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Cryptocurrencies are innovations in payment systems are safe, decentralized, and offer anonymity to their users. Unfortunately, criminals have also devised ways to exploit such benefits. Though they have several applications in the real economy, Bitcoin and other cryptocurrencies have found their place in crimes within the hidden parts of the web.
This article argues that one of the major motives criminals use cryptocurrencies is the perceived anonymity they offer. In traditional financial systems, one can follow transactions and recover documents, but transactions in the crypto industry are recorded on a blockchain ledger. However, the parties' names are unknown and are associated with anonymous numbers called cryptographic addresses. This means that criminals can easily avoid detection since no paper trail leads to them.
A report by Chainalysis shows that an estimated $14B of criminally obtained funds were made through cryptocurrency in 2021, which marked an increase from $7.8B in 2020. This rise has also sparked increased use of these digital currencies by those involved in illicit businesses.
Cryptocurrencies have also emerged as a preferred means of money laundering. Criminals transfer money through multiple wallets, and mixing services that blend various cryptocurrencies derived from different sources is a common practice. They can also swap it with another cryptocurrency or 'cash out' and convert the assets back to regular money, which further clouds the paper trail. Again, based on UNODC figures, approximately 2-5% of global GDP is laundered annually, and a growing proportion of such money includes cryptocurrencies.
The dark web is a part of the WWW, which remains unknown to the majority of users and in which various illicit transactions take place, such as drugs and weapons or stolen information. These include Bitcoin and Monero primarily because of the anonymity that cryptocurrencies offer users. The Silk Road market, which was forced to close its operations in 2013, was the key market that used Bitcoins to sell illegal items such as drugs. While law enforcement agencies have made progress in tracking these transactions, criminals still find ways to operate in the shadows using digital currencies.
In the last few years, ransomware attacks have become a big problem. Criminals use these attacks to ask for money in cryptocurrencies. In 2021, the FBI said ransomware cases went up by 62%. Many criminals asked for payment in cryptocurrency, like Bitcoin. One big attack was on the Colonial Pipeline, where hackers asked for millions in Bitcoin to unlock important systems.
It is hard for governments to control how people use cryptocurrency. Some countries have banned it, but others are trying to make rules to keep it safe. For example, in the U.S., a rule called the FATF Travel Rule makes exchanges share information about users. This helps stop criminals from staying hidden when they move money.
Cryptocurrency is a new and exciting technology, but it also helps criminals. Its privacy, lack of control, and ease of use make it a tool for bad things. As cryptocurrency gets more popular, police and governments must find ways to stop it from being used for crime. The goal is to keep cryptocurrency safe and useful without letting criminals use it for harm.
