Cryptocurrency and criminals: assessing the evidence in Chainalysis' 2020 Report
Updated: Jan 31, 2020
Expanding on its 2019 report, the 2020 Crypto Crime Report includes research using Chainalysis' blockchain data and analysis tools and case studies on the trends shaping law enforcement and compliance for cryptocurrency in 2020, including:
the evolution of darknet markets;
the role OTC desks and exchanges play in money laundering; and
the cryptocurrency scams that have cost victims billions.
Cryptoassets and blockchain technology generally are regularly presented a perfect money laundering haven by governments or regulators. The cash-like features of many cryptoassets can present an appealing option for criminals, in the vast majority of cases, those same cryptoassets and blockchains are inherently transparent and so really, really terrible for criminals wishing to remain anonymous. Bitcoin in particular gained early notoriety for being accepted on the Silk Road, tracking blockchain data has also enabled unprecedented policing of global criminal networks, such as the US Justice Departments takedown of the largest online child abuse website ever in the Welcome to Video takedown in October 2019.
Often, stories about the perceived virtues of crypto make assertions for and against criminal activity in theoretical or anecdotal ways only. Reports like this help bring objective data for consideration. We've extracted some of the highlights from the report below.
The most common destinations for illicitly-obtained Bitcoin over time include:
The report also found that the vast majority of darknet market transactions flow through exchanges, including peer to peer exchanges. The report also found that:
While darknet markets’ total share of incoming cryptocurrency activity remains extremely low at 0.08%, recent increased volume speaks to the resilience of darknet markets in the face of heightened law enforcement scrutiny.
A common remark in any discussion around cryptoassets, blockchain and criminal activity is that most criminals use privacy-focused coins such as Monero, Dash or Zcash, and that any analysis of major cryptoassets doesn't take this into account. This argument remains more theoretical than practical, with Chainalysis commenting that:
As the most popular cryptocurrency, Bitcoin continues to represent the vast majority of funds used in criminal activity, [it is] an adequate representation for examining money laundering in cryptocurrency as a whole.
In short, while there are steps that criminals can take to obtain greater privacy in their illicit activities, the liquidity and fungability of bitcoin is an example of how convenience trumps privacy/security in the criminal world as it does in the legal world.
The amount of cryptocurrency used in illicit activities doubled from 0.5% to 1% but that increase was due to just 3 large ponzi schemes/scams. The estimated level of banknotes used in illicit transactions in Australia has been estimated by the Reserve Bank at 4% of the total supply.
We will close with Chainalysis' comment from their 2019 report:
Money laundering, especially in the fiat world, is typically thought of as a black box one can only open and begin to understand by getting a search warrant and poring over a suspect’s bank records. But with blockchain analysis tools ... can analyze transactions recorded on the blockchain and get insight into how criminals are laundering funds much faster...