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The truth behind Bitcoin, Cryptocurrencies, and money laundering

Contribution of bitcoin transactions to money laundering

Early association of bitcoin with money laundering and other illicit activity sparked skepticism consequently reducing the probability of its adoption into the mainstream. In fact, this is one of the reasons that it took a while for this digital currency to be adopted on a large scale. Presently still, cryptocurrencies are associated with illicit activity and this has been one of the reasons that governments and other institutions have urged the public to keep off cryptocurrencies. All of the allegations have been sparked by hearsay and unfounded assertions until recently. Elliptic, a blockchain analytics company and the foundation of defense of democracies center of sanctions have been tracking money laundering within the bitcoin economy from 2013 to 2016. The findings of the research showed that only about 1% of money laundering cases is attributed to bitcoin transactions. These findings were further backed by Center on Sanctions & Illicit Finance which undertook the research jointly with Elliptic.

The report by elliptic impresses that criminals are often the early adopters of technology and bitcoin was no difference. The report, acknowledges that the assertions about bitcoin’s association with illicit activity is largely based on anecdotal evidence lacking solid supporting evidence. Technically, it is impossible to fully quantify how much of illegal activity is backed by bitcoin transactions and the report acknowledges this. However, Elliptic’s forensic blockchain network analysis to estimate the percentage contribution of bitcoin transactions to laundering illicit funds.

Notably, one of the key reasons why policymakers and players in the financial industry have been perturbed by the idea of adopting bitcoin has been the fear of encouraging money laundering and other illicit activity. The research cited above provides insight to industry leaders interested in understanding the level of financial activity arising from bitcoin and cryptocurrencies. Anti-money laundering rules have been around for a while but still, criminals continue to escape the arms of the law. Bitcoin and cryptocurrencies are decentralized. This means that the government has no way of controlling the transactions conducted using these digital currencies. The worry among the legislators, therefore, is that encouraging the use of cryptocurrencies would, in turn, result in increased illicit activity.

The findings of the research indicated that only a small amount of bitcoin is laundered through darkenet marketplaces like Silk Road and AlphaBay. The largest amount of bitcoin laundering was found to be conducted through bitcoin exchanges. This could be because the majority of bitcoin transactions are conducted through the exchanges. It is, however, important to note that the research involved an analysis of 120 exchanges. Of these 50% of the illicit bitcoin transactions were attributed to two European based exchanges.

After a thorough analysis and research into illicit bitcoin transactions, the two foundations involved in the research came to one conclusion. Effective restriction of money laundering through bitcoin trading platforms and gambling services can be done by increasing anti-money laundering scrutiny. Notably, the key focus should be directed to the sites associated with money laundering and their vulnerabilities exposed publicly. This would spark customer skepticism towards these platforms effectively limiting the number of users of these platforms.

It is important to cite that money laundering through cryptocurrencies should not be addressed as an isolated case. This is considering the fact that even before the advent of cryptocurrencies money laundering still thrived.

If nothing else, these reports confirm that the number of illicit funds laundered through bitcoin is significantly small in the grand scheme of things.


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