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

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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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Money has been a polarising and unresolved socio-economic issue for more than 300 years. In this article, we explore how the state became increasingly involved in money and, through the words of prominent monetary theorists, identify the problem of the state in money. We analyse Bitcoin to see if it is a solution to this problem but move on to contend that the political dimension needs to be the focus of theory in the 21st century and that control of the supply of money, and the power that it gives, is the root of contention.
... 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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Purpose This paper aims to examine the contribution of Ethiopia’s cash economy to financial crimes. It also investigates the regulation of cash in the context of controlling crime stemming from the cash economy. Design/methodology/approach This study relies on primary data generated from 20 interviewees drawn from the National Bank of Ethiopia, Ethiopian Financial Intelligence Center, selected commercial banks and law enforcement agencies and document review from government reports, media press and statutes, as well as secondary data from online and offline sources. Findings The cash-intensive nature of Ethiopia’s economy has enabled a significant amount of cash to circulate outside of the formal financial system. This money is partly to blame for the prevalence of criminal activities such as cash hoarding, corruption and illicit financial flows. To address the threat of crime posed by the cash economy, the Ethiopian Government has taken measures such as restricting cash withdrawals from financial institutions, limiting the amount of cash individuals can hold and demonetizing the banknotes. The measures enable the banks to collect the cash circulating outside of the formal financial sector. However, the effect of these measures on reducing future criminality remains uncertain. Improving the financial inclusivity of the country, specifically expanding basic financial products to the rural areas, digitalizing the country’s payment system, raising general financial awareness and establishing a strong financial consumer protection framework would play a critical role in reducing future criminality and transforming the cash-intensive into a cashless economy. Originality/value This paper provides a first-of-its-kind analytical perspective on the contribution of Ethiopia’s cash economy to criminal activity and the adequacy of countermeasures so far taken.
... 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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Cryptocurrencies have been developing very rapidly in recent years, and their use is becoming more and more widespread in different areas. The use of digital currencies for legal uses is advancing along with technological development, but, at the same time, criminal activities are also emerging to take advantage of this boom. The aim of this paper has been, first, to analyze the various ways in which individuals and criminal organizations have taken advantage of the phenomenon of cryptocurrencies to carry out fraudulent activities such as laundering money of illicit origin and, second, to provide an overview of the legal tools that have been developed in this regard in Europe and, more specifically, in Spain to combat these activities. Undoubtedly, cryptocurrencies bring great benefits to the economy, but it is also necessary to know the risks and abuses that have been developed to prevent them.
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Muhasebenin ilk ne zaman icat edildiği konusunda tartışmalar devam etse de, tarihi antik medeniyetlere kadar uzanmaktadır. Mezopotamya, eski Mısır, Babil ve Çin uygarlıkları çeşitli kaynaklarda muhasebenin ilk çıkış noktası olarak gösterilmektedir. İlk ortaya çıktığı periyotta daha çok bir kaydetme, ölçme ve hesaplama aracı olarak kullanılan muhasebe, zaman içerisinde gelişmiş ve evrimleşmiştir. İtalyan matematikçi Luca Pacioli'nin 15. yüzyılın sonlarında yazdığı Summa Arithmetica kitabında yer alan çift taraflı kayıt yöntemi ile muhasebe, modern bir bilim olma yolunda ilk adımını atmıştır. Paranın icadı ise 7. yüzyıl Lidyalılar dönemine kadar uzanır. Muhasebe günümüzde teknoloji ile daha da entegre bir hale gelmişken, para kavramı da değişikliğe uğramaya başlamıştır. Bu çalışmada, öncelikle muhasebenin tanımına ve tarihine yer verilmiştir. Daha sonra paranın tanımı ve gelişim süreci ile blok zinciri ve kripto para kavramları tartışılmıştır. Dünya'da ve Türkiye'de kripto paralarla ilgili yasal mevzuat da ele alınmıştır. Dünya'daki ve Türkiye'de ilgili literatür sentezlenerek tartışılmıştır. Araştırmanın uygulama bölümünde kripto paralarının muhasebeleştirilmesi ilişkin yevmiye kaydı örnekleri sunulmuştur. Çalışmanın sonuçlarına göre kripto varlıklar, Diğer Stoklar, Diğer Mali Duran Varlıklar, Diğer Menkul Kıymetler, Diğer Maddi Olmayan Duran Varlıklar, Diğer Hazır Değerler, Kripto Paralar ve Kripto Varlıklar hesapları altında muhasebeleştirilebilmektedir.
Background. There is a historical narrative of fear surrounding cybercrime. This has extended to cryptocurrencies (CCs), which are often viewed as a criminal tool. Aim. To carry out the first user study of CCs for illicit activity, from the perspective of underground and dark net forums. Method. We conducted a qualitative study, using a content analysis method, of 16,405 underground and dark net forum posts selected from CrimeBB, a dataset of 100 million posts curated by the Cambridge Cybercrime Centre. Results. Firstly, finality of payments emerged as a major motivator for the use of CCs. Second, we propose an Operational Security Taxonomy for Illicit Internet Activity to show that CCs are only one part of several considerations that combine to form security in illicit internet transactions. Third, the dark net is hard to use and requires significant study, specialist equipment and advanced knowledge to achieve relative security. Conclusion. We argue that finality is the main advantage of CCs for this user group, not anonymity as widely thought. The taxonomy shows that banning CCs is unlikely to be effective. Finally, we contend that the dark net is a niche for criminal activity and fears over cybercrime cause the threat to be exaggerated.
In 2008, a global financial crisis happened. It led to strong currency price volatility. Because of that, discussions on the need for an alternative, institution-independent currency occurred. Due to this reason the first decentralized cryptocurrency Bitcoin was created. The new and not yet explored concept of cryptocurrency changed the previously strictly defined role of money. Currently, with the growth of the cryptocurrency market, the most important regional institutions (e.g. FED, EBA) provide regulatory guidelines of a recommendatory nature. The regulations of these institutions remain significant, reflecting the dominant approach to digital money. Because of this reason, the aim of the study is to identify the factors that determine the difficulties in the legalization process of cryptocurrencies and to investigate the features of the European Union's cryptocurrency regulatory policy. Methods used: analysis of scientific literature and legal documents, systematization, comparison, interpretation and generalization of information. The results of the study show that the European Union has taken active regulatory action with the growing importance of cryptocurrencies in the world. To date, a document regulating the definition of cryptocurrencies has not yet been adopted at Union level, but the adoption of the cryptocurrency regulation proposal presented in 2020 would mean greater clarity and security for cryptocurrency issuers, intermediaries and users.
The harmonisation of Anti-Money Laundering (AML) law, at both international and EU level, has been motivated by the need to disrupt transnational organised crime. Cryptocurrencies present a complex challenge to AML policies, given the networked and cross-border nature of the transactions through which they are exchanged. Since the creation of Bitcoin in 2008, scholarly discussions contended the applicability of both the Third and the Fourth AML Directives to Cryptocurrency transactions. The Financial Action Task Force (FATF) has extensively explored how the FATF Recommendations apply to Cryptocurrencies. In 2018, an attempt was made by the EU to harmonise AML law targeting Cryptocurrencies through the enactment of the Fifth AML Directive. However, as it becomes evident from the current legal scholarship on this matter, the Fifth AML Directive has several shortcomings which undermine its potential to effectively harmonise AML measures targeting Cryptocurrencies, thereby creating a gap between the national implementing legislations that causes asymmetrical harmonisation. Thus, this paper argues that a major revision of the Fifth AML Directive is necessary in order to prevent further asymmetrical harmonisation of AML legislation targeting Cryptocurrencies. In order to explore the goal of the harmonisation of AML measures in the EU, I analysed the relevant doctrinal description of the Treaty provisions on which the Directive is based and explained the historical development of the EU AML regime. More specifically, I untangle the constructions undertaken as attempts towards the legal characterisation of Cryptocurrencies under both the Third and the Fourth AML Directives, so as to outline the context of the legal environment in which the enactment of Fifth AML Directive took place. Then, I compare specific implementing measures of five EU Member States to verify whether there is, in fact, asymmetrical harmonisation of AML measures targeting Cryptocurrencies: Bulgaria, France, Germany, Italy and the UK. I conclude that delegating to Member States the responsibility for distributing AML compliance obligations among the relevant actors within the Cryptocurrency ecosystem reverses the goal of Directives to facilitate the law through harmonisation.
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Ransomware can prevent a user from accessing a device and its files until a ransom is paid to the attacker, most frequently in Bitcoin. With over 500 known ransomware families, it has become one of the dominant cybercrime threats for law enforcement, security professionals and the public. However, a more comprehensive, evidence-based picture on the global direct financial impact of ransomware attacks is still missing. In this paper, we present a data-driven method for identifying and gathering information on Bitcoin transactions related to illicit activity based on footprints left on the public Bitcoin blockchain. We implement this method on-top-of the GraphSense open-source platform and apply it to empirically analyze transactions related to 35 ransomware families. We estimate the lower bound direct financial impact of each ransomware family and find that, from 2013 to mid-2017, the market for ransomware payments has a minimum worth of USD 12,768,536 (22,967.54 BTC). We also find that the market is highly skewed with only a few number of players responsible for the majority of the payments. Based on these research findings, policy-makers and law enforcement agencies can use the statistics provided to understand the size of the illicit market and make informed decisions on how best to address the threat.
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Bitcoin, the famous peer-to-peer, decentralized electronic currency system, allows users to benefit from pseudonymity, by generating an arbitrary number of aliases (or addresses) to move funds. However, the complete history of all transactions ever performed, called “blockchain”, is public and replicated on each node. The data it contains is difficult to analyze manually, but can yield a high number of relevant information. In this paper we present a modular framework, BitIodine, which parses the blockchain, clusters addresses that are likely to belong to a same user or group of users, classifies such users and labels them, and finally visualizes complex information extracted from the Bitcoin network. BitIodine labels users semi-automatically with information on their identity and actions which is automatically scraped from openly available information sources. BitIodine also supports manual investigation by finding paths and reverse paths between addresses or users. We tested BitIodine on several real-world use cases, identified an address likely to belong to the encrypted Silk Road cold wallet, or investigated the CryptoLocker ransomware and accurately quantified the number of ransoms paid, as well as information about the victims. We release a prototype of BitIodine as a library for building Bitcoin forensic analysis tools.
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This chapter draws on interviews, participant observation, and archival research to provide a field guide for other digital humanists who want to study the Dark Web. In order to study the Dark Web, the digital humanist must engage with the technical infrastructures of Freenet, Tor, and I2P. The chapter will also aid researchers who study Dark Web end users, aesthetics, or cultures. To these ends, I offer a catalog of archives and resources researchers could draw on, and a discussion of why researchers should build their own archives. I conclude with some remarks about the ethics of Dark Web research.
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Among the now numerous alternative cryptocurrencies derived from Bitcoin, Zcash is often touted as the one with the strongest anonymity guarantees, due to its basis in well-regarded cryptographic research. In this paper, we examine the extent to which anonymity is achieved in the deployed version of Zcash. We investigate all facets of anonymity in Zcash’s transactions, ranging from its transparent transactions to the interactions with and within its main privacy feature, a shielded pool that acts as the anonymity set for users wishing to spend coins privately. We conclude that while it is possible to use Zcash in a private way, it is also possible to shrink its anonymity set considerably by developing simple heuristics based on identifiable patterns of usage.
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Privacy and anonymity are important desiderata in the use of cryptocurrencies. Monero—a privacy centric cryptocurrency has rapidly gained popularity due to its unlinkability and untraceablity guarantees. It has a market capitalization of USD 290M. In this work, we quantify the efficacy of three attacks on Monero’s untraceability guarantee, which promises to make it hard to trace the origin of a received fund, by analyzing its blockchain data. To this end, we develop three attack routines and evaluate them on the Monero blockchain. Our results show that in 88% of cases, the origin of the funds can be easily determined with certainty. Moreover, we have compelling evidence that two of the attack routines also extend to Monero RingCTs—the second generation Monero that even hides the transaction amount. We further observe that over 98% of the results can in fact be obtained by a simple temporal analysis. In light of our findings, we discuss mitigations to strengthen Monero against these attacks. We shared our findings with the Monero development team and the general community. This has resulted into several discussions and proposals for fixes.
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Automation of the way we pay for goods and services is already underway, as can be seen by the variety and growth of electronic banking services available to consumers. The ultimate structure of the new electronic payments system may have a substantial impact on personal privacy as well as on the nature and extent of criminal use of payments. Ideally a new payments system should address both of these seemingly conflicting sets of concerns.
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