Money Laundering & Bitcoin: Misconceptions

The amount of bitcoins involved in illegal activity is decreasing.

Crypto-tracing technology improves and reveals a less worrying world.

Cryptocurrency may be able to shed its constant stigma and become more mainstream

For some, the concept of cryptocurrency goes hand in hand with money laundering. That said, recent research suggests that bitcoin heavyweights have nothing to do with it.

Bitcoin’s (BTC) biggest boost before 2017 may have been news from the “Silk Road” money laundering market . When the world discovered a place online where you can send untraceable money to buy drugs and weapons, it sparked interest. Bitcoin Code has attracted hordes of new followers, some with good intentions, and some with bad intentions.

Authorities have now shut down “Silk Road” and the public largely forgot about cryptocurrency until its media buzz in 2017.

Unfortunately, this information leak has created many negative connotations for bitcoin. Before 2016, most people had heard of bitcoin, that its price fluctuated often, and that it was used to finance money laundering.

How many bitcoins are then actually being used for illegal activity these days, and does that line up with public opinions?

46% …

A 2019 article by Foley et al found that up to 26% of Bitcoin users and up to 46% of Bitcoin transactions were used for money laundering . These types of transactions accounted for $ 7 billion in bitcoin equity and $ 76 billion in trading volume in 2017.

While striking, these figures are not without reservations. Since 2017, bitcoin has attracted much more general public interest. With that, there have naturally been more attempts at Know Your Customer (KYC), regulation, and better tracking protocols.

Some entities even sell their services exclusively for these purposes. The anti-money laundering company (AML) AMLBot uses its algorithms to track Bitcoin addresses and transactions that have been involved in illegal activity.

Indeed, this tool has shown that regulatory trends in crypto are likely to decrease the amount of “illicit” cryptocurrency addresses. AMLBot told BeInCrypto:

“We believe the number of illicit addresses will fluctuate around 2% due to deepening regulations and LBA / KYC’s strict policies on major exchanges. No matter what happens outside of the exchanges, within the exchange, BTC addresses are regularizing. “

Money Laundering: Corrupt Bitcoin

AMLBot’s crime research methodology identifies coins related to crimes ranging from illegal markets to ransomware attacks to stolen coins. Technology qualifies illicit bitcoin as risky.

In AMLBot’s categorization system, suspicious activity can come from cryptocurrency ATMs or exchanges without KYC (know your customer), while reliable coins can come from mining or known highly regulated, or regulated wallets. .

Money laundering is difficult, but criminals always find a way. AMLBot gave BeInCrypto some examples:

“There are still many loopholes for money laundering, such as peer-to-peer exchanges, DEXs, exchanges with weak AML / KYC policies, etc. The easiest way is to sell at a discount. “

The qualifications for illicit bitcoin in Foley’s 2019 study include a similar algorithm known as the Union-Find algorithm. This popular method of tracking funds compares transactions and addresses to automatically approximate the source and destination of reported funds.

However, this method is not 100% accurate. In addition, there are many more addresses now than there were in 2017. Therefore, the “46%” of crime-related addresses need to be updated.

So even if that $ 7 billion of illegal bitcoin remained in circulation today, it would be diluted by a much larger market capitalization of bitcoin, which is now around $ 700 billion (bringing that illegal value to about 1%).

It has also been observed that bitcoin crime has significantly decreased year after year. Cryptocurrency crime in 2020 fell to $ 1.8 billion through October, from $ 4.5 billion the year before.

Next, we need to take into account what is considered “illicit” bitcoin.