Cryptocurrencies are the most popular payment method used on the darknet. Some analysts even believe that the price of Bitcoin is directly associated with its popularity within the criminal world.
At present, we often see cryptocurrencies being tied to illegal drugs and activities . Boosting this factor is the modern-day pop culture that often defines cryptocurrencies as a mere currency for criminal activities. As of now, “drug sales on the darknet” is a phrase that has become synonymous with “drug purchased with cryptocurrency.”
The untraceable nature of cryptocurrencies like Bitcoin, make them the perfect tool for money laundering and the trading of drugs and illegal pornography.
Speaking on this matter, Lael Brainard, a member of the United States Federal Reserve’s board of governors, in a panel honouring Benoît Coeuré, discussed the various risks that are associated with cryptocurrencies. He criticized the poor security policies of cryptocurrency exchanges within the crypto industry. He said:
“In one industry report, researchers found that roughly two-thirds of the 120 most popular cryptocurrency exchanges have weak AML, CTF, and KYC practices. Only a third of the most popular exchanges require ID verification and proof of address to make a deposit or withdrawal.”
He further elaborated that these poor security policies are some of the primary factors that boost the growing use of cryptocurrencies for illegal activities.
“This is troubling, since a number of studies conclude that cryptocurrencies support a significant amount of illicit activity. One study estimated that more than a quarter of bitcoin users and roughly half of bitcoin transactions, for example, are associated with illegal activity,” Brainard said.
This isn’t the first time crypto has been blamed for their part in funding illicit activity. Earlier this year, United States Treasury Secretary Steven Mnuchin called the use of cryptocurrencies to fund illicit activity a national security issue, he said:
“Cryptocurrencies such as Bitcoin have been exploited to support billions of dollars of illicit activity, like cybercrime, tax evasion, extortion, randomware, illicit drugs, human trafficking […] This is indeed a national security issue.”
There are several reports that actually suggest what the regulators are concerned about. A 2017 study by the University of Oxford showed that 44% of every Bitcoin transaction is linked to some kind of illegal activity. The report read:
“The estimated 24 million bitcoin market participants that use bitcoin primarily for illegal purposes (as at April 2017) annually conduct around 36 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin. “
Another report from the University of Sydney states that “around $76 billion of illegal activity per year involves bitcoin (46% of bitcoin transactions), which is close to the scale of the US and European markets for illegal drugs. “
However, a 2019 Chainalysis report suggests that the rate of Bitcoin used for illegal activities are down to 1% from 7% back in 2012. The 1% Bitcoin was used for dark web transactions. The report did mention that this number would have doubled by the end of 2019.
There is some criminal undergrowth within the crypto industry, but it is ridiculous to blame a mode of payment for the damages caused by the activities it was used in. Before the availability of electronic payment, drug trades were equally flourishing with the use of fiat. If this is the case, then fiat should also be held equally responsible.
Just like any other asset of value, crypto will also be used for illicit activities. What we can do is monitor and track illegal operations. This, in fact, is a lot easier while dealing with cryptocurrencies as every transaction is recorded on the blockchain. So are cryptocurrencies just a victim of misconceptions?