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There’s A Dark Side To Cryptocurrency



Cryptocurrencies are turning out to be a great investment, and the underlying blockchain technology promises to bring big changes to the way we do things. Yet, crypto’s shady origins and the benefits it offers criminals may be holding it back from going mainstream.

Crypto for Crime

The first cryptocurrency, bitcoin, was created by a person known only by the pseudonym Satoshi Nakamoto. Nearly a decade after bitcoin launched, Satoshi Nakamoto’s identity is still a mystery, as are the identities of bitcoin’s users.

Cryptocurrencies anonymous virtual wallets allow user to operate in secret, while the use of public and private keys makes it difficult to trace illegal transactions. The decentralized system also enabled secure payments across borders, with minimal fees.

Funding the Darknet

In the hidden corners of the internet, illegal activity thrives. Through protected browsers that conceal users’ IP addresses and encrypt data, darknet sites facilitate buying and selling of everything, from drugs and weapons to hired killers. From 2013 to 2016, 97.4% of illicit bitcoin use originated from the darknet.

On the darknet, drugs are the most popular commodity. In 2011, the darknet market Silk Road launched, and operated for just two years before authorities shut it down. In just two years, Silk Road managed 13,000 drug listings and $1.2 billion in transactions. Most purchases were made in bitcoin.

Money Laundering & Tax Evasion

Whether trying to make your dirty money appear clean, or hiding it from the IRS, cryptocurrency anonymity and hard to trace nature make it the perfect cover. In Europe, 3-4% of all criminal proceeds are laundered through bitcoin, thants more than $4 million U.S. dollars. While European enterprises launder the most money through bitcoin, more than one-third of bitcoin money laundering can’t be traced to an originating nation.

In the United States, only 807 people reported bitcoin on their 2015 tax returns, while authorities estimate 2.8 million Americans own cryptocurrency. While some of those people may simply be unaware of the IRS’s guidelines on cryptocurrency, which ought to be reported as a property, 36% planned to knowingly leave bitcoin off of their 2017 tax returns.

Ransomware Extortion

Ransomware attacks are computer bugs built to lock up a computer, server, or mobile device until the victim pays for the hacker to restore the system and bitcoin is the most in demand currency. In 2017, Wanna Cry ransomware infected 300,000 corporate and government computers in 150 countries, demanding $300 in bitcoin to release the systems. The United States Government blamed North Korea, but the culprit was never caught.

Fighting Back

Cryptocurrencies are hard to trace but not impossible. Many government agencies are partnering with analysis firms to trace illicit transactions through Bitcoin’s public ledger. Meanwhile governments around the world are cracking down and introducing cryptocurrency regulations. But as authorities crackdown, criminals are shifting their assets to newer currencies with even more focus on privacy, anonymity, and untraceable transactions.

Cryptocurrencies are becoming more mainstream, but they can also be a tool for criminal enterprises. Learn more in this infographic:

Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency , based in Louisville, KY and Cincinnati, OH which works with companies that range from startups to Fortune 500s. Brian also runs #LinkedInLocal events nationwide, hosts the Next Action Podcast, and has been named a Google Small Business Advisor for 2016-present and joined the SXSW Advisory Board in 2019. Follow Brian Wallace on LinkedIn as well as Twitter.