Cryptocurrency and crime: uses and ways to stop it

4 October 2019

Over the past few years, cryptocurrencies have grown rapidly in price, popularity and mainstream adoption. To put it into context, the numerous online cryptocurrency exchanges and markets have daily dollar volume in the billions. With such volumes, a link between cryptocurrency and crime is, unfortunately, inevitable.

As of January 2018, the total market capitalisation of bitcoin alone exceeds $250 billion, with a further $400 billion making up the other 1,000 cryptocurrencies, and such a rapid growth in the market and the anonymity nature of the technology has subsequently attracted the wrong type of users as well.

Criminals can carry millions of pounds across borders without detection with crypto transactions requiring no use of real names. They can essentially commit a crime without leaving a trace of evidence.

The biggest issue towards regulating transactions is that crypto-assets often fall outside the scope of the EU financial regulations. This makes it hard to build context around individual transactions.

Cryptocurrency and crime involves various activities, including illegal trading, money laundering, avoiding capital controls and the potential to fund terrorism.

Cryptocurrency and crime: facts and figures 

Without being able to track the source to illegal activity, governments and law enforcement agencies have found it almost impossible to stop cybercriminals from striking.

Peer-to-peer platforms such as Uber and Airbnb are among two of the most notable victims. Crafty criminals have been able to make a profit by creating fake riders and drivers, with real drivers being able to tap other technologies like fake GPS apps to bump up fares.

The mass global usage of these platforms has enabled them to easily hide their illicit profits amongst legitimate ones and easily move payments across borders undetected. 

To give you an idea of how significant and rife criminal cryptocurrency activity is in numerical terms, the reported cases of money laundering alone exceed $5.2 billion in Europe.

A paper published in January 2018, states: approximately one-quarter of all users, and close to one-half of bitcoin transactions, 44 per cent, are associated with illegal activity. Furthermore, approximately one-fifth, 20 percent, of the total dollar value of transactions and approximately one-half of bitcoin holdings, 51 per cent, through time are associated with illegal activity.

The paper concludes that these users annually conduct around 36 million transactions, with a value of around £72 billion, and collectively hold around $8 billion worth of bitcoin.

According to CipherTrace, the largest single incident of loss cited in 2019 was the PlusToken scheme, which defrauded users and investors of £2.9 billion.

How to fight criminal cryptocurrency activity

If this sick link between cryptocurrency and crime goes on and sanctioning bodies don’t get a grip on it fast, the market valuation of cryptocurrencies will continue to plummet.

In recent months, the market has already experienced an astonishing 75% decline.

There are several ways to combat this downward spiral. The first is to tap into criminal error. Believe it or not, bitcoin isn’t as anonymous as you may think, as it uses a blockchain system that serves as a virtual record of all transactions on the network. 

Remember, the Blockchain is publicly accessible, which allows anyone with a bit of computer-savvy to trace digital footprints of anonymous traders. It’s for this very reason that bitcoin is often used on the Darknet with the anonymising software, The Onion Router (Tor) for extra security and anonymity.

The open, transparent nature of crypto transactions means that it’s very hard for criminals to convert it into fiat currency and get away with it. 

Thinking proactively, it would be wise for businesses to increase communications between various governments to detect certain patterns and produce more annual reporting standards to show their legitimate use of cryptocurrency

The final way of minimising criminal crypto activity is to introduce tighter regulations. Luckily, this is a hot topic at the moment, with a lot of continual alterations happening around the world, which also influence the effect of Blockchain on legal and compliance matters.

The EU’s anti-money laundering regulations are a casing example, whereby, all cryptocurrency exchanges have to comply with them.

Know your customer (KYC) has been applied in many countries as a way of getting people to disclose their identities before carrying out a crypto transaction.

Further measures are also being taken to align digital currencies with existing Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) legislation.

Every week, another country introduces its stipulations on regulating cryptocurrencies.

It’s therefore vital that you stay in the loop about the latest regulatory changes and move with the times to make sure you utilise this richly rewarding technology. If you don’t, you could be left behind and end up paying a hefty fine for being non-compliant. Cryptocurrency and crime activities are still a burden on the success of Blockchain, but something is being done, and we can expect improvements.

2 Responses

  1. Would you please name the report that you mention in the article above : “A paper published in January 2018, states”?

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