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Criminal use of cryptocurrencies: a great new threat or is cash still king?

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Abstract

In July 2018, the Federal Reserve Chairman told the US Congress that cryptocurrencies are ‘great’ for money laundering. Many media headlines follow comments such as this, suggesting that cryptocurrencies are a significant criminal tool that should be feared. This article examines academic research, particularly those that analysed the Bitcoin blockchain, to see if the results matched the headlines. This was then compared to wider government and think-tank reporting. Contrary to popular opinion, this article shows that cryptocurrencies are currently used in a very small percentage of crime and they are not the great future threat that many assert. Cash is the real enemy for crime fighting and remains ‘king’. It is anonymous¹1 Paper money has serial numbers, which has limited use for traceability.View all notes and far more useful to criminals than cryptocurrencies. However, the future of money is uncertain and policymakers need to understand that there is more to the debate about cryptocurrencies than the headlines suggest.

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... Anonymity / risk of tracing Cryptocurrencies D/I Cryptocurrencies provide a far higher level of anonymity than traditional non-cash payment methods -such as payments with debit and credit cards or digital wallets -although it remains still incommensurable to cash (Butler, 2019;FATF, 2014). Certain privacy-oriented cryptocurrencies are renowned for anonymity (Silfversten et al., 2020). ...
... Cost of transactions and cost for circumvention of existing regulatory constraints Cryptocurrencies D Most cost-efficient compared to other traditional methods for money-laundering and cross-border transactions (Bryans, 2014;Dabrowski & Janikowski, 2018) 190 . Bitcoin transaction cost in 2019 was as low as $0.35 (Butler, 2019). ...
... Regulatory gaps, customer duediligence Cryptocurrencies D New regulatory measures for exchangers provide monitoring and tracing capabilities to police and have increased the perceived risks for criminals (Butler, 2019;Fanusie and Robinson, 2018 (Europol, 2017c;Soudjin, 2015;Van de Bunt, 2008). ...
... Bitcoin has been controversial since its creation, drawing significant criticism from politicians, bankers, economists, investors and academics (Butler, 2019;Gloerich et al., 2018). Cryptocurrencies have been labelled a security threat in relation to crime (Butler, 2020: 136), scammers abound, and cryptocurrency services have suffered from cyberattacks (Zamani et al., 2020). ...
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... Criminals earn proceeds of crime in cash and cash transactions are the best mechanism to launder the criminal proceeds. Criminals prefer cash because it is a bearer negotiable instrument that provides no information about the origin of the proceeds or on the beneficiary of the exchange (Butler, 2019;Riccardi and Levi, 2018). Unlike electronic money (also known as e-money), which can be transferred electronically, it is difficult to ascertain the source of cash and impossible to know who the intended beneficiary is. ...
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... While there is doubt about its use for fraudulent transactions, there is currently a debate around it (Dyson et al. 2018;Butler 2019). In this sense, a study was carried out on a dataset of 4681 accounts of the Ehtereum network and it turned out that 2179 were illicit (Farrugia et al. 2020). ...
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