Cryptocurrencies and Crime: Why They Have Nothing in Common

Quite often, you might see statements that cryptocurrencies are widely used for criminal purposes. Usually, it’s said by crypto opponents. They suggest banning or stifling cryptocurrencies by regulations for this reason. But what’s the situation really like? We’ve reviewed whether cryptocurrencies and crime are actually connected and what statistics and bare facts have to say on the issue. Spoiler alert: crime and cryptocurrencies are not just far from being synonyms — they are opposites as cryptocurrencies currently help fight against crime. Law breakers prefer to use cash and bank accounts. 

Why cryptocurrencies are associated with crime 

Cryptocurrencies owe their “criminal record” to the time when users of Darknet — the shadow Internet often used by hackers and criminals — took fancy to bitcoin. In bitcoin’s early days, criminals believed it was completely anonymous. They thought they had found the perfect way to run their shady business, but that was a huge mistake. Alas, it earned a somewhat bad name for cryptocurrencies and the crypto community has to rectify this now. 

Back in 2011, the online platform Silk Road selling black market goods and accepting payments in bitcoin was launched. It seemed back then that cryptocurrency was completely anonymous and payments were untraceable. In 2012–2013, the platform’s annual turnover amounted to $ 14–15 mln; in 2013–2015, it handled 1.2 mln transactions worth of 9.5 mln bitcoins ($ 1.2 bln). The platform’s fee was 8–10 % of the transaction amount meaning about 700.000–950.000 bitcoins or $ 90–126 mln was pocketed by the administrators. Is this a lot for the world’s biggest black market platform? It seems not. According to the official records, Silk Road services were used by dozens of thousands of black market sellers and over 100.000 buyers all over the worlds which is also not so much.

Response of bitcoin price on BTC-E to the news of Silk Road’s founder Ross Ulbricht’s arrest. Over a few hours, the price dropped by 66 % to later surge by 87 %. It was followed by bitcoin’s exponential growth. Some investors explained subsequent 8-fold price growth by the fact that bitcoin was no longer associated with the black market. Practice disproves an opinion that bitcoin would cost nothing without black trading. For instance, this view is supported by Joseph Stiglitz, a recipient of the Nobel Prize in Economic Sciences. 

Silk Road had some followers left, but those were also shut down by the authorities. The most well-known among them include: SilkRoad 2.0 (shut down in 2014), Atlantis, Black Market Reloaded, Sheep Marketplace (shut down in 2013–2014), Agora (shut down in 2015), AlphaBay and Hansa (shut down in 2017), Dream Market (shut down in 2019). 

As evidenced in practice, authorities are quite capable of fighting against the Darknet, with cryptocurrencies giving them a helping hand since technically blockchain can track transactions. It helps establish chains of relations to successfully find the criminals. 

Banks are used to launder a thousand times more money than cryptocurrencies 

Let’s move on. Due to their anonymity and legal ambiguity, cryptocurrencies are often labeled as a convenient tool for criminal money laundering. In one of the articles, we’ve already looked in detail at why this idea is far-fetched and does not align with facts. Let’s review the main numbers and conclusions:

  • According to the analytical firm Chainalysis, criminals laundered $ 1 bln via cryptocurrencies in 2018 and $ 2.8 bln in 2019. 
  • Based on calculations by Peckshield, about $ 1.5 bln was laundered via big crypto exchanges in the first six months of 2020. 
  • According to Eliptic and the Foundation for Defense of Democracies, use of bitcoins for criminal purposes does not exceed 0.6–1 % of all bitcoins, with the number dwindling year on year. 
  • Based on Japanese data, this number constitutes 0.19 %, while Chainalysis states it’s just 0.125 %.

Meanwhile, the UN Office on Drugs and Crime (UN ODC) believes that the total annual volume of laundered money amounts to $ 0.8–2 trln or, according to some estimates, to $ 4 trln. Thus, cryptocurrencies are only used to launder 0.07 %–0.35 % of the total amount of laundered money. It’s just a drop in the ocean. 

In fact, real tools for money laundering are cash and bank payments. Annually, big banks may be used to launder up to $ 2 trln — it’s almost 6 times more than the overall capitalization of all cryptocurrencies. Last year alone banks paid over $ 6.2 bln in fines for violating the anti-money laundering laws. In 2020, this figure could rise as banking regulations became more stringent.  

Cryptocurrencies are not the tool for hackers — it’s their target 

According to the 2017 research by the European Commission, cryptocurrencies are now popular among hackers. But they’re far from using them for criminal purposes. Their goal is the theft of coins. 

Most often, hackers steal coins on crypto exchanges since the latter store most digital assets. Here’re a few facts showing the size of the problem:

  • Overall, based on InsideBitcoins calculations, fraudsters have stolen more than $ 11 bln in cryptocurrencies since 2011. 
  • According to Group-IB data, hackers stole $ 882 mln from the biggest crypto exchanges in 2017 — none of the 19 biggest platforms was immune to hacking attacks. 
  • According to Cipher Trace, an American cyber security firm, criminals have stolen a total of $ 1.7 bln in 2018 (with $ 960 mln stolen from crypto exchanges and payment systems). 
  • In 2019, from $ 292 mln to $ 4.5 bln was stolen from crypto exchanges, according to various estimates (these figures account for both hacking and Ponzi schemes which are responsible for almost half of the total amount). 
  • Over the first six months of this year, based on Cipher Trace calculations, hackers stole over $ 1.36 bln, in 2019 — over $ 4.5 bln. 

It’s highly probable that the number of such crimes is going to dwindle as authorities in various countries introduce more and more stringent regulations.

The quoted numbers seem significant, but they don’t prove that cryptocurrencies are the bastion of crime. It’s only natural for hackers to be interested in finance. However, they also hack traditional financial organizations and steal billions of dollars from banks and corporations annually.  

To reiterate, cryptocurrencies are no tool for hackers; they’re their target. This interest to digital money only proves its value — criminals wouldn’t waste their time and effort or risk their freedom for nothing. It’s unfortunate though that many cryptocurrencies, even knowing of the strong interest towards them on the part of hackers, are so careless about their cyber security. 

Hackers are not the only ones attracted by popularity of cryptocurrencies — other criminals are interested, too 

Technically, cryptocurrencies provoke emergence of new types of crime. These include cryptocurrency phishing, cryptojacking, cyber extortion, QR-code forging, hardware wallet hacking and others. Even in these cases, cryptocurrencies are not the tool — they’re the target. We already published a detailed article about the popular types of crypto crime and how you can protect yourself. 

In real fact, if you exercise vigilance and adhere to basic rules of digital hygiene, owning cryptocurrencies turns out to be a lot safer than keeping money in a bank account or home safe. It’s because criminals swindle ordinary people who have nothing to do with cryptocurrencies more often. They pose as bank support services, hack online banking accounts, create fake online stores, simply break into apartments and so on. 

Terrorists prefer cash and bank transfers to cryptocurrencies 

According to Europol report data, bitcoin and other cryptocurrencies haven’t been used to sponsor terrorist attacks in Europe over the last few years. There’re cases when recruitment ads, hosting services and other online activities were paid for by cryptocurrencies. But there is no proof that at least a single terrorist attack was financed via cryptocurrencies. 

According to the report, Islamic terrorists only experiment with cryptocurrency and use it for minor transactions only. In October 2017, the British government commission also concluded that terrorism was not sponsored via cryptocurrencies and it was unlikely this would change over the next five years. 

However, there was a case in the USA when a young bigot used bitcoins to finance ISIL. Besides, early this year authorities announced they had seized cryptocurrency worth of a few million dollars meant to sponsor terrorism; then in August they also reported disruption of three more campaigns. But those are isolated cases. 

Terrorism manages quite well without cryptocurrencies. It appeared a long time before cryptocurrencies and is no stranger to fiat money. Terrorists still prefer cash and bank transfers as the safest and most convenient means. They receive funds in cash by collecting them from territories under their control or make transfers via legal banking institutions. 

Moreover, most terrorists are wary of cryptocurrencies, many among them believing that cryptocurrencies were designed by the special services. Yet again, a research by the Center for a New American Security demonstrates that terrorists are not strong in cryptocurrencies. However, experts warn that this could change if terrorists warm up to the technology and start to trust it. It’s a mere inference at this point though.

Cryptocurrencies are used to buy a mere fraction of the total amount of drugs

By various estimates, the global turnover of drugs ranges from 500 to 800 bln dollars a year — it’s comparable with the global turnover of oil and natural gas over the same period. 

In the Darknet, one could easily buy drugs for cryptocurrencies: specialized online stores operate like eBay or Amazon charging a fee. A user transfers coins and receives coordinates of “stashes” — drugs hidden in public spaces. This method is mostly used to buy marijuana, ecstasy, psychedelics, cocaine and hallucinogens. Overall, cryptocurrencies only account for a small percentage of drug sales.

According to research, in 2014 drug turnover on 5 biggest Darknet platforms totaled $ 200 mln. This statistics is not complete as many sites were not accounted for. Based on more recent data, in 2017 the annual drug turnover on one of the Darknet platform amounted to $ 310 mln. Currently, Darknet has 14 biggest drug selling platforms. Unfortunately, regular shutdowns of these web-sites cannot contain market growth — they are replaced by news ones. The annual drug turnover on Darknet could amount to $ 4–5 bln. Naturally, it’s not based on cryptocurrencies only, but giving a certain digit is impossible. We couldn’t find more recent data. At any rate, the estimated figure of drug turnover using cryptocurrencies constitutes less than 1 % of the global drug trafficking volume. 

Cryptocurrencies ≠ Crime

As you can see, numbers show that cryptocurrencies are not in such high demand among criminals as commonly cited. 

The government can fight against the Darknet and cybercrime effectively, and anonymity of cryptocurrencies is exaggerated. Even though the amount of money laundered using cryptocurrencies totals billions, it’s insignificant compared to the total volume. Use of cryptocurrencies to sponsor terrorism is virtually zero. In most cases, cryptocurrencies are used for criminal purposes on platforms like Silk Road selling drugs. The annual turnover could amount to $ 4–5 bln, but it’s a mere 0.8–1 % of the total drug turnover. 

Cryptocurrencies are not all that convenient for criminals though it may seem so. It’s just a middle link. Cryptocurrencies need to be cashed out, and doing it anonymously is getting harder — it’s a lot easier to receive cash via courier or accept a bank transfer. In fact, tracking cash transactions is more complicated than cryptocurrency transactions as blockchain makes transaction data accessible to anyone. Digital money can only be used for minor transactions (e. g. making drug stashes in the city) when one can cash it out fairly fast. They’re also a bad match for big transactions because they’re highly volatile — a million dollars in bitcoins could become half a million by the time drugs are delivered from America to Europe, for instance.

Moreover, digital assets gradually join the legal framework — hence, criminals use them less and less. 1 % of illegal bitcoin transactions proves that cryptocurrencies are used as a legal asset in 99 % of the cases. More stringent regulations and world-wide legalization using AML policies make their illegal uses even more unprofitable. 

Many national authorities often say that cryptocurrencies must be banned as they are allegedly ideal for criminals. In real fact, criminals use cash and bank transfers a hundred times more often, but no one thinks of banning those, do they? 

It’s obvious that crime and cryptocurrency are not synonymous. Criminals can do quite well without digital assets which are actually ill suited for illegal activities as transactions with them are becoming more transparent. As we can see, cryptocurrencies might be used by criminals, but they’re less convenient than conventional money. 

Coins like UMI are building a new, improved and more democratic financial system — not a convenient tool for criminals. They’re also changing the stereotype that cryptocurrencies are only used by drug dealers and hackers. We are for the future with no criminals! 

Sincerely yours, UMI Team!