Cryptocurrencies as a tool for criminals?
|Slavomír Kaňuk|source|11167x
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Cryptocurrencies as a tool for criminals?

The association of cryptocurrencies with various illegal activities is nothing new, and we encounter this argument, especially with opponents of digital assets. Money laundering, which comes from the sale of drugs, weapons, the white meat trade, and terrorist financing, is often mentioned in this connection. However, the reality, supported by various research, is far from these claims. So how is it?

Most of these statements are based on the assumption that cryptocurrencies are completely anonymous, their flows are untraceable, and their owners can basically do whatever they want. This is far from reflecting reality, and in fact, it points out that anyone who claims it does not even understand the basic principles of how cryptocurrencies work. With a few exceptions, their anonymity is not so perfect, which is why we call them pseudo-anonymous.


There is a straightforward logic behind this serious-looking concept. To work with cryptocurrencies, you basically only need to understand two expressions - the private key and the public address. This essential data defines your e-wallet and, therefore, the ownership of the address's cryptocurrencies. The private key is used to access the electronic wallet and sign individual transactions. However, the public address you usually share with someone you want to receive your cryptocurrency from, for example, is more important to us in this regard. It is already clear from the name that this address is public, and the individual transactions and balances at all addresses are equally public.


It follows from the above that if you pay a trader in a cryptocurrency, for example, for goods in his e-shop, he can then link your name to the given public address. He can see all your completed transactions on the public blockchain, as well as the balance at the given address. Pseudo-anonymity, therefore, means that cryptocurrencies are anonymous only to the point where you voluntarily link your public address to your personal data. This is not a significant problem for the average user, and of course, you can use various techniques that make this identification of public addresses very difficult. However, it is the criminal elements that are facing a big problem here.

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The exchange of cryptocurrencies for fiat currencies and their spending (especially at larger volumes) are associated with KYC and AML processes, which ensure the detection of criminal activity. It is pretty difficult for a drug dealer to be able to turn cryptocurrencies into fiat money and enjoy the fruits of "his work". Thus, fiat money remains the primary and most accessible means of exchanging for criminals. Those in the form of cash leave virtually no trace.


According to an analysis by Chainanalysis, the volume of illegal crypto activities increased year-on-year (2020-2021) from $ 7 billion to $ 14 billion, but in terms of total volume, this is only 0.15%. To give you an overall idea, the annual amount of money laundered in the US alone is estimated at $ 800 billion - $ 2 trillion. Cryptocurrencies with 14 billion can be considered negligible in these numbers. The US Treasury Department also officially commented on this, confirming that criminals continue to prefer fiat money to run their activities.


The current geopolitical situation and the military conflict that Russia has unleashed on Ukraine have again opened the topic of cryptocurrencies. In response, many governments have imposed unprecedented and harsh economic sanctions on Russia. However, they fear that Russia, people directly on the sanctions lists and ordinary people will be able to circumvent these sanctions through cryptocurrencies. Of course, this cannot be completely ruled out, but as with criminals, it will not be easy at all.

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The biggest problem is that the crypto market is still relatively small (compared to others), and it would not be able by far to cover the entire Russian economy. Such action by the Russian government would be immediately shown in trade volumes and be revealed. In addition, individual cryptocurrency exchanges worldwide have already (within the limits of the law) blocked access to persons from sanction lists and even frozen their accounts. Russia does not have the infrastructure to allow using cryptocurrencies for the masses. Therefore, we do not have to worry about the abuse of cryptocurrencies to circumvent sanctions to a greater extent. On the contrary, tens of millions of dollars have been raised to help the invaded Ukraine through cryptocurrencies. Cryptocurrencies do what they always do - independently serve.


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