Quantifying Crypto Crime: Expectations vs Data

The usage of cryptocurrencies for criminal activity is greatly exaggerated in the media and we feel these false narratives need to be addressed. The recent February Economist article about North Korean hackers stealing $1.7 billion in crypto in 2022 is an example of sensationalist coverage of the issue. According to the blockchain forensics company Chainalysis, the estimated total usage of crypto in crime was only US$20bn in 2022. Chainalysis, along with other companies like Elliptic, are hired by law enforcement agencies such as the London Metropolitan Police and the FBI to track down criminals who use cryptocurrencies for illegal purposes.

Public blockchains, the most commonly used type of blockchain for cryptocurrencies, are entirely transparent. Every transaction that takes place on a public blockchain is recorded on a public ledger that anyone can view. This means that if someone is using crypto for illegal purposes, their activities are being recorded and can potentially be traced back to them. Therefore, public blockchains are not a great place to engage in criminal activity.

The transparency of public blockchains is actually one of the key benefits of cryptocurrencies for law enforcement agencies. Blockchain analytics companies like Chainalysis and Elliptic specialise in tracing cryptocurrency transactions and have helped law enforcement agencies to find criminals who use Bitcoin and other cryptocurrencies for nefarious means. In fact, the FBI’s largest-ever asset seizure was $3.6 billion, which was stolen from the Bitfinex exchange. They were able to follow the money through the blockchain.

Former Acting CIA Director Michael Morell has also stated that Bitcoin isn’t any more exposed to illicit use than any other form of currency. He believes that the blockchain is the best surveillance tool available, making it easier for law enforcement to track down criminals who use cryptocurrencies for illegal purposes.

The amount of cryptocurrency used in criminal activity is relatively small compared to the total amount of cryptocurrency traded. According to Chainalysis, the estimated usage of crypto in crime in 2022 was $20 billion, which represents only 0.55% of the daily turnover of Bitcoin alone. In comparison, traditional fiat currencies are far more prevalent in criminal activities. Europol estimates that 30% of all €500 notes have been used in money laundering.

Money laundering and other illegal financial activities have been happening for decades, long before the invention of cryptocurrencies, and the vast majority of criminal proceeds are still laundered through traditional financial institutions. The United Nations Office on Drugs and Crime estimates that between 2% and 5% of global GDP, or between $800 billion and $2 trillion, is laundered through traditional financial institutions each year.

The ransomware industry is often cited as an example of how crypto is used for illegal purposes. However, the total ransomware estimates used in crypto was only US$450m in 2022, which is a mere drop in the ocean when it comes to cybercrime proceeds globally which totalled US$6 trillion in 2021. Elliptic has also stated that it is possible to reverse crypto mixing services such as Tornado cash, being successful in tracking assets to North Korea using its demixing capabilities. Meanwhile, the US government has successfully shut down various mixing services, for good and obvious reasons.

Law enforcement agencies are actively working to track down criminals who use crypto for illicit purposes. The transparency of public blockchains and the specialised companies that offer blockchain analytics make it difficult for criminals to use crypto for illegal purposes without getting caught. It’s important to keep things in perspective, look at the data, and not let sensationalist media coverage sway our perceptions of the role of cryptocurrencies in criminal activity.