Bitcoin & Co. Crime Report: Cryptocurrencies are high on THE rise in IS, the alt-right movement and the darknet sites
Cryptocurrencies are as attractive to criminals as they are to investors. Although the share of criminal use of cryptocurrencies in 2020 decreased significantly compared to the previous year, Bitcoin and Co. remain reliable vehicles for illegally generated funds.
A comprehensive report by Chainalysis shows which criminal purposes cryptocurrencies are most commonly used. Chainalysis evaluates global transactions in cryptocurrencies, supports investigative agencies and provides the annual report on trends and crime case studies. Because transactions in Bitcoins, Litecoins and other cryptocurrencies are traceable in the public registers, money flows can be better analyzed. The reason why criminals have partly switched to krpytocurrencies is the anonymity offered by many crypto exchanges outside the EU and the US. The origin of crypto-money can be disguised even with increasingly stringent regulations.
The report on crypto-crime shows a decline in illegally generated revenues in 2020. In 2019, the value of illegal crypto sales was still around 17 billion euros, i.e. 2.1 percent of the total volume on the crypto market was generated illegally. The number halved in 2020: last year, the total value of criminal transactions fell to 7 billion euros and to only 0.34 percent of total crypto transactions. As the report's authors explain, the crime rate also declined because activity in the crypto market tripled between 2019 and 2020.
Chainanalysis assumes that financial and economic crime continues to take place primarily in the traditional financial world, but cryptocurrencies are particularly suitable for some crime areas. As a rule of thumb, according to the report, incoming payments in cryptocurrencies in the area of crime indicate illegally generated sales, while outgoing payments are mostly about money laundering. Turnovers, often in cash, from illegal transactions, flow into the legitimate economy in the form of crypto-wars.
In 2020, the largest sales came from three crime areas: fraud, illegal marketplaces on the darknet sites and extortion software.
Trend of the year 2020: Investment fraud with krpytocurrencies
More than half of the revenues, EUR 2.15 billion, come from fraudulent activities, mainly from investment fraud. Criminals offer attractive investment opportunities in Bitcoin and promise above-average returns. This was also the case at Mirror Trading International, one of the biggest frauds in the past year. On the website from South Africa, customers should invest cryptocurrencies worth 100 US dollars. The site promised a yield of 0.5 percent. But this never happened, and investors lost their money.
Chainanalysis experts warn against investment algorithms that promise unrealistic returns, as investment fraud appears to be the latest trend in crypto-crime. Although sales in this area have fallen, the number of victims of fraud has increased.
Germany ranks 10th in the world in darknet sites
Sales on the darknet sites also increased in 2020, with the current largest illegal marketplace, Hydra, playing a major role. Hydra serves Russian-speaking countries and accounts for 75 percent of global darknet sites. Hydra could also become a problem for the EU and the US in the near future if the online marketplace implements its expansion plans. While Hydra has become primarily a platform for online drug trafficking, the remaining illegal marketplaces are used to handle deals with hacked personal data and credit card numbers.
The report also shows the total value of darknet transactions by country. Germany makes it into the top 10, with a volume of around 35 million euros. According to the report, after the US and Russia, there are the most users of tor software in Germany that allow access to the darknet.
Since it is no longer so easy to "wash" and exchange illegally generated crypto assets, criminals use the services of a small group of providers that either specialize in money laundering or rely on lax regulations.
Bitcoin donations from France to the US to the alt-right movement
By 2020, more cases of terrorist financing with cryptocurrencies were uncovered than ever before. In the US, investigators have seized bitcoins worth 1 million US dollars from terrorists and their financiers. But the trend is also evident in Europe: in France and The Uk, supporters of the terrorist groups IS and Al-Qaeda collected funds in bitcoins. The US Department of Justice uncovered sophisticated systems that obscured the traces of bitcoin transactions.
Terrorist financing with cryptocurrencies also played a role in the riots in the US Capitol. On January 6, 2021, hundreds of Donald Trump supporters stormed the Capitol following a rally. Many of those present at the time belong to the alt-right movement, a group of so-called alternative rightists that spread racist and nationalist ideologies, often in connection with conspiracy theories. According to Chainanalysis, a month earlier, 22 well-known alt-right personalities and organizations, including Nick Fuentes, a leader of the riots, received donations in bitcoins totaling more than 500,000 US dollars. Chainanalysis found the traces of money at a far-right programmer in France who committed suicide a short time later.