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Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies

Categories : Cash generates security, Cash is trust
January 25, 2018
Published in : Bitcoin, Blockchain, Fraud, Money laundering, Technology
The new study released by Foley, Karlsen and Putnins analyses bitcoin users' behavior to better understand the role that illicit activities play in the world of digital currencies.
Communication Team

Through their in-depth study about cryptocurrencies in general, and bitcoin in particular, Sean Foley, Jonathan R. Karlsen and Tālis J. Putninš dive into the vast world of digital currencies thanks to an innovative methodology designed to more effectively monitor them. The study seeks to better understand the role of illicit trade in bitcoin’s skyrocketing value.

Here are some of the key takeaways:

  1. The anonymity offered by cryptocurrencies has greatly contributed to the boom in online and cross-border commerce of illegal goods particularly via the darknet.
  2. It is estimated the 98% of darknet transactions are carried out in bitcoins.
  3. Bitcoins, unlike other cryptos such as Monero, are not fully anonymous as they are described to be. Indeed, thanks to the public nature of the bitcoin blockchain and the fact that each individual “user” is linked to an alpha-numeric address, there are methods to study user behavior and link it to illegal activities.
  4. 25% percent of users and 44% of transactions are associated with illegal activity in the bitcoin blockchain. It is estimated that 24 million bitcoin market participants use the cryptocurrency for illegal activities. “These users annually conduct around 26 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin”(p.2).
  5. Bitcoin’s market value is mostly linked to its large core of illegality putting a big question mark on the ethics of investing in it or any other anonymous cryptocurrency.

The authors still believe that blockchain technology has the potential to boost a number of industries thanks to the system’s transparency and capacity to track every transaction forever, but the negative publicity that it has attracted because of cryptocurrency hacks, scams and raids has made regulators uneasy with the technology. Indeed, none of the cryptocurrencies currently in use – volumes today exceed $50 billion dollars exchanged  – are regulated causing a growing number of governments to react and start exploring the implementation of regulatory measures or the development of regulated national e-currencies

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