Crypto Transactions Associated With Criminal Activity Dropped In 2020, According To Chainalysis Report

January 26, 2021 03:45 PM
Dark Crypto

Dark Crypto


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Crypto is broadly selling-off with Ethereum (ETH), Chainlink (LINK), and Polkadot (DOT) leading losses in the Top 10. ETH trading volumes continue to exceed those of bitcoin (BTC) on Bitfinex.

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Last week, crypto analytics and tracing firm Chainalysis released an excerpt of its 2021 Crypto Crime Report that highlighted a drop in crypto transactions associated with criminal activity in 2020 compared to 2019. This is despite recent comments from global regulators and pundits that have expressed doubt over crypto’s lawful use. 

The Chainalysis report claims that in 2019 “criminal activity represented 2.1% of all cryptocurrency transaction volume,” a USD 21.4 billion-worth of transactions. In 2020, transactions associated with criminal activity fell to 0.34%, or USD 10 billion-worth of transaction volume. The report presents data that suggests that “scams” made up 54% of those illicit crypto-related activities. Scams in 2020, however, were dwarfed by 2019 figures due to the PlusToken Ponzi scheme, which cost its victims over USD 2 billion. 

Darknet markets, online marketplaces for illicit items such as guns and drugs, represented the second-largest illicit crypto activity and saw an increase to USD 1.7 billion in 2020, up from USD 1.3 billion the year prior. Ransomware attacks, the act of seizing digital infrastructure and returning it in exchange for a ransom payment, accounted for 7% of total funds received by suspected criminal addresses, or USD 350 million. This figure, however, represents a 311% increase from 2019. 

Speaking at a Reuters conference on January 13, European Central Bank head Christine Lagarde said “[BTC] is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.”

Lagarde’s comments have been echoed by others, such as former Goldman Sachs CEO Lloyd Blankfein, who referenced the illicit financing of the 9/11 terrorist attacks to underscore the need to monitor BTC transactions. Blankfein added that if he were a regulator, he would be “hyperventilating at the success of it,” referring to BTC. 

The Chainalysis report, if taken at face value, would suggest that comments such as those of Blankfein and Lagarde are objectively false. Criminal activity, similarly to the traditional financial system, represents a small and diminishing fraction of overall crypto activity. 

Blankfein’s comments were seemingly off the cuff and likely more a reflection of general uncertainty with the space. On the other hand, Lagarde’s comments are more a reflection of official institutional caution and suspicion of novel monetary/payment systems that have for much of their history existed in legal gray areas, and have in fact seen some of their early uptake for illicit purposes, such as Silk Road in 2011. 
These comments are also likely meant to build a negotiating position with the crypto space as regulators seek to establish frameworks for its supervision and are naturally inclined to invent work for themselves.

Having said that, reports like these will make that position more difficult to maintain in the future. Add to this the growing number of household name businesses involved with crypto, such as PayPal, Visa, Fidelity, and others, and comments that exaggerate the criminal activity associated with crypto will increasingly seem outdated and out of touch.

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