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Illicit Crypto use | Demystified

Illicit Crypto use

The phrase ‘it’s only utilised by drug dealers and participants in the illicit market’ is a common criticism of cryptocurrencies

This may be due to public misconception (given that there are now many legitimate uses for cryptocurrencies). Still, it is also probably due to the reason that the much cryptos early publicity came from its on Silk Road, an online black market, and a dark web marketplace.

Fortunately, the blockchains that underpin cryptocurrencies are largely transparent, and service providers like Chainalysis, CipherTrace, and Crystal Blockchain offer blockchain forensics and data analysis services.

Chainalysis’ 2021 Crypto Crime report, which outlines the use of cryptocurrency across several types of crimes like ransomware, scams, violations of sanctions and terrorism financing, has provided insights into how much truth there was in the notion that crypto is only being used by criminals.

The value of cryptocurrencies associated with illegal activity in 2021 was $14 billion. For obvious reasons, we don’t really know how much money is spent on illicit activities, but it is likely a sizeable portion (say, 22%) of the $80 trillion global gross domestic product. The sum of $14 billion is insignificant when compared to the $17 trillion.

But that’s not exactly the point. In reality, the use of cryptocurrencies for illegal behavior increased between 2020 and 2021. To crypto’s defense, it should be noted that the unlawful portion of the total volume of crypto transactions has decreased since 2019 and is now only 0.15%.

Therefore, even while the amount of illegal activity funded by cryptocurrencies is increasing, the increase of legal uses of cryptocurrencies is exceeding it.

However, one of the key conclusions from Chainalysis’ research is that in 2021, the majority (53%) of illegal cryptocurrency transactions were associated with fraud and the use of stolen money. Even though they are grave issues, both crypto and traditional financial markets have these issues. False promises and stolen money are commonplace wherever there is money to be made.

Dark Web markets have also brought in a new revenue record of $2.1 billion in cryptocurrency.

Although the total amount being moved to dark web markets has increased quite swiftly, over the last five years, the total number of transfers has decreased from 11.7 million in 2016 to just 3.7 million in 2021. 

Additionally, there are fewer users overall. The source of growth is therefore found in larger payments, with the average payment size increasing from $160 to $493 over the same time period, absent growth in transfers and users.

The report also reflected a decrease in dark web market revenue, on the assumption that it was driven by the shutdown of the Hydra Market, the world’s largest and most prominent dark web market in April. This shows two things: enforcement agencies are getting better at detecting dark web market crime and the darknet industry quickly maturing.

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