Bitcoin is No Longer a Currency For Online Criminals and Fraudsters

 

Although bitcoin is decentralized, uncensorable and distributed in nature, it is not anonymous. In fact, the decentralized and open ledger of bitcoin allows anyone within the network to transparently access transactions through blockchain explorer platforms.
Over the past three years, the bitcoin industry and exchange market have significantly matured. Billions of dollars worth of bitcoin and other leading cryptocurrencies such as Ethereum are being traded on a daily basis. The vast majority of trading platforms and exchanges have already been licensed by governments and financial regulators, creating a more robust and regulated overseas market.

The global bitcoin market has been regulated to the extent wherein it is not possible for criminals and fraudsters to cash-in or sell their bitcoin without triggering existing Know Your Customer (KYC) and Anti-Money Laundering (AML) systems. Today, the AML and KYC systems incorporated by bitcoin exchanges and trading platforms are on par with the systems integrated by conventional banking and financial service providers.

Through the usage of strict AML and KYC systems, Jonathan Levin, the co-founder of Chainanalysis, told MIT Technology Review in an interview that it has become significantly easier for researchers and government officials to investigate and analyze blockchain data. More to that, through sophisticated technologies and advanced transaction untangling, blockchain analysis and transaction tracking tools, Levin explained it has become possible to trace transactions given that important conditions are met.

For instance, since 2015, the U.S. Internal Revenue Service, the Federal Bureau of Investigation, the Securities and Exchange Commission, the Drug Enforcement Administration, Immigration and Customs Enforcement, and Europol, have been collaborating with Chainanalysis to lead bitcoin-related high profile investigations. Levin noted that law enforcement and government agencies usually request assistance from the Chainanalysis team if they obtain a lead, such as a bitcoin address or a transaction linked to criminals.

But, as MIT Technology Review senior editor Mike Orcutt wrote in an analytical column, criminals can avoid the KYC and AML systems of bitcoin exchanges, as well as the tools utilized by Chainanalysis and other blockchain analytics companies such as Blockseer. Fraudsters can purchase anonymous cryptocurrencies like Zcash and Monero, which have been developed to confine transaction data and hide transaction flows.

“There are ways to confuse investigators, such as using so-called mixing services, which take bitcoins from many users and mix them up before sending them back out to different addresses at different times. More important, some newer cryptocurrencies, prominently Zcash and Monero, are designed to conceal the information that Chainalysis, BlockSeer, and others use to follow the money,” wrote Orcutt.

It is important to acknowledge that bitcoin has significantly evolved since 2010, back when the cryptocurrency’s main use case was to finance ransomware distributors and online criminals. Bitcoin has become a safe haven asset and currency for large-scale institutional, retail and professional investors, as well as casual users across the globe.


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