You may have heard that there are criminals, terrorists and money launderers using Bitcoin, and therefore, that Bitcoin is a tool of evil-doers and should be banned and never used by the general public. In fact, I’m almost certain that you’ve heard, read or witnessed this sentiment in the news or some online site/ad.
But I have some news for you… Bitcoin is bad for criminals, terrorists and money launderers.
Bitcoin has many features, one of which is called the blockchain. The blockchain is a distributed, shared, transparent, public ledger that includes every single transaction of every single Bitcoin and satoshi ever moved on the Bitcoin network.
The Bitcoins are moved from one address to another address. Currently, Bitcoin addresses are characterized by a seemingly random alphanumeric sequence that is not associated with anything/anyone. This is because the Bitcoin network exists and functions on its own, entirely independent of our physical world. For that reason, Bitcoin was deemed completely anonymous for quite a few years.
The Myths Surrounding Bitcoin and Criminal Activity
It is widely believed that Bitcoin is anonymous and used primarily by criminals for illegal activity. And there is certainly some truth to that, as all rumours are rooted in some mild truth.
Take Silk Road as the best example – it was a website on the dark web that sold next to anything and was especially known for its illicit content such as child pornography, hard drugs (cocaine, meth, heroin, etc), prostitution, even assassinations as a service. All paid for in Bitcoin. The Silk Road was in use from approximately 2011 to 2013.
However, just a few short years later the US law enforcement authorities were able to incarcerate many criminals from Silk road, including two federal agents turned rogue, who stole millions of dollars worth of Bitcoin.
It is widely believed that Bitcoin is used to finance terrorists, for money laundering out of countries, for tax evasion and for criminal transactions.
Although today, fewer and fewer criminals opt to use Bitcoin owing to its traceability. There are still hacks of cryptocurrency exchanges or large HODLers of Bitcoin, but that is primarily pure theft of Bitcoin for the sake of getting rich, and not spending on illicit goods/services.
The Facts and Reality About Bitcoin For Criminals
Despite being pseudonymous and being able to hide behind Bitcoin if you really tried… the reality is that people leak data that link themselves to their Bitcoin addresses. Do you access the same Bitcoin address from the same IP address (aka physical spots, such as your home)? Have you ever shared your Bitcoin address on social media, an email or some other online medium? Ever sent Bitcoin to a cryptocurrency exchange to cash out into fiat? Ever used your credit card to purchase Bitcoin?
If you have done any of the above actions you have made yourself vulnerable to complete financial transparency. Using cryptocurrencies like Bitcoin are actually more transparent than the traditional financial system.
Especially with the advent of blockchain analytics or blockchain forensics as it is now being called, investigators can dig deep into the blockchain ledger and link any piece of data to you, and then unravel your entire transaction history.
This is how the FBI managed to catch many criminals from the Silk Road website who sold illicit products and services. In fact, according to Chainalysis, only 1% of Bitcoin transactions in 2018 were used for crime, vs 7% in 2012
In Conclusion, Bitcoin is NOT a Good Option For Criminals, Terrorists or Money Launderers
Criminals use money just like regular people, but Bitcoin and related open cryptocurrencies provide an immutable public ledger of their criminal transactions, making Bitcoin and cryptocurrencies a terrible option for criminals to use.
The vast majority of crimes are committed with the US Dollar, world reserve currency. Cash is instant settlement and far, far less traceable than Bitcoin. Cash comes with its own disadvantages compared to Bitcoin, but the other advantages such as complete anonymity and permeation throughout the world make it the best choice for criminals, as opposed to Bitcoin and cryptocurrencies.
While Bitcoin was initially considered to be anonymous, we know now that it is pseudonymous. That is, you can retain a certain level of anonymity with the proper care surrounding your use of Bitcoin. Despite the pseudonymous nature of Bitcoin, if you want, you can learn how to protect your Bitcoin privacy here.
- Most People Are Dead Wrong About Bitcoin and Criminals, ReadWire, Rutherford [June 2018].
- Bitcoin No Longer Desireable Option For Criminals, Cointelegraph, Partz [July 2019].
- Why Bitcoin Is Better For Crime Fighters Than For Criminals, Coindesk, Weinstein [April 2016].
- Are Bitcoins And Other Cryptocurrencies Used By Criminals?, Luno.
- Criminals Thought Bitcoin Was The Perfect Hiding Place, But They Thought Wrong, Technology Review, Orchutt [September 2017].
- Why Criminals Can’t Hide Behind Bitcoin, Science Mag, Bohannon [March 2016].