Cryptocurrencies have provided significant benefits to individuals and organizations alike. Innovators are finding even better ways to implement these new inventions. A study by Statistica estimates that there were at least 42 million blockchain wallets by September 2019.
However, behind the underlying benefits of digital currencies and the blockchain, is a sinister threat of terrorists and criminal rings. All taking advantage of the technology to drive illicit activities.
The Massachusetts Institute of Technology (MIT) collaborated with Blockchain analytics firm Elliptic, to identify patterns of illegal bitcoin usage. MIT’s IBM Watson AI Lab implemented machine learning technology to detect criminal activities on the blockchain.
The 2019 dataset study established that 2% of bitcoin transactions that year were illicit. Meanwhile, this dataset was based on approximately 200,000 bitcoin nodes with a sum valuation of $6 billion. Notwithstanding, 77% of the remaining 98% was unclassified -; while 21% of it was lawful.
A 2015 Europol report identified the use of bitcoin in the majority of high profile criminal investigations. In the European Union alone, over 40% of illegal transactions involved a bitcoin transaction. Moreover, Europol director Rob Wainwright stated that 4% of criminal proceeds in the EU were funneled through digital currencies in 2018.
The director noted that Europol was anticipating the figure to increase given the privacy and credibility afforded by cryptocurrencies. He added that at least $5.5 billion were laundered through illegal cryptocurrency transactions.
Although blockchain transactions are not impossible to track down, they make it really difficult for authorities to establish identification information. Verification of transactions on the chain takes place through mining. The blockchain records each piece of the transaction. Unfortunately, all the data has no direct links to any identifiable information such as names and physical addresses. Hence making blockchain transactions anonymous and complex to track down.
This is not a new situation. Terrorists running funding campaigns and payments through cryptocurrencies dates as far as 2014. Islamic State fighters in Syria were facilitating small purchases and international transactions using digital currencies. Reports have emerged of terrorist groups lobbying for funding in cryptocurrency through Telegram and Whatsapp groups.
Wainwright told the BBC during an interview, that even if authorities could track down and identify criminals behind illicit transactions. It’s difficult to freeze the funds unlike from a traditional banking scenario.
It is not only terrorist groups using blockchains to conduct illegal activities. Pornography firms and drug syndicates are using technology to their advantage. A Wales drug dealer was sentenced to eight years of prison in 2018, for running a fentanyl drug store.
The store operated mainly in Bitcoin. While most of these activities take place through bitcoin, authorities have also established the use of privacy coins Monero, Zcash, and Telecoin. These privacy coins take privacy a notch high in the concealment of identification information. Making it even more difficult for authorities to track down the transactions.
Following PayPal banning Pornhub from its services, the pornography side turned to cryptocurrencies for payment. Last year in October, law enforcement arrested hundreds linked to a South Korean dark web child pornography site that sold explicit videos through cryptocurrencies.
“Welcome to Video” as was the name of the site relied on bitcoins to sell user access to about 250,000 pornographic videos portraying child pornography operations.
US and Britain authorities described the site as the largest pornography website in the world. Officials reported they had rescued at least 23 underage victims in Britain, Spain and the US actively using the website.