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Recent years mark the process of changing the status of cryptocurrency – from anonymous payments to a high-tech tool that is in demand in many sectors of the global economy. However, crypto is still one of the most popular payment options for illegal goods and services. And it is regularly used in the practice of… money laundering.
Anonymity, lack of intermediaries, the ability to conduct transactions at any time of the day, low commissions, smart contracts. All this is incredibly profitable when calculating in the underworld.
Use of cryptocurrency for criminal purposes
According to Europol, at the beginning of 2019, the turnover of illegal transactions involving cryptocurrencies was about $80 billion. The figure is really impressive, because it is about half of all bitcoin wallets and 23% of the total amount of transactions.
Cryptocurrencies most often become unwitting “accomplices” of such types of criminal fraud as:
- sale of psychotropic and narcotic drugs, other prohibited goods or services, openly illegal content;
- laundering of proceeds from crime;
- cryptocurrency theft and crimes against property.
For a crypt, you can purchase fake documents and counterfeit medicines, order the theft of confidential information or the physical liquidation of a competitor, and illegally distribute pornography. However, the rating of the illegal use of cryptocurrency is headed by the sale of illegal narcotic and psychotropic drugs. This segment accounts for 80% of turnover.
Law enforcement agencies periodically identify and suppress the activities of large marketplaces for the provision and sale of illegal services and goods on the “darknet”. However, the closure of some sites leads to an increase in the audience of others and the emergence of new “online points”. Demand creates supply.
Customer service is reaching a new level, logistics chains are being created for the delivery of goods from the seller to consumers, which makes it difficult for law enforcement officers to stop them. The participants in such a supply chain perform clearly assigned roles (administrators, intermediaries, escrow, growers, pawnbrokers, carriers, drops, advertisers) and do not overlap with each other. The distribution of “duties” and the exchange of information takes place using anonymous services: the TOR browser, the Telegram messenger, etc.
As the geography of the cryptocurrency market expands, its infrastructure develops. The number of cases of legalization of criminal proceeds using cryptocurrencies is also growing rapidly. This is facilitated – among other things – by the legal uncertainty regarding crypto-money in many states of the world. The lack of a monitoring system for cryptocurrency transactions remains a powerful catalyst for its use in order to evade taxes, launder “gray” money, funds obtained through outright corruption, etc.
The problem of the “zero” legal status of cryptocurrencies also leads to an increase in the number of crimes related to the theft of funds from crypto wallets and exchange accounts. The high price of crypto-money only stimulates the growth of cybercrime.
Coverage of the role of cryptocurrencies in the underworld would be incomplete without the history of the creation and collapse of Silk Road, the largest market for illegal goods and services on the global darknet.
It all started with a rather short post on one of the sub-forums in Bitcointalk: it was posted in 2011 by a user under the nickname altoid. It read:
“Has anyone been to Silk Road before? It’s like an anonymous Amazon. I don’t know if there is heroin there, but they definitely sell other drugs there. They use Tor and bitcoin for anonymous transactions. What are your thoughts on this?“.
As it turned out later, the author of the message was the founder of the legendary shadow marketplace, Ross Ulbricht. He left his post for promotional purposes, and the result exceeded all his wildest expectations.
Ross himself placed the first product on Silk Road – these were hallucinogenic mushrooms grown by him with his own hands. In just 4 months, about 300 types of drugs were advertised on the site. And a year later, almost 400 trusted product suppliers “worked” on the site.
At first, the founder himself – manually – carried out all transactions, charging up to 10% commission. His earnings in the first months of the site’s operation reached $30,000 per month. By 2012, the monthly turnover on Silk Road was millions of dollars. The mechanism of “decency of sellers” was introduced, “guarantors of transactions” appeared that controlled the fulfillment of obligations by sellers, a mechanism for hedging transactions was launched (freezing the price of cryptocurrency at the time of the conclusion of the agreement).
The popularity of Silk Road was so great that in 2012 it was the only place where payment in cryptocurrency was regularly accepted. And during periods of technical work on a popular site, the bitcoin rate began to fall.
Law enforcement officers drew attention to Silk Road after the statement of Senator Chuck Schumer: back in mid-2011, he called on them to stop the marketplace. After an appeal from such an official, the popularity of Silk Road has increased rapidly. By 2013, over a million people used the site’s services.
For a long time, law enforcement officers could not find the owner of Silk Road. For the sake of his detention, law enforcement officers introduced an undercover agent into the network, posing as a drug dealer. Thanks to the combined efforts of the FBI, the Drug Enforcement Administration (and with the tacit involvement of the NSA), Ross Ulbricht was arrested in the fall of 2013.
Almost 2 years later, a sentence was passed – 2 life terms without the possibility of early release. About 30,000 bitcoins have been seized from wallets associated with Silk Road. From Ulbricht himself, the FBI found 144,000 bitcoins, which today is about $ 1.5 billion. Interestingly, later some employees of the Bureau were caught stealing tens of thousands of confiscated bitcoins.
After the arrest of the founder and the liquidation of Silk Road, his clones began to appear. However, they lasted even less than their prototype. Every year, the police shut down dozens of similar sites, albeit of a smaller caliber. Of course, there are more…
No one argues that the use of cryptocurrency has a dark side. But the growing popularity of illegal activity is partly stimulated by … the states themselves, which are still unable to develop and approve clear rules for the absolutely legal use of the crypt.
And the established association between cryptocurrencies and the main means of payment in the underworld has nothing to do with reality. As statistics show, the vast majority of criminal transactions occur with the use of cash – through completely official accounts and traditional offshore companies, front companies and, of course, dishonest officials.
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