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FACT CHECK: Crypto is increasingly being used for criminal activity and is more of a haven for illicit finance than cash

By Author


, April 30, 2021

, 3 min read time

Since cryptocurrency is still so new, we are often asked about the biggest myths and misunderstandings about it. It’s not unusual for a new market or product to confuse people when it first arrives on the scene, until a critical mass of people get familiar with it. Think about Airbnb, for example: the idea of travel that included staying in a stranger’s home seemed crazy until it took off.

One of the most common but false notions about crypto is that it is mostly used by bad actors for illicit financing. This is just not true. Let’s look at a few key data points.

According to research conducted by numerous blockchain analytics companies, illicit activity accounts for less than 1 percent of cryptocurrency transactions. And of that small portion, scams — not money laundering, terrorism, financing, sanctions, or other illegal activities — make up the overwhelming majority of crypto-currency related crime. Research from industry group Crypto Council on Innovation (CCI) found that from 2017 to 2020 illicit economic activity overall was overwhelmingly conducted through traditional financial intermediaries.

Indeed, fiat currency (good old-fashioned cash) continues to be the funding of choice for criminals. The UN estimates that ~$1.6 trillion is laundered each year, or 2.7% of global GDP. In contrast, criminal activity in cryptocurrency actually fell quite dramatically — from 2.1% or $20 billion in transaction volume in 2019 to less than half a percent (0.34%, or $10 billion) in 2020. Even traditional payment networks, like SWIFT (Society for Worldwide Interbank Financial Telecommunication), have found that “cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.”

According to a 2020 Rand Corporation report, “Despite the perceived attractiveness of cryptocurrencies for money laundering purposes, it is also worth noting that an estimated 99 percent of cryptocurrency transactions are performed through centralised exchanges, which can be subject to AML/CFT regulation similar to traditional banks or exchanges.”

Crypto also provides law enforcement with new investigative advantages.

Crypto — unlike cash — is more easily tracked because public searchable databases (blockchains) already exist for the majority of these transactions. This provides law enforcement with access to substantially more information about a crypto transaction than one involving cash, including the date and time of each transaction, the type of crypto transacted, the amount transacted, the wallet address involved, and the unique transaction identifier (hash value). This is a goldmine of immediately accessible information that can sometimes take law enforcement months or even years to obtain with cash transactions.

In fact, a 2018 Brookings Institute report described the considerable advantages crypto has in providing greater discoverability and tracking this way:

“The adoption of blockchain helps track the use of the cryptocurrency. The blockchain is a continuously growing list of transactions (blocks) made using cryptocurrency that are recorded chronologically. The blockchain is managed by a peer-to-peer network (miners) collectively adhering to a protocol for validating new blocks. Once the transaction data in a block is recorded, it cannot be altered retroactively as it would require altering all the subsequent blocks. As the data is stored in many computers, there is little risk of data loss, and since it is encrypted, the confidentiality of data is maintained. Because the blockchain is a public ledger of all cryptocurrency transactions, it is searchable and can be used to track all transactions.”

The Department of Justice has stated that “cryptocurrency, despite the purported anonymity it grants criminals, provides law enforcement with an exceptional tracing tool: the blockchain.” Using the data provided by blockchains, law enforcement has teamed up with private analytics firms to analyze blockchain transactions to identify individuals involved in illicit finance. This has been seen in many real world investigations ranging from the darkwebchild exploitation, and even terrorist financing. In those cases, law enforcement traced the crypto of dangerous criminals who were ultimately brought to justice or had their assets seized.

These examples illustrate the fallacy of thinking that crypto is merely a “haven” for criminal activity or illicit financial dealings. Instead, digital currency secured by cryptography — cryptocurrency — offers many breakthroughs in investigative techniques.

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