Illegal crypto transactions fell in 2020. This is what a report by the analysis company Chainalysis says.
In times when Bitcoin and Co. record new all-time highs every few weeks and days, crypto critics are also getting louder and louder. They sometimes call for tough regulation. The reason: The digital assets served illegal purposes, for example to finance international terrorism, as an anonymous means of payment in drug trafficking and for buying and selling weapons. But what is behind these allegations?
The new crypto crime report for 2020 by the analysis company Chainalysis shows that the proportion of criminal crypto transactions has declined. The transfer volume corresponded to around 10 billion US dollars, which represented a total of around 0.34 percent of all crypto transfers. Compared to 2019 ($ 21.4 billion, 2.1 percent) that was a decrease of 1.76 percent. The analysis company mentioned that the proportion of illegal crypto activities could rise again in the future. There it was initially assumed that the total criminal share was 1.1 percent. In the course of the year, however, new cases became known, which is why the data had to be corrected upwards. Assuming the same dynamic as 2019, the share could rise to around 0.7 percent. It is unclear exactly how high the increase will be. However, according to Chainalysis, it is likely that there will be.
According to the report, the proportions of various illegal crypto activities have barely changed compared to 2019. Fraud and activity in darknet markets continued to make up the majority of illegal transfers. The biggest surprise of the year came from the third place “Ransomware”. Although ransomware made up “only” 7 percent of all criminal crypto transfers in 2020, compared to the previous year this was an increase of 311 percent to 350 million US dollars.
The American analysis company also examined money laundering activities in connection with cryptocurrencies. So it was concluded that most of the funds would be laundered through a small group of service providers. These included classic money laundering service providers as well as cryptocurrency and fiat currency service providers with inadequate compliance rules. According to Chainalysis, law enforcement agencies should start here and target these providers in a targeted manner.
The report also identified the countries with particularly high levels of illegal transaction activity. The USA, Russia and China were among the top 3. But South Africa, Vietnam, Great Britain, South Korea, France, Ukraine and Turkey also had higher values.
The report sees four main areas in which cyber criminals launder their money as the core problem of money laundering in the crypto space. These are primarily stock exchanges, crypto mixers, gambling platforms and service providers based in high-risk jurisdictions. Chainalysis assumes that parts of the deposit addresses belonged to the criminals themselves, but it is known from data from law enforcement agencies and its own investigations that many third-party providers provide explicit or implicit money laundering services for cyber criminals.
The Chainalysis report also examined the share of cryptocurrencies in connection with financing terrorist networks. Reports from several international law enforcement agencies found that the increase in the financing of terrorism through cryptocurrencies in 2020 was higher than ever before. In the US alone, one million US dollars in Bitcoin donations from terrorist organizations and their sponsors could have been confiscated. The majority of the funds, however, come from Europe, the Middle East, as well as India and Central Asia. Chainalysis highlights five cases where law enforcement agencies have broken funding networks. Most of the money went to Syria — to the so-called Islamic State and Al-Qaeda.
The fact that cryptocurrencies are often classified as the currency of criminals in regulatory circles cannot be confirmed using the Chainalysis report. For comparison: When the FinCEN files were published in September last year, a money laundering volume of 2 trillion US dollars became known, which large banks transferred for criminals or persons on sanction lists.
Crypto critics such as the President of the European Central Bank, Christine Lagarde, keep talking about this supposedly dark side of the crypto space. However, if you compare these numbers with each other, Bitcoin, Ethereum and Co. are (almost) clean.
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