The use of cryptocurrency in criminal activity and crime

In the minds of a number of people, bitcoin and other cryptocurrencies still go hand in hand with criminal activity and the darknet. However, recent research findings suggest otherwise.

Perhaps, at one time, news about the illegal Silk Road marketplace really became one of the most powerful growth drivers for Bitcoin (BTC). The world learned about the existence of an online platform where it was possible to conduct illegal transactions, buy weapons, drugs – and pay for it with virtual money that cannot be tracked. This attracted a lot of new users to Bitcoin, including people with bad intentions.

Soon enough, the authorities closed down Silk Road, but the sediment remained. In the minds of the general public, cryptocurrencies have firmly established themselves in the same associative row with criminal activity. Perhaps, until 2016, the entire set of people’s knowledge about bitcoin boiled down to the fact that its rate is jumping all the time and that criminals use it.

Is Bitcoin really that popular in the criminal environment? Has public perception changed?

Obsolete numbers

In May 2019, an extensive study was published on the Oxford University Press website, according to which 26% of all Bitcoin users and up to 46% of all Bitcoin transactions can be attributed to illegal activity. In 2017, a similar volume of illegal bitcoins amounted to $ 7 billion with a total trade turnover of $ 76 billion.

However, it should be borne in mind that since 2017, when the researchers collected the data, there have been many changes. Thus, the mainstream interest in bitcoin has grown significantly, and along with it, attempts have begun to tighten industry regulation, including the requirement to comply with the KYC (Know Your Customer) procedure. The protocols for tracking the movement of funds have also been improved.

Some companies even offer related cryptocurrency financial monitoring services. Using the developed algorithms, experts track addresses and transactions involved in criminal activity.

Such tools demonstrate that the trend towards regulation of the crypto space should reduce the number of black addresses.

According to AMLBot experts: «We believe that the number of black addresses will hover around 2% due to increased industry regulation and tightened AML / KYC procedures on major exchanges.»

Tainted bitcoins

The AMLBot methodology allows for the flagging of coins related to criminal activity, from activity on underground marketplaces to ransomware attacks and stolen coins. Such coins are beginning to be considered high risk.

According to the AMLBot criteria, activity related to bitcoin ATMs (ATMs) and cryptocurrency exchanges that do not follow the KYC procedure can be considered suspicious activity. Meanwhile, trustworthy coins are coins that are mined in the mining process or stored in well-regulated / self-regulated crypto wallets.

Money laundering isn’t easy, but criminals don’t give up. As the experts commented:

“Loopholes for money laundering still exist. These include peer-to-peer (P2P) exchanges, decentralized exchanges (DEX), exchanges that do not adhere to strict AML / KYC procedures, etc. The easiest way to sell is at a discount. «

The 2019 study above uses a similar algorithm to identify dirty bitcoins known as the Union-Find algorithm. This method of tracking the movement of funds automatically compares transactions and addresses with the origin and final destination of the «highlighted» coins.

However, this method is not 100% accurate. In addition, the number of addresses has now increased significantly compared to 2017. This means that the «46%» cited in the study of criminal addresses are no longer true.

Moreover, at the moment, the capitalization of the bitcoin market is already about $ 700 billion.Taking into account this fact, even if now there are illegal bitcoins in the amount of $ 7 billion in circulation, as stated in the study, this amount is disproportionately small in the total market size and is only about 1%.

In addition, according to the latest research, the number of crimes involving bitcoin is consistently decreasing. So, according to CipherTrace, in 2020 as of October, the volume of cryptocrimes fell to $ 1.8 billion against $ 4.5 billion a year earlier.

Next, you should dwell in more detail on what is considered «dirty bitcoin».

What bitcoin is considered dirty?

One of the ways to launder BTC is through special «bitcoin mixers». By passing coins through such services, criminals cover their tracks among a huge number of transactions and wallets.

As a result, “dirty” bitcoins are mixed with “clean” ones so much that it becomes very difficult or even impossible to track them. Accordingly, many innocent and law-abiding users turn out to be the owners of bitcoins, previously marked as «dirty».

Another problem is the question of suspicious wallets. Wallets that are associated with sites that do not comply with KYC standards or are very negligent about them fall under the hood.

Likewise, a variety of over-the-counter (OTC) or peer-to-peer (P2P) services can hit the integrity of the address. An example is the LocalBitcoins platform, which has recently experienced pressure from regulators.

However, it cannot be said indiscriminately that all wallet owners who use OTC / P2P services are involved in illegal activities. The services of the same LocalBitcoins are also used by quite respectable citizens.

Thus, “clean” coins can also fall into the “dirty” category. At the same time, some of the «dirty» bitcoins are successfully laundered by criminals. Therefore, algorithms for tracking criminal activity are not always accurate, and the actual amount of dirty bitcoins in circulation may not match the figures presented on paper.

Whales are clean as glass

The belief that bitcoin is involved in almost all illegal activity on the Internet is nothing more than a common misconception.

Experts analyzed the top 100 bitcoin addresses and came to the conclusion that the vast majority of their owners are absolutely clean.

According to the analytical portal Glassnode, there are currently over 100 wallets that hold over 10,000 BTC. These include the address where since 2014 there have been untouched bitcoins worth about $ 1.9 billion.

The lion’s share of all BTC in circulation is concentrated on these 100 wallets – and at the same time, the vast majority of them are in no way connected with criminal activity. More than 1% of coins were identified only at three addresses, the receipt of which could be associated with illegal activity.

Private cryptocurrencies are more reluctant to be regulated, but experts believe that over time, most governments and reputable exchanges will cut off their oxygen. Such coins will be outlawed, although they will undoubtedly retain their popularity “in certain circles”.

Bright tomorrow?

Thus, while past research has shown a strong link between bitcoin and criminal activity, more recent evidence suggests that the proportion of such “dirty” bitcoins is declining.

The capitalization of the cryptocurrency market has exceeded $ 1 trillion, and governments are more purposefully seeking to regulate it.

It should be borne in mind that Joe Biden plans to appoint Gary Gensler as the new head of the US Securities and Exchange Commission (SEC). Gensler is known in the crypto industry as a skeptic about XRP and ETH. However, the current SEC war with Ripple will not affect most of the other leading cryptocurrencies in any way.

Advances in technology, coupled with increased understanding of the industry at the government level, should ultimately help build a secure and decentralized digital asset system.

Where can you buy «pure» cryptocurrency?

For the safe and convenient purchase of cryptocurrencies, we have prepared a rating of the most reliable and popular cryptocurrency exchanges that support the deposit and withdrawal of funds in rubles, hryvnia, dollars and euros.

The most reliable sites with the highest turnover of funds, for several years the largest cryptocurrency exchange in the world has been Binance. The Binance platform is the most popular crypto-exchange in the CIS as well, since it has the maximum trading volumes and supports transfers in rubles from Visa / MasterCard bank cards and payment systems QIWI, Advcash, Payeer.

Especially for beginners, we have prepared a detailed guide: How to buy cryptocurrency on the exchange for rubles?

# Cryptocurrency exchange Official site Site evaluation
1 Binance https://binance.com 9.7
2 Huobi https://huobi.com 7.5
3 Exmo https://exmo.me 6.9
4 Yobit https://yobit.net 6.3
5 OKEx https://okex.com 6.1

The criteria by which the rating is set in our rating of crypto-exchanges:

  • Reliability of work – stability of access to all functions of the platform, including uninterrupted trading, deposit and withdrawal of funds, as well as the period of work on the market and daily trading volume.
  • Commissions – the size of the commission for intra-site trading and withdrawal of assets.
  • Feedback and support – we analyze user feedback and the quality of technical support.
  • Convenience of the interface – we evaluate the functionality and intuitiveness of the interface, possible errors and failures when working with the exchange.
  • Features of the platform – availability of additional features – futures, options, staking, etc.
  • Final grade – the average number of points for all indicators, determines the place in the rating.

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