Blockchains and cryptocurrencies have already changed the world, and there’s a strong chance they will continue to do so over the coming years and decades.
But not all the changes have necessarily been for the better. The anonymity of crypto means it’s rapidly become the payment method of choice for lots of illegal endeavors.
Illegal Activity: Driving the Crypto Revolution?
You’ll often see us talking about real-world crypto and blockchain adoption here on BlocksDecoded. We want everyone from consumers to governments to start making use of blockchains.
At first glance, the numbers look encouraging. The number of Bitcoin wallets in existence has exceeded 30 million; Ethereum addresses have blown past 35 million. It suggests that a growing number of people are starting to hold the world’s two primary crypto tokens.
But how much of that comes from legal activity? There is widespread disagreement.
According to researchers at the University of Sydney, 44 percent of Bitcoin transactions are for illegal activity. Twelve months ago, they said the following:
“We find approximately one-quarter of Bitcoin users and one-half of Bitcoin transactions are associated with illegal activity. Around $72 billion of illegal activity per year involves Bitcoin, which is close to the scale of the US and European markets for illegal drugs.”
However, DEA agent Lilita Infante says the number is nearer 10 percent (down from 90 percent in 2014), while the Foundation for Defense of Democracies argues it’s less than one percent.
It’s worth noting that 10 percent of the market in 2019 is $500 million, whereas 90 percent in early 2014 was only $45 million. Whoever you prefer to believe, it’s clear that the raw numbers are rising.
So, what are some of those illegal billions being spent on? Here are five questionable things that cryptocurrency can be used for.
1. Usenet Indexers
Usenet is a Unix-based system that was a precursor to the modern internet; it has been around since 1980.
Of course, Usenet itself is not illegal. Some ISPs still provide access as part of their internet packages.
However, a significant part of the modern Usenet network is used by copyright pirates. For a small fee each month, they can download as much illegal content as they wish. Because Usenet relies on direct downloads, they don’t need to worry about ISP surveillance in the same way that they would with torrents.
The fees are paid to indexers. They are responsible for collating all the Usenet files into a searchable format. Today, many indexers only accept Bitcoin thanks to its anonymous properties.
Some people have sympathy with copyright pirates. They argue that given the extortionate price of cinema tickets and cable TV subscriptions, some users are left with no choice but to turn to such sources if they want to access the latest content.
Nobody, however, has sympathy for ransomware creators. Their motives are purely selfish in nature.
The most famous example of ransomware in recent years was 2017’s WannaCry. It affected more than 200,000 computers in 150 countries.
Businesses were the primary targets, though perhaps most troublingly, health services around the world were also targeted. They included Britain’s NHS, the National Institute of Health in Colombia, and multiple hospitals in Indonesia.
WannaCry demanded payment in Bitcoin. If users paid, they regained access to their machines. It is estimated that more than $200,000 in Bitcoin was eventually sent to the attackers.
Twelve months later, there was a further scare when emails purporting to be from the WannaCry hackers demanded a further 0.1 Bitcoin from affected users.
The provenance of the emails was never conclusively determined, though North Korea was widely accused of being behind the original attack.
3. Silk Road 3.0
The Silk Road is one of the most infamous sites of the dark web. It sells drugs, illegal pornography, weapons, and other illicit commodities. Think of it as a seedy version of Amazon.
The site was shut down in 2013, again in 2014, and again in 2017. Ross Ulbricht, one of the site’s original creators, is currently serving a double life sentence in the U.S.
Unperturbed, the site is back on its feet for the fourth time and successfully peddling its wares. Almost all the sites sellers only operate in cryptocurrency. Bitcoin is the most common, but all the major coins are widely accepted.
4. Human Trafficking
Law enforcement agencies also admit that the use of Bitcoin is now a massive problem in the world of human trafficking.
You can read some pretty horrific stories on the internet. Some research suggests that traffickers pay for their online ads in Bitcoins to avoid being tracked, while other journalists claim to have found evidence about how people use Bitcoin to buy women and girls for sex without worrying about the law.
The new reality led the International Centre for Missing & Exploited Children (ICMEC) to create its Digital Economy Task Force, while the FBI created the Virtual Currency Emerging Threats Working Group.
The battle is ongoing.
5. Money Laundering
Cryptocurrencies are a money launder’s paradise. They can be used to integrate cash from any illegal activities back into a person’s balance sheet.
Mainstream exchanges have anti-money laundering checks in place; it’s the main reason the verification process for new users can be so tedious.
However, on the darknet, criminals make use of Bitcoin mixers (also known as “tumblers”). They split up a transaction, bounce it around hundreds of dark web addresses, then recombine it back into a single address upon which the owner can withdraw it.
Fees for the tumbling process range from one to three percent.
Is Illegality a Problem for Cryptocurrency?
So, as sensible, law-abiding crypto owners, should we be worried? We don’t think so; fiat currency has also been used for illegal activities for hundreds of years and is still going strong.
We’re not even convinced that illegality is one of the top issues facing the crypto world today. Check out our article to learn more.