The reality, the fiction and the context of criminal activity in cryptocurrencies

It is flashy rhetoric for anyone who chooses to seek to discredit the cryptocurrency. This is favorably hidden until the appropriate time to use for any arguments against its proliferation. The go-to thesis is suitable for people who don’t know much about cryptocurrencies but want a different appearance.

crypto criminal

Cryptocurrencies used only in illegal activities have become a tool for the media to disparage the industry. Moreover, for many, it is a reason for a clear direction.

It is one of the common problems with templates. While many problems stem from the truth, they often represent a simplified – and sometimes twisted – version of it. The truth is that, for example, cryptocurrencies are used to facilitate criminal activities.

However, the reality is that any form of value will be used for illegal purposes, whether through cryptocurrency or fiat. It is worth mentioning that digital currencies account for only a small fraction of the cash-backed criminals. It is also an undeniably popular medium of exchange.

However, the infamous cryptocurrency, along with an unethical atmosphere, was created by the lack of regulation and anonymity. In fact, in just the past two weeks, a number of reports of cryptocurrencies that have tended to be illegal have been published.

Criminal commitment of XRP

Crypto-analytics and analytics firm Elliptic published an analysis of XRP transactions on November 20. The company revealed that it had discovered $ 400 million worth of XRP was used for ” illegal activity “.

Elliptic, who specializes in managing crypto-asset risks, analyzed the XRP network and found that a total of 0.2% of XRP transactions were intrinsically illegal.

XRP is the third-largest cryptocurrency by market value after Bitcoin and Ethereum. Moreover, it is an increasingly popular asset in Asia.

Dr. Tom Robinson, the chief scientist and co-founder of Elliptic, said: “We started researching XRP over a year ago and identified hundreds of XRP accounts related to illegal activity from theft who steal to fraud and sell stolen credit cards”.

When criminally utilizing crypto assets as XRP evolves, we are committed to unraveling this illegal activity, giving financial institutions the confidence they need to participate in the system.

However, $ 400 million is not a negligible number. This is especially true of XRP, designed with commercial and institutional financial systems.

The reason behind exposing Elliptic’s XRP secret transactions is to warn institutional clients against any potential bottlenecks. Dr. Tom Robinson, the Elliptic co-founder and chief scientist, explained that:

Any payment system will be used for some level of illegal activity, especially open payment systems like XRP. It is important that this activity can be minimized because it has been identified“.

Robinson said the company is helping regulated financial institutions engage in cryptocurrency assets like XRP by facilitating those illegal activities, adding:

Now, they have access to tools that allow them to determine if they receive a small portion of XRP money derived from illegal activity and fulfill their AML obligations by reporting“.

However, the company claims that support for XRP is still being tested.

Similarly calling the effectiveness of Elliptic analysis into the question is Ripple, the company behind the XRP token. Ripple is a real-time gross payment system that also supports fiat currencies, cryptocurrencies, and commodity exchanges and transfers. The platform’s own cryptocurrency is Ripples, which stands for XRP.

A Ripple spokesperson has questioned the accuracy of the data:

No further information or explicit method shared by Elliptic, comment on the validity of this report“.

Ripple representatives also stated that:

We question the motivation of this announcement, review the report and its solution is not yet available and these activities only account for 0.2% of XRP transactions. It seems like a PR stunt to take advantage of a more known name“.

Robinson is still quite tight-lipped about Elliptic’s modus operandi. He explained the basics of the method while limiting too much detail, though he mentioned that some of the techniques used were: From dark markets to Ponzi shows or exchanges hack. Robinson urged the effectiveness of Elliptic’s methods when emphasized on the dangers of false address accusations:

This is a risk that we are very aware of, and we address in a number of ways. For example, we will only associate a cryptocurrency address with a defined agent if we have clear evidence of this attribution“.

PR stunt or not, to glean some things following the reported number. It is essential to get the idea of ​​statistics related to equivalent tokens.

Maddie Kennedy, communications director of Chainalysis, commented that in the analysis of other tokens revealed a sizable block of crime when the company’s own investigations of XRP were taking place:

We reviewed 27 different cryptocurrencies and found that 0.4% of that transaction value was sent to an illegal entity. While that may seem like a small percentage, which is equivalent to about $ 3.8 billion from January to October 2019“.

To clarify, that is 0.4% of the total transaction value of 27 different cryptocurrencies. Eplipic’s results suggest that 0.2% of all XRP transactions are believed to be for illegal purposes.

However, these figures are overshadowed by the people the company found when performing a similar study on Bitcoin. It shows that dark web purchases currently account for about 0.5% of all BTC transactions.

As of 2019, only $ 829 million of bitcoin has been spent on the dark web (accounting for only 0.5% of all bitcoin transactions.) Since blockchain technology provides a public record of each transaction, there is Financial crime risks in cryptocurrencies, including Bitcoin money laundering can be managed.

Robinson further explained why he believes this number is higher than Bitcoin than XRP.

XRP software is not as liquid as BTC, XRP is more focused than other crypto assets, and is probably more related to traditional finance. This can make it less attractive to illegal actors who may prefer something more decentralized and ‘neutral’, such as bitcoin.

Rotten from the inside out?

Criminals in the industry seem to be getting bolder, while the illicit use of cryptocurrencies remains popular to some degree. Cryptocurrency crime CryptTrace has increased by 150% compared to last year, according to a recent report from blockchain forensic company.

In 2019, the total volume of fraud and theft related to cryptocurrencies led to $ 4.4 billion worth of damages, almost triple the figure of the $ 1.7 billion witnessed in the year 2017, as reported in the third quarter of 2019.

Large-scale robberies are seen as the main reason behind such an annual increase, with the alleged Ponzi scheme as PlusToken claiming the lion’s share. Billing itself as a high-yielding investment program. PlusToken is the latest project being discussed as an escape scam, with reports saying it appropriated $ 2.9 billion from investors and its victims.

Another high profile fraud case cited by Cexttrace is QuadrigaCX, a Canadian-based cryptocurrency exchange. A scandal involving the mysterious death and has caused a lot of controversy by the exchange’s CEO, and a wrong key in place. All of this money has lost $ 190 million in cryptocurrency.

According to the report, due to the relatively insignificant size compared to larger burglaries, many other cryptocurrency criminals are not even getting air time.

The latest incident took place on November 27, and Lee Sirgoo – CEO of cryptocurrency exchange Upbit – confirmed a burglary happened on this platform. The hackers allegedly succeeded in compromising hot wallet exchanges, exchanging access and flee for 34,000 Ether ($ 51 million) in user funds.

Put it all in context

Interestingly, the use of cryptocurrencies for illegal activities seems to be declining, even as cryptocurrency crimes are on the rise. Back in 2017, a study by Oxford University found that 44% of all BTC transactions were wrong, involving funding for criminal activity. An estimated 24 million people participating in the Bitcoin market use Bitcoin primarily for illegal purposes (as of April 2017), making about 36 million transactions annually, worth about $ 72 billion, and totaling nearly 8 billion Bitcoin.

In contrast, in July 2019, recent research by Chainanalysis found that the amount of Bitcoin spent on illegal transactions this year could reach a record high of $ 1 billion. Even if the rate of illegal compared to with legal transactions being narrowed, according to a Bloomberg report.

However, the amount of BTC spent on illegal services as opposed to legal services, is on the decline. Hannah Curtis said that only 1% of BTC activity this year was illegal, down from 7% in 2012.

However, the stigma still exists. Detractors often drum the guesswork out of using the (mostly unfounded) argument of the cryptocurrency, the more illicit use cases. Ironically, many of these provocateurs are supporters of fiat money, the stock market or even gold – markets that hold their own evil violations.

So, while there’s no doubt that there might be some criminal crimes in cryptocurrencies, what about fiat? Earlier this year, U.S. Treasury Secretary Steven Mnuchin closed cryptocurrencies to help fund illegal activity.

A briefing on cryptocurrency regulation observed the hyperbole response from Mnuchin. He advised that cryptocurrencies are a threat to national security. He said that cryptocurrencies like Bitcoin had been mined to support billions of dollars in illegal activity, reinforcing the stigma surrounding cryptocurrency crimes. Mnuchin does not provide any explicit context.

Fortunately, providing a separate reference framework is Bitcoin research firm Messari. After appraising the cryptocurrency that caused damage to Mnuchin, the researchers conducted a plot to spend BTC on the darknet to fight the dollar.

Using data from the United Nations Office on Drugs and Crime as well as Chainalysis, the researchers revealed that the United States used an astonishing 800 times more money than Bitcoin to fund its darknet operations.

Ultimately, cryptocurrencies – like any other value-based assets – will continue to be used for illegal purposes. The best thing that can be done is to actively monitor and blacklist illegal transactions to ensure they do not slip due to inattention. Ironically, that is easier with cryptocurrencies than cash.

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