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Why is Cryptocurrency Crime Still on the Rise?

Crypto crime and crime scene tape
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Cryptocurrency crime has become a common theme in a world where billions of pounds are exchanged using the possibilities of the internet aided by the power of blockchain technology. 

In its latest report, Chainalysis revealed that illicit activities related to the use of cryptocurrencies amounted to $2.8 billion in the first half of 2023. 

While this was down 65% from the same period in 2022 (around $8 billion), crypto still playing a crucial role in child abuse material, fraud shops, scams, malware, ransomware attacks, and darknet markets is a cause of concern for all stakeholders of this sector. 

Although many analysts and industry experts have attributed the consistent rise of cryptocurrency crimes to its private nature, there is more to that assertion. 

In this article, we take an in-depth look at the essential factors that have led many people to use virtual currencies related to the decentralized finance (DeFi) economy.

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Cryptocurrency crime: Why is it still present in 2023?

The blockchain-powered economy shed 65% of its overall market capitalization in 2022 after opening the year on 1 January with a value of approximately $2.2 trillion and closing the year on 31 December with around $756 billion, data from TradingView showed. 

Within seven months, the market had rebounded, leading to a 54% rise in 2022’s close. As of 11:00 UTC on 13 July 2023, the total market capitalization of the industry was about $1.2 trillion. 

This rebound has been positively reflected in the price performance of mainstream coins such as Bitcoin (BTC), Ethereum (ETH), meme tokens like Pepe (PEPE), and artificial intelligence (AI) and big data tokens such as SingularityNET (AGIX), Fetch.ai (FET), and the Graph (GRT) among others. 

Having seen the renewed interest in digital assets through the injection of liquidity (reflected in daily trading volume), cybercriminals have turned to crypto again due to the special features it continues to possess, in addition to other factors.

Cryptocurrency crime is special for organized groups because of the following factors. 

  • Pseudonymity and Anonymity – If you try to hold a bank account with any financial institution, there is a 100% chance that representatives of the organization will be asked for identification in the form of Know Your Client or Customer (KYC). With this, they verify the legal details of your full name, country, residential address, and source of funds. If you are supposed to receive funds through cross-border payments, transactions normally go through intermediaries (central banks, insurance companies, and clearinghouses) before they are credited to your account. This process is complex, slow, and does little for your privacy, although it is highly secure. Cryptocurrencies powered by cryptographic encryptions forgo all these processes and allow anyone, no matter where they are, to send and receive money over the internet at relatively lower fees. This is why it has gradually replaced cash as the go-to currency for illicit activities.

  • Cryptocurrency On-Ramp and Off-Ramp – When Satoshi Nakamoto created Bitcoin (BTC), it was extremely difficult for asset holders to convert them back to cash. This was because the much-needed technology was not available, and those who had access to it were highly tech-savvy. As BTC and other coins gain mainstream attention, with thousands currently accepted as payment methods by traditional institutions, many financial technology (Fintech) firms have added on-ramp and off-ramp innovations to support the centralized and decentralized finance economies. On-ramp is where cash (fiat money) is converted to crypto. This is mostly done by purchasing digital coins via ATMs, bank transfers, or cards. On-ramp is mostly patronized by traders and investors. Off-ramp is where cryptocurrency is converted into fiat currency. This can be done through Peer-to-Peer (P2P) cryptocurrency marketplaces such as Binance and withdrawing funds through an exchange. In many parts of the world where most people are underbanked or unbanked or face severe sanctions, P2P has become the way for most people to sell off their crypto for cash. Many telecommunications companies have created wallets independent of mainstream financial institutions. These can be used to gradually cash crypto obtained through unscrupulous dealings.

  • Lack of comprehensive global regulatory framework: The Markets-In Crypto Asset (MiCA) regulation is scheduled to take effect in 2024. The European Union (EU) will introduce MiCA to preserve financial stability and protect investors while allowing for the positive sides of crypto in the form of innovation to thrive. While this will significantly limit cryptocurrency crimes, the laws would be exclusive to member countries. This means that VASPs (Virtual Asset Service Providers) would need to comply with certain rules and regulations that will go a long way to protect investor funds. Despite this, crypto transactions cannot be reversed, so once residents of the region are scammed, or a VASPs system is compromised through hacking, cybercriminals are still free to move some of the money around before enforcement sets in. Aside from the EU, agencies in the US and the UK have failed to come up with a real regulatory vehicle for stakeholders. Many crypto companies in the US have instead accused the SEC of operating on enforcement rather than compliance. With nobody taking responsibility, criminals continue to hack, scam, and launder billions of dollars annually.

Cryptocurrency crime mostly involves privacy coins 

Bitcoin, Monero (XMR), and Zcash (ZEC) are mostly used to launder money globally. More than $40 billion has been laundered through ransomware and corrupt practices (bribes and embezzlement, among others) since 2017.

The onus falls on regulatory bodies across the globe to draw up a unified regulatory document against cryptocurrency crime that can monitor large transactions moving from one wallet to the other. 

This way, cryptocurrency crime could be ameliorated and gradually eradicated from the blockchain-based economy.

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Author: Raphael Minter

Raphael Minter/ Albert Zuhnden (preferred pen name) is a crypto finance writer, data miner, and fundamental analyst. Raphael has written hundreds of articles about centralized and decentralized financial instruments such as precious metals, commodities, stocks, and cryptocurrencies. He broke into digital finance in 2016 and believes digital assets and blockchain technology is the future of finance.

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