are Interesting for criminals. Financial crime and compliance professionals should be aware of mixers and tumblers in particular. These are services that are offered by third parties to obfuscate a cryptocurrency transaction. They are normally provided by like-minded criminals who charge a certain fee.
In essence, mixers and tumblers mix different cryptocurrencies and also the reasons why cryptocurrencies are Interesting for criminals. Besides, there are wallets out there that are extremely private. There are cryptocurrencies, like Monero, for example, one of the most well-known privacy coins. This protocol is very hard to track, unlike Bitcoin, which means that criminals are more likely to take advantage of its features so it is one of the reasons why cryptocurrencies are Interesting for criminals.
