HANNES WESSELS: The myth of crypto and criminals

The use of crypto for illegal activities has been a topic of concern since the early days of the new form of digital currency. The public’s perception of cryptocurrencies as being inherently linked to criminality (such as money laundering, drug trafficking, and cybercrime) can largely be traced back to early media coverage around cryptocurrency — specifically the infamous Silk Road marketplace.

Silk Road was an online black market that operated on the dark web from 2011 to 2013, offering a platform for the anonymous buying and selling of illegal goods and services using bitcoin. The marketplace was notorious for its involvement in drug trafficking, and the association between crypto and Silk Road’s illicit activities contributed to the negative reputation of cryptocurrencies.

The perceived anonymity and decentralisation of crypto have given rise to concerns that they facilitate criminal activity. Many media outlets choose to focus on high-profile cases of crypto-related crimes, furthering the idea that digital assets are mostly used by those seeking to engage in illegal activities and avoid detection.

However, crypto is primarily used by ordinary people and exists as a legitimate tool for a variety of everyday transactions. Binance alone has more than 120-million registered users. As with any emerging (or existing) technology, criminals will abuse it for nefarious purposes. Yet illicit activity comprised only about 0.15% of crypto transactions in 2021 — down from 0.62% in 2020 despite the industry’s exponential growth — and money laundering accounted for 0.05%, according to data from Chainalysis, an independent blockchain analysis company. Chainalysis data is often used by government agencies, including the Federal Bureau of Investigation (FBI), the Drug Enforcement Administration and Internal Revenue Service Criminal Investigation in the US, as well as the UK’s National Crime Agency, to investigate and combat crypto-related crimes.

In the traditional fiat space between $800bn and $2-trillion is laundered every year, or about 2%-5% of global GDP, as reported by the UN Office on Drugs and Crime. In the case of crypto the amount is a minuscule 0.03%. Criminals don’t like crypto because the transactions are publicly and permanently recorded, which actually enables investigators. In contrast with traditional financial investigations, the transparent nature of crypto makes it easier to identify bad actors.

Blockchain is inherently transparent. All transaction data is recorded in a public ledger. Anyone, at any time, can examine the entire codebase. Using crypto for nefarious purposes leaves an excellent paper trail for prosecutors to lock in a conviction. 

Europol and the Basel Institute on Governance have said that crypto is key to tackling organised crime. You simply cannot move large amounts of money without getting noticed. Crypto exchanges continue to be one of the primary allies in the fight against criminal activity. For example, in 2021 Binance helped take down a cybercriminal ring laundering $500m in ransomware attacks.

Law enforcement agencies remain the spearhead of the collective fight against crime. Acquiring the necessary resources, skills and tools, as well as partnering closely with crypto companies, has been a top priority for agencies globally. In the US, the Treasury has asked for more funding to track and fight crypto-crime, and the Department of Justice and FBI have set up dedicated national cryptocurrency enforcement task forces.

In addition, the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, has issued standards for virtual assets mirroring the ones for fiat. But implementation has lagged; just 19 of the 200 countries committed to FATF standards had implemented the one for virtual assets by March 2023.

The vast majority of crypto transactions and investments are legitimate and focused on real-world use, and have the potential to transform the global economy. The emergence of blockchain technology has opened new opportunities for financial innovation, and cryptocurrencies are just one aspect of this rapidly evolving landscape. 

From decentralised finance to non-fungible tokens, the potential applications of crypto and blockchain technology are vast and varied. We have only scratched the surface of what is possible. While there are certainly risks and challenges, it’s important to approach this exciting new technology with an open mind and a willingness to learn and adapt to fully realise its potential.

We should also have the appropriate guardrails in place to try to eliminate bad actors — something no financial services ecosystem is immune to.

Wessels is Binance director in SA.