Busting the myth of the link between Crypto and Crime

According to Chain Analysis' latest report on Crypto related crime, the total value of crypto moved illicitly fell dramatically between 2019 to 2020, thanks mainly to the decrease in money lost to crypto scams.

In 2020, around 0.4% of the total value of crypto sent and received was transferred between 'illicit entities' - the total value of which was $10 billion.

This is a much smaller figure than the United Nation's estimate of the 2-5% of global GDP which is laundered annually, equivalent to $800 billion to $2 trillion.

This means that cryptocurrencies only account for around 1% of illegal financial flows, at least according to official data.

Types of Crypto Crimes....

Scams and Darknet Markets account for the vast majority of illegal flows.

The amount of money lost to scams between 2019 - 2020 fell dramatically, while the value of funds transferred through darknet markets remained stable, but Ransomware attacks increased by over 300%, albeit from a small base.

It's interesting to note the contrast between these three types of crime - with scams and Ransomware, there is a clear criminal and victim - the fraudster/ scammer and the person/ company who falls victim, but with Darknet markets there's a (debatable) argument that some of these trades are 'victimless' with two willing parties simply trading in illegal goods - such as drugs being the most commonly traded good. (The same can't be said for personal data being traded which also makes up a large chunk of Darknet trades!)

Will DEFI hacks mean more funds lost to fraud and hacks in 2021?

This will be interesting to see..... Both the Theodex exchange scam and the Iron Finance rug pull are estimated to have lost investors $2 billion each, and along with several other smaller scams, we might well see a larger amount lost in total by the end of the year.

Most of the money goes to America and Russia...

The report notes that 55% of all crypto laundered goes to just 270 address, and most of that money goes to a handful of countries, mainly the United States and Russia, with China following up in third.

So despite there being something of a myth of the 'Nigerian crypto scammer', most illegal crypto funds are flowing to the three global super powers - which is unsurprising as this is where most of the legitimate crypto transactions take place too.

If we break it down further, we see that Russia is the world's capital for Darknet Markets, the USA, UK and South Africa make up 75% of scamming countries - all English language countries which is interesting!

And there are a handful of other countries represented too, but it's mainly the developed world which is benefitting from crypto crime...

Final Thoughts

I think this report busts a lot of myths -

• firstly, most crypto flows are entirely legitimate, a tiny proportion is linked to illegal activity, much smaller than in the wider fiat economy.

• secondly a good chunk of those illegal flows, around half of the Darknet market is to do with the drugs trade, which many would regard as victimless anyway.

• thirdly, criminal money is mainly flowing to rich countries - NOT countries in Latin America and Africa, like the media would want you to believe!

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