Using crypto for crime isn’t a bug, it’s an industry feature

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One of the (many) times I got heckled during a panel on crypto was when I argued that it shouldn’t be considered money. The only reason to use it other than for speculation, I said, was to buy drugs on the Internet. It was a crazy idea, retorted the heckler; crypto is used for much more than that.

Crypto enthusiasts claim that it is wrong to claim that it enables crime because the technology itself is neutral and therefore cannot be blamed for any illicit activity. But that’s simply not true: crypto was designed as a censorship-resistant payment mechanism that operates outside of the traditional financial system and beyond the remit of regulators. Crypto transactions are not subject to the same checks for fraud detection, anti-money laundering, or suspicious activity as traditional transactions. Acting outside the system is its raison d’être. And you only have to look at how the crypto industry behaves to see that the crime is not a bug; it is a feature.

Take for example the largest crypto exchange in the world, Binance. In a lawsuit filed last month against the exchange, the Commodity Futures Trading Commission alleges that Binances’ former compliance officer said of some Binance customers: Like come on. They are here for the crime. The foreign exchange money laundering rater, according to the CFTC, agreed: We see the harm, but we close our eyes.

It would be funny if it weren’t so blatant. These exchanges know exactly what they are doing, Stephen Diehl, co-author of Popping the Crypto Bubble, tells me. They are essentially creating a dark transnational payment network and, unsurprisingly, it will be used by criminals. They are specially designed for this.

Last year was a turbulent year for crypto, with crashing prices wiping around $1.5 billion from the industry’s market capitalization and several top companies implosing. But despite the market slowdown, it was also a record year for crypto-based crime: illicit crypto transactions topped $20 billion in 2022, according to data analytics firm Chainalysis, from $18 billion l previous year, after a huge increase in transactions involving companies. subject to US sanctions (the majority coming from the Russian stock exchange Garantex). Ransomware attacks declined slightly over the year, but still amounted to nearly half a billion dollars.

Not only is this figure a lower estimate, the number is very likely to increase over time as the company identifies new crypto wallet addresses associated with illegal activity, but it also only includes activity on-chain, i.e. only transactions recorded on the blockchain. . This would therefore not include the massive fraud that allegedly took place at the FTX crypto exchange, nor the proceeds of drug trafficking in which crypto was used as a form of payment.

The figure also does not include $23.8 billion in money laundered via crypto in 2022, a 68% increase from the previous 12 months. In the UK alone, the National Crime Agency estimates that over $1 billion in illicit cash is moved overseas using crypto each year.

What we’ve seen is crypto being used as part of the money laundering methodology that’s now built into it, says Adrian Searle, director of the National Economic Crime Center. Searle says that while the proportion of money laundering carried out in crypto is still relatively low, it is expected to grow rapidly and facilitate international criminal networks on an unprecedented scale.

Crypto proponents like to argue that crypto can also be used for good. That’s true enough, Blockchain data analytics firm Elliptic told the FT this month that $200 million worth of crypto has been donated to pro-Ukrainian causes since the war began, including more $80 million was sent directly to the Ukrainian government.

But this must be put into perspective: the positive points will always be offset by the negative points. Of the estimated $3.8 billion worth of crypto stolen by hackers last year, a new record high of around $1.7 billion was stolen by North Korea-linked hackers, according to Chainalysis. This money is funneled, according to the UN, to the country’s ballistic missile program.

On the Dark Web, which relies on the use of cryptocurrency, according to DCI Phil McInerney, head of cybercrime at the National Police Chiefs Council, crypto is used not only to buy and sell illegal substances, but also for 3D firearms, compromised banking credentials, falsified documents and child sexual exploitation material.

So, in a funny way, my heckler was right: crypto isn’t just used to speculate and buy drugs on the internet: it’s also used for much more obscure criminal activity.

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