Statistics from IGI Global reported people engaged in $15.8 trillion worth of crypto transactions in 2021. However, $14 billion from this amount was allegedly used to fund or support criminal activities. These numbers seem daunting and likely back the claim that criminals are turning to digital tokens to finance crime.
In all honesty, these figures are quite daunting and will catch the authorities’ attention. After all, various governments have to ensure the safety of their populace and prevent crime by identifying how criminals operate.
While these numbers may seem enormous, how do they compare to general cryptocurrency transactions? Even more importantly, how do they compare to the use of fiat currencies to fund crime? These comparisons are crucial to properly ascertain the extent to which crypto is aiding crime.
Before diving into the numbers, let’s examine the possible ways through which cryptocurrencies are used to carry out criminal acts.
Cryptocurrencies have played crucial roles in criminal activities over the years, with fraud and scams being the most obvious examples. It is fairly straightforward and involves stealing people’s digital assets via fake cryptocurrency exchanges, pump-and-dump schemes, false mining programs, and many more.
Beyond cryptocurrency frauds and scams, everything else about crypto crime is all about funding. At this point, people (including criminals and the authorities) begin to see blockchain tokens for what they truly are—money. For clarity, here are a few examples.
First on the list is money laundering, where people who steal fiat money convert it to crypto. Once in blockchain wallets, these funds are transferred to crypto mixers to hide their trail, before criminals move them to wallets for storage or trading. This principle applies to nearly every process involving the sponsorship of crime.
In most cases, criminals may not always be savvy enough to use crypto mixers when using blockchain tokens for illicit activities. Using the stolen funds, they’ll simply buy cryptocurrencies from centralized or decentralized exchanges. These individuals will send the bought cryptocurrency to their accomplice, who will sell the digital asset and use the proceeds for various criminal purposes.
The correct and simple answer to this question is NO! Cryptocurrency does not support crime, and the numbers prove it. According to statistics from IGI Global, $14 billion out of $15.8 trillion worth of crypto transactions were used to fund crime in 2021.
Looking at the figures, this means that only 0.08% of the total amount of cryptocurrency transactions were used to fund crime. In comparison, the United Nations Office on Drugs and Crime (UNODC) reported that criminals laundered between $1.6 and $4 trillion through the banking system. This amounted to 0.05% of the total financial transactions through banks.
Looking at these figures, it is evident that banks surpass cryptocurrencies in terms of crime-related transactions based on volume. Even by percentage, crypto-funded transfers are only 0.03% more than those of banks. The volume would be higher if cryptocurrency were truly a financial haven for criminals.
In fact, more illicit actors would send and receive money through this “easy” means. Going by the numbers, it is evident that crypto is not supporting crime. If anything, it is more of a deterrent, as fraudsters do not want to leave any trail of their actions.
Contrary to popular belief, criminals tend to avoid using cryptocurrency to fund their illicit acts. The reason for this is very simple—blockchain stores data and always leaves a trail for every transaction. Anyone who wants to engage in something illegal or unethical will prefer to leave no traces that link them to such incidents.
Unfortunately for criminals, cryptocurrency transactions run on a blockchain that stores every data transfer. Moreover, this system is so efficient that you can trace the ownership of any token down to the first time it went into circulation. Considering this feature, no one who wants to perpetuate crime will use digital assets.
Should they choose to proceed with funding their insidious activities with crypto, it becomes easier to catch them. The only issue is whether the government is willing to understand the technology. Rather than fight illegal activities, the authorities often focus on pushing the narrative that crypto is supporting crime.
In recent times, trends show that most governmental institutions are unwilling to fully understand cryptocurrency. Instead, they focus on taxing those who use cryptocurrency to raise revenue or deter people from using digital assets for transactions. Despite their best efforts, this approach from the authorities has been counterproductive.
If the authorities are willing to use it, blockchain technology can become an excellent tool to fight crime. The first step involves thoroughly understanding how decentralized networks work, along with the consensus mechanisms. With this basic knowledge, the government can collaborate with Web3 companies to ethically identify and stop criminal activities.
Lawmakers should create more robust legal frameworks for regulating the use of cryptocurrencies. The authorities need to abandon these haphazard approaches of lumping all digital transactions together. Additionally, the focus should be on protecting end users rather than controlling the use of digital assets.
