Cryptocurrency and crime – an uncomfortable subject for many in the industry, but not one that can, or should, be avoided.
Many choose to ignore it, but the only way to try and tackle crime within cryptocurrency is to talk about it, identify it, and find ways to combat it.
We must close the avenues which allow cybercriminals to use cryptocurrency to launder the proceeds of crime, defraud investors, and carry out other nefarious activities that damage the industry’s reputation.
Cryptocurrency and Crime
For many years, the cryptocurrency space was seen as a safe haven for criminals. Steps to address this have been taken, but we still see regular reports of crypto crime.
Digital currencies have made a significant impact globally, both positively and negatively. Critics argue, however, that the negative outweighs the positive because of its usefulness to cybercriminals.
One of the most commonly discussed criminal activities is money laundering.
Until recently, cryptocurrency was largely unregulated. While some jurisdictions have introduced new rules and laws, there is little consistency and regulation is not universal.
Inconsistent regulation and the fact that transactions could be untraceable and anonymous were useful to, and well used by, criminals. That is why cryptocurrency, in its early days, was known as the ‘wild west’.
Crime and Regulation
The decentralised nature of cryptocurrency and the imposition of regulation are seen as a juxtaposition.
This is not my view. I believe the two can co-exist, bringing more responsibility to cryptocurrency and greater protection for those involved.
In its simplest form, regulation is a set of rules issued by an organisation, most often a government body, intended to guide the conduct of industry members.
However, the world is playing catch up. There are thousands of cryptocurrency companies, with many more appearing every day. New regulations do not cover them all and, being frank, some are designed to specifically sidestep particular rules.
That means that, despite efforts to regulate, avenues for criminal behaviour continue to exist within cryptocurrency; either accidental loopholes that are taken advantage of or aggressive attempts to enable criminality by dodging the rules.
What better place is there to conduct criminal behaviour than a space without oversight, without enforceable regulations, and where transactions cannot be traced?
How Much Crime in Cryptocurrency?
In 2021 alone, cybercriminals laundered $8.6 billion worth of cryptocurrency. Just think about that amount of money. And that is just money laundering, not all crypto crime.
There are, of course, scams too; fake coin issues, fraudulent trading platforms, bogus investment opportunities.
For those involved in illegal lines of business, such as drug traffickers and arms dealers, the emergence of cryptocurrency was a boon. They could move large amounts of money internationally, unseen and untraced.
Combating Cryptocurrency Crime
What can responsible members of the cryptocurrency community do about crime?
Understandably, DeFi enthusiasts are resistant to regulation, seeing it as an attempt by governments and large financial institutions to recentralise crypto. However, without a candid conversation about tackling the seedier side of crypto, including accepting regulation, it remains a tool for criminality.
Defending decentralisation is admirable, but ignoring criminality is irresponsible.
Catching the Crypto Cybercriminals
Law enforcement agencies try their best. However, they are tripped up by lack of regulation, lack of support in the community, and, essentially, a lack of knowledge.
How can they be expected to tackle cryptocurrency crime when they don’t understand the space?
The old saying goes, ‘set a thief to catch a thief’. Anyone fighting crime in crypto needs to know how these cybercriminals operate.
This must begin with intensive education about cryptocurrency and blockchain technology. Anyone enforcing whatever regulations and laws exist needs to know how to study and analyse the tools used.
This is starting to happen. A case has been reported where digital forensic analysis was used in conjunction with a technical understanding of cryptocurrency transactions to take on a drug trafficker.
Their criminal money laundering patterns were identified and followed, which led to the capture and prosecution of the offender.
This shows that there are ways to separate cryptocurrency and crime.
Be Brave
I believe that the next step toward global acceptance and use of cryptocurrency is to weed out the criminal elements. This will give more people faith in digital currencies and lead to fewer jurisdictions fearing it.
While it may seem to go against the spirit of DeFi, I believe cryptocurrency participants should actively engage in the formation of workable regulations which protect people and combat criminality without threatening the ethos of crypto.
Industry insiders should also make efforts to ensure those tasked with chasing the cybercriminals have the knowledge and tools they need to operate successfully within this space.
