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.”