Debunking The Myth Of Bitcoin Crime

hodler August 3, 2020December 9, 2022

Mainstream loves to give Bitcoin a bad name. Bitcoin and other cryptocurrencies are widely believed to enable crime such as money laundering, drug trafficking and ransomware attacks. As much as it seems like the perfect currency for outlaws, Bitcoin crime is just a myth. Here is why.

Separating Bitcoin Crime Into Categories

To understand how the so called “Bitcoin crime” works, it is important to make a few distinctions:

A currency, an asset or a tool are naturally neutral
Only the user can turn them into an instrument to commit a crime
Therefore, Bitcoin is as much a tool for crime as fiat currencies like the USD or assets like gold are

There are criminals who use Bitcoin to commit crimes nonetheless. The next logical step then, is to separate Bitcoin crime into categories. There are two such categories, broadly speaking:

Brick and mortar crimes or those that are perpetrated in the physical world
Cyber crime

Understanding how Criminals can Use Bitcoin

Bitcoin and other cryptocurrencies are only better than fiat for one type of crime: ransomware attacks. Attackers who use ransomware are usually sophisticated, but they look for vulnerable databases. In this regard, those in charge can do a better job at protecting data bases.

Bitcoin itself teaches us about how centralized data on servers is vulnerable. Anyone who has studied Bitcoin understands that it is possible to overcome these vulnerabilities through decentralization and stronger encryption for example.

Apart from ransomware attacks, people might use Bitcoin to evade taxes. Nevertheless, there is no other type of crime for which Bitcoin would be a better tool than old fashioned cash. Not even selling illegal goods online.

Laundering Bitcoin

The reason for this is that criminals, as much as the average person out there, still prefer fiat. Bitcoin is not as easy to use or launder as fiat is. To launder BTC or other cryptocurrencies from criminal activity, perpetrators must use mixing services, several exchanges and/or several Bitcoin ATMs.

They could also use other services to buy goods with crypto and then sell them for fiat. In any case, their last move is probably into fiat since it is more widely accepted than any cryptocurrency.

Fiat Crime

Therefore, criminals involved in brick and mortar crimes like money laundering, human trafficking, drug trafficking, racketeering, and bribing, will prefer fiat. They are highly likely to continue to use fiat – especially cash – to perpetrate their crimes.

Even now, as Bitcoin has been around for more than a decade, data shows that this is the case. Let us refer to a Chainanalysis report and a UN report to back this claim:

Chainanalysis found that malicious actors hold 4.81% of the Bitcoin supply
This is 891,781 BTC or about $10 billion USD worth of Bitcoin
The UN Office on Drugs and Crime calculates that the amount of money laundered is between 2% and 5% of the world’s GDP
That is anywhere between $800 billion and $2 trillion USD

Bitcoin Crime is Little More than a Myth!

Looking at these figures it is easy to understand the following:

If there is $800 billion USD worth of money laundering at least, then 100% of Bitcoin and all cryptocurrency available would not be enough to sustain this criminal activity
Of the $10 billion USD in Bitcoin that malicious actors or criminals hold, not a single penny has been laundered
Chainanalysis managed to flag these funds and the blockchain allows us to follow the money
Therefore, fiat is much better suited for illegal activity
Even then, in a one on one comparison, it is possible to see that the proportion of BTC used in criminal activities and the amount of fiat that is used to launder money, are basically the same – 4.81% against 2% to 5%

Bitcoin Holders are not Criminals!

The data does not only help us to debunk the myth of Bitcoin crime. It also helps us to dispel prejudice against Bitcoin holders and the concept that lose government control results in more criminal activity.

These lessons are clear:

Bitcoin crime is not only a myth, but 95% of the BTC out there is used for legal purposes
Therefore, most Bitcoin holders – excluding those who are evading taxes with BTC or other cryptocurrencies – are law abiding people
Government cannot even control the currency it backs
Without government oversight, Bitcoin crime might be just as big as fiat crime is – if you did not doubt your government, you should reconsider your position now
The fact that Bitcoin exists does not encourage crime. It only transforms some of it – namely ransomware attacks and tax evasion

Crime? Not with my Coins!

If you are following the money, then you might be able to avoid buying or using BTC that was once part of a criminal enterprise. With fiat that is impossible. No one can follow tainted cash and it eventually ends up propping up legitimate businesses.

Cash even ends up in the pockets of corrupt politicians and government officials who are in charge of fighting crime. So, the next time you see stories about Bitcoin crime in mainstream media, keep the scope of said criminal activity in mind and think about all the corruption that these outlets are not calling out.