Bitcoin is Not Criminal Money and the Numbers from the DEA Show it


Throughout the past decade, a common narrative against Bitcoin from both regulators and many financial institutions has been the supposed utilization of the dominant cryptocurrency by crime syndicates to launder money.

However, with tightening Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations on both crypto exchanges and ATMs, it has become increasingly difficult to settle criminal proceeds using Bitcoin.

Why Bitcoin is a “Money Laundering Machine” Narrative is False

A report from Bloomberg in late 2018 disclosed that relative to legal activity, the involvement of Bitcoin in criminal operations or money laundering has declined substantially.

Lilita Infante, a U.S. Drug Enforcement Administration official, stated that in 2013 when the global interest in Bitcoin was still low, criminal activity accounted for almost 90 percent of all transactions on the Bitcoin blockchain network.

Since then, the utilization of Bitcoin in criminal operations dropped from 90 percent to 10 percent and speculation on the price trend of the asset dominated most of its use case.

“The volume has grown tremendously, the amount of transactions and the dollar value has grown tremendously over the years in criminal activity, but the ratio has decreased. The majority of transactions are used for price speculation,” the DEA official said, speaking to Bloomberg.

Fewer criminals are using Bitcoin because of its transparent and peer-to-peer structure. Contrary to popular belief, Bitcoin by nature is not anonymous unlike cash and the public blockchain network enables anyone to track wallets and transactions.

With major cryptocurrency exchanges in the likes of Binance and Coinbase strengthening their internal management systems equipped with KYC and AML, it is virtually impossible to convert Bitcoin to cash without leaving a trace, at least in established markets.

Infante suggested that she actually prefers criminals using Bitcoin because it is easier to track than other forms of money due to the presence of the blockchain.

She said:

“The blockchain actually gives us a lot of tools to be able to identify people. I actually want them to keep using them.’’

The Case of Binance and Cryptopia

Recently, a New Zealand-based cryptocurrency exchange Cryptopia was hacked, losing millions of dollars worth of customer funds to an unknown group of hackers.

The New Zealand police were notified and an official investigation is ongoing. On January 17, the New Zealand police stated:

“A significant value of crypto-currency may be involved and Police are taking this very seriously. We are currently talking to the company to gain a further understanding of what has occurred.”

Immediately after the security breach, Cryptopia hackers began to move the stolen funds. Binance was one of the first exchanges the hackers attempted to use to launder the funds.

However, the Binance team, which tagged the addresses involved in the hacking attack, swiftly flagged the transactions and as soon as the transaction arrived on the exchange, the funds were frozen.

Changpeng Zhao, the CEO at Binance, the world’s largest crypto exchange by trading volume, said:

“Just checked, we were able to freeze some of the funds. I don’t understand why the hackers keep sending to Binance. Social media will be pretty fast to report it, and we will freeze it. It’s a high risk maneuver for them.”

Exchanges like Binance are able to prevent criminal proceeds from being transferred to their platforms because of the emergence of blockchain analytics companies that actively trace wallets containing suspicions transactions.

Source: Blockchaintransparency.org

Binance, for instance, works with Chainalysis, a company established in 2014 that prevent and detect money laundering and fraud in the cryptocurrency space.

Bitcoin ATMs, which are often considered as alternatives to exchanges for criminals, are also not practical in laundering money due to small daily limits that often range from $100 to $1,000.

Photo by Ben Koorengevel on Unsplash


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Joseph Y

Joseph Yung is a financial analyst and investor who has worked in the cryptocurrency and technology sector since 2013. He's worked with leading publications within the cryptocurrency space, providing unique insights, interviews, market analysis, and technology coverage. You can contact Joseph at j@cryptomenow.com

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