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$11.5 billion in cryptocurrency associated with illicit activity


Cryptocurrency’s decentralized, semi-anonymous nature makes it a uniquely appealing option for criminals. But unlike traditional forms of value transfer, cryptocurrency is inherently transparent in a publicly visible ledger, Kimberly Grauer, head of research at Chainanalysis, explained.

With the right tools, such as blockchain analysis, defenders can gain unprecedented insight into criminal activity and the latest trends in crypto crime, she explained at the MIT Tech Review conference Cyber Secure.

“I’ve always had this lingering thought that cryptocurrency is an amazing tool for privacy, and you can transact anonymously, and so criminals are using it. There’s also the narrative that this technology enables transparency that has never been seen before. How are both of these things true at the same time? How is this the most private and the most transparent technology?” she said.

Both can be true at the same time, Grauer added.

Researchers were able to associate cryptocurrency addresses with services that fall under certain categories. Most cryptocurrency value is transferred through services, such as darknet markets, child abuse materials, stolen crypto, scams, sanctions, gambling sites, retain exchangers, and others.

The researchers were also able to intersect this data with geography and make a cryptocurrency adoption index.

“We see cryptocurrency in countries where there's instability - countries like Venezuela or Kenya. And places where people are extremely digitally native, like Russia and Ukraine. There’s a lot of adoption of cryptocurrency in startups that are using cryptocurrency. We also see huge amounts of trading in China and the US,” Grauer said.

Their data also can help answer the question of why bitcoin is going up lately. Last week, it rose above $19,783 – the previous record it reached in December 2017. And this year, the price is driven by different factors than in 2017.

“There are fewer retail investments that are just entering the market for the first time in small amounts. We see much larger transfers that are being sent to North American services. We’ve heard a lot about institutional investors coming in and being responsible for this more sustained growth,” she said.

Cryptocurrency analysis also helps to paint a clearer picture of how much people are using cryptocurrency to engage in illicit activities. In 2019, around 1% of all the cryptocurrency transfers were associated with illicit activity.

“For some people, it’s low, and for others - it’s high, and it depends on what you think about cryptocurrency space. In total, it’s $11.5 billion in criminal activity. We can see that a lot of that last year was driven by scams, Ponzi schemes as there’s still a lot of feelings that you can get rich with cryptocurrency. Also, there’s a broader audience than ever because there’s a lot of user-friendly technologies which made 2019 a rife year for criminal activity,” Grauer said.

This year, according to Grauer, will be dubbed the year of ransomware as researchers saw a 10x increase in ransom payments.

“We’re able to see criminals evolving in real-time because of the technology that blockchain has allowed. Last year, criminals were choosing two major off-ramps, called Binance and Huobi. Over 50% off all the stolen, darknet, ransom money that was winding up at those two services,” she said.

Researchers were also able to identify how many cryptocurrency deposit addresses were receiving money from illicit activities.

“In this case, we can see that a handful of deposit addresses were receiving most of those funds. There’s something institutional happening here. There’s something structural happening here, and we hypothesize that this has a lot to do with OTC (over-the-counter) brokers,” Grauer said.

So the paradox of cryptocurrency, according to her, is that people behind these activities stay anonymous. Yet, at the same time, “we can have a strong sense of what’s going on from the macro perspective.”

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