Using crypto for crime isn’t a bug—it’s an industry feature
One of the (many) times I’ve been heckled during a panel about crypto was when I argued that it shouldn’t be seen as money. The only reason to use it other than for speculation, I said, was to buy drugs on the internet. This was an absurd idea, answered the bastard; crypto is used for so much more than that.
Crypto enthusiasts argue that it is wrong to claim that it enables crime because the technology itself is “neutral” so it cannot be blamed for any illegal activity. But this is simply not true: crypto was designed as a censorship-resistant payment mechanism that operates outside the traditional financial system and outside the purview of government. Crypto transactions are not subject to the same fraud detection, anti-money laundering or suspicious activity checks as traditional ones. Operating outside the system is the very basis of existence. And one only needs to look at how the crypto industry behaves to see that crime is not a mistake; it is a function.
Take the world’s largest crypto exchange Binance, for example. In a lawsuit filed last month against the exchange, the Commodity Futures Trading Commission alleges that Binance’s former head of compliance said of certain Binance customers: “Come on. They are here for crime.” The exchange’s money laundering reporting officer, according to the CFTC, agreed: “We see the bad, but we turn a blind eye.”
It would be funny if it wasn’t so blatant. “These exchanges know exactly what they’re doing,” Stephen Diehl, co-author of Popping the crypto bubble, tells me. “They’re basically creating a dark transnational payment network, and that, not surprisingly, will be used by criminals. They’re purpose-built for that.”
Last year was a turbulent year for crypto, with collapsing prices removing around $1.5 billion from the industry’s “market cap” and with several high-profile businesses imploding. But despite the market slowdown, it was also a record year for crypto-based crime: illegal crypto transactions topped $20 billion in 2022, according to data analysis firm Chainalysis, up from $18 billion the previous year, following a huge increase in transactions involving companies targeted by US sanctions ( most come from Russian-based exchange Garantex). Ransomware attacks were down slightly on the year, but still totaled nearly half a billion dollars.
Not only is this number a “lower estimate” — the number is likely to grow over time as the company identifies new crypto wallet addresses associated with illegal activity — but it also only includes “on-chain” activity, meaning only transactions recorded on the blockchain. It will therefore not include the “massive fraud” that allegedly took place on the crypto exchange FTX, nor the proceeds from drug trafficking where crypto has been used as a means of payment.
The figure also does not include $23.8 billion worth of money laundered via crypto in 2022 – a 68 percent increase from the previous 12 months. In the UK alone, the National Crime Agency estimates that over $1 billion of illicit cash is transferred abroad using crypto each year.
“What we’re seeing is that crypto is being used as part of the money laundering method now – it’s integrated into it,” said 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 increase rapidly, facilitating international criminal networks on an unprecedented scale.
Crypto supporters like to argue that crypto can also be used for good. This is true – blockchain data analytics company Elliptic told the FT this month that $200 million in crypto has been donated to pro-Ukrainian causes since the war broke out, with more than $80 million of that sent directly to the Ukrainian government.
But it must be put into context: the positive will always be outweighed by the negative. Of the estimated $3.8 billion worth of crypto stolen by hackers last year — another new record — about $1.7 billion was stolen by hackers linked to North Korea, according to Chainalysis. This money is channeled, the UN claims, into the country’s ballistic missile programme.
On the Dark Web – which is “based on the use of cryptocurrency”, according to DCI Phil McInerney, who heads cybercrime at the National Police Chiefs’ Council – crypto is used not only to buy and sell illegal drugs, but 3D firearms, compromised bank credentials, falsified documents and material about sexual abuse of children.
So, in a funny way, my ponderer was right: crypto is not it only used for speculating and buying drugs on the internet: it is also used for much more sinister criminal activities.
