The Shadowy Side Of Crypto: Crypto Money Laundering

Cryptocurrency, once a very limited technology, has transformed itself into a full-fledged economic phenomenon. While the promises made by cryptocurrency are certainly good, the dark side of crypto is something that we often ignore. Although it offers advantages like decentralised finances and fast transactions, it also has a few caveats that have been put under the rug. One major caveat is crypto money laundering, which may surprise many but has become a thriving business with billions being laundered through crypto. In this blog, we will take a look at the sheer size of money laundering through crypto, how it happens, how it can impact the global economies, and what measures we can take to stop it from happening. 

The amount of money being laundered through cryptocurrency has seen a significant upsurge in recent years. According to Chainalysis, the amount of Cryptocurrency money laundering in 2017 was around $4.5 billion, which almost doubled in 2020 to $8.5 billion. However, the most astonishing part is that this figure jumped almost 4 fold in the next two years. The amount of money being laundered through cryptocurrency increased from $8.5 billion in 2020 to $23 billion in 2022. However, the United Nations believes that the number is much greater than this. According to the United Nations Office On Drugs and Crimes, crypto money laundering accounts for around 2-5% of the global economy, which is a staggering $800 billion to $2 trillion. 

Advantages Of Crypto in Money Laundering

Now, a question might come to mind as to why criminals and defaulters use crypto money laundering: what are its advantages? Well, there are several advantages of it, some of them are as follows:

1. Pseudonymity: One of the biggest advantages of crypto money laundering is the pseudonymity it offers. Unlike traditional bank accounts, crypto accounts are not linked to an individual’s identity, making them anonymous and the best choice for Money Laundering.
2. Borderless Transaction: Unlike traditional currencies, crypto can be sent or received by anyone in the world.
3. Speed And Efficiency: Crypto money laundering is fast. You can send and receive crypto within seconds. Moreover, it is very efficient. You don’t have to pay transaction fees at 3 or 4 different points. 
4. No Regulations: Crypto is best for money laundering because it is still a relatively new technology, and regulations on it are few and far between. 

Crypto Money Laundering Methods

After learning the advantages of Crypto money laundering, let’s learn a bit about the methods of money laundering through cryptocurrency. 

1. Mixing Services: In most money laundering cases, these services are used to mix the cryptocurrencies used in illegal or illegitimate actions with the normal cryptocurrencies. This makes it almost impossible to trace the sender and receiver of crypto. The people who offer these mixing services often charge a fee to initiate the process. 
2. Chain Hopping: In this method, the cryptocurrency is transferred from one blockchain to another, making tracing its origin almost impossible. It starts from a big blockchain like Bitcoin and then moves to smaller cryptocurrencies with greater transaction speeds like Monero. 
3. P2P (Peer-To-Peer) Transactions: This is the most common method of conducting crypto money laundering. In this method, people send their crypto through a P2P platform, and those platforms generally have some sort of Know Your Customer (KYC) protocol, making their transaction legit. 
4. Darknet Marketplaces: Darknet or Dark Web marketplaces are one of the best ways to launder money through crypto. People visit these darknet websites and buy illegal stuff, which helps them convert their crypto into valuable things like gold, diamonds, or any other illegal thing. 

Consequences of Crypto Money Laundering

The consequences of crypto money laundering are quite significant and can change the nature of global economies.

1. Fueling Crime: One of the biggest consequences of crypto money laundering is increasing crimes. Crypto is used for drug trafficking, cybercrime and terrorism. 
2. Tax Evasion: As crypto money laundering is quite an easy process, it will be an easy means for people to do tax evasion. 
3. Lacking Trust: Money laundering can really impact people’s trust in cryptocurrency. This can really hinder the widespread adoption of the digital asset. 
4. Market Manipulations: The inorganic flow of cryptocurrencies can lead to a mirage of high exchange, which can impact the price of the assets. 

Means To Combat Crypto Money Laundering

We have to combat this problem if we want a future with cryptocurrency. One of the ways to combat crypto money laundering is to develop a few new protocols. 

1. Blockchain Analysis: Companies like Elliptic, CipherTrace and Chainalysis use advanced technology to trace cryptocurrency. These companies can work with the government to identify any cases of fraud or money laundering. 
2. AI: One of the best use cases of AI is that we can use the AI’s ability to read huge data sets and then use it to identify any patterns or anomalies.
3. International Corporation: Just like countries came together to fight for Ozone, they have to come together to stop crypto money laundering.

The Future Of Crypto

Cryptocurrency is poised to bring the next revolution in economics. Some people even believe that the crypto market will reach $5 trillion by the end of 2024. However, ethical considerations like this can significantly affect the advancements and adaptability of this technology. To ensure that cryptocurrency is the future, we first have to ensure secure and safe transactions of the digital asset, which can be traced to its origin.