Information Technology and Ethics/Usage of Cryptocurrency in Illegal Transactions

Usage of Cryptocurrency in Illegal Transactions


In recent years, cryptocurrency has grown in popularity as a means of exchange, owing to its decentralized and anonymous character. This feature enables users to transfer payments without requiring a central authority to monitor the transaction. While this same feature has made cryptocurrencies desirable to respectable users, it has also made them enticing to persons engaging in illicit operations. Criminals that participate in money laundering, tax evasion, cybercrime, terrorism financing, drug trafficking, and other illegal activities can use cryptocurrencies' anonymity to execute their transactions without risk of detection. As a result, law enforcement agencies have found it difficult to identify and prosecute those engaging in these acts.

  1. Money Laundering with Cryptocurrency Money laundering is the process of concealing the source of unlawfully obtained funds through the use of legitimate channels. Cryptocurrencies can be used for money laundering since they let users to move funds without requiring approval from a central authority. Furthermore, bitcoin transactions are frequently irreversible and difficult to track, making it difficult for law enforcement to identify the persons engaged in a transaction. The usage of "mixers" or "tumblers" is one method through which criminals can use bitcoin for money laundering. These services enable users to mix their cash with others, making it impossible to track the funds' original source. Criminals can also utilize numerous bitcoin wallets to disguise the monies' trail. The usage of shell corporations is another method that cryptocurrency might be utilized for money laundering. Criminals can create bogus corporations and use them to transfer payments via cryptocurrencies, making it harder for authorities to track the funds' origin and destination[1].
  2. Drug Trafficking with Cryptocurrency Drug traffickers have also used cryptocurrency's anonymity to make unlawful transactions. Drug dealers can transfer payments using cryptocurrency without the requirement for a central authority, making it harder for police to follow the transaction. Law enforcement organizations have discovered multiple incidents of drug traffickers using cryptocurrencies to execute transactions in recent years. For example, the US Department of Justice announced the arrest of many individuals in 2020 who were utilizing cryptocurrencies to launder money gained from narcotics trafficking. The Dark Web, a section of the internet not accessible via standard search engines, has also played a role in the usage of cryptocurrency for drug trafficking. The Dark Web has grown in popularity as a marketplace for illegal items, including drugs, with cryptocurrency as the preferred payment mechanism[2].
  3. Tax Evasion with Cryptocurrency Because of the anonymity and lack of transparency inherent in the technology, cryptocurrency transactions may be utilized for tax avoidance. Because cryptocurrencies are decentralized, users can conduct transactions without the involvement of traditional financial institutions, making it harder for tax authorities to identify and track these transactions. Individuals can use this anonymity to obtain payment for services done without having to report the income to tax authorities. A freelancer who receives paid in cryptocurrencies for their services, for example, may be able to avoid paying taxes on that income by failing to notify it to the tax authorities. Individuals may also utilize bitcoin to conceal income from tax authorities by failing to declare gains from cryptocurrency sales[3].
  4. Ponzi schemes Cryptocurrency Ponzi schemes are a form of fraudulent investment opportunity that frequently promises abnormally large returns to investors who acquire a specific coin. These schemes work by attracting people to invest their money with the promise of quick and big earnings, which are obtained by referring new investors to the plan. As new investors join and invest their money, previous investors' gains are paid out, resulting in a cycle of new investment and payout. These schemes, however, are based on deception and lack a real business model or investment strategy to support the promised returns. Rather, the profits offered to early investors are funded by younger investors' money.As the system grows and more individuals invest, finding new investors to pay out the profits becomes increasingly difficult, eventually leading to the scheme's demise. When a Ponzi scheme fails, investors suffer huge losses and are sometimes left with little to no remedy for reclaiming their money. BitConnect and OneCoin are two noteworthy examples of cryptocurrency Ponzi schemes that have duped investors out of millions of dollars. These schemes used false promises and deceptive marketing to trick people into investing significant quantities of money, resulting in widespread financial devastation for many naïve investors[4].
  5. Ransomware Ransomware is a type of virus that encrypts the victim's files and demands money in exchange for the decryption key. Cybercriminals typically demand payment in cryptocurrency due to the anonymity they provide and the difficulties in tracking them down. The WannaCry ransomware attack, which happened in 2017, is one of the most well-known ransomware attacks. Over 200,000 machines in 150 countries were affected by the attack[5].
  6. Terrorism Financing with Cryptocurrency Because of its anonymity and decentralization, cryptocurrency has the potential to be used to fund terrorist actions. Cryptocurrency transactions are frequently difficult to track, allowing individuals to contribute funds to terrorist organizations without being detected. This feature has made it simpler for terrorist organizations to collect money while evading law enforcement. The potential of cryptocurrency to conduct cross-border transactions easily and without the involvement of traditional financial institutions has made it an appealing instrument for terrorist financing. The bitcoin market's lack of regulation and control has exacerbated the situation by making it simpler for terrorists to use the technology to fund their activities. The United States authorities seized almost $2 million in cryptocurrencies meant to finance terrorist activities in 2021. The monies were tracked back to an extremist group that used cryptocurrencies to support its operations. The seizure was an important accomplishment for law enforcement, demonstrating the possible use of cryptocurrencies in terrorist financing[6].

Illegal activity only accounts for 0.34% of all crypto transactions in 2020, or $10B which is down from 2%, or $21.4B, in 2019.[7]

Ransomware, however, has increased believed to be partially caused by covid-19 increasing work from home. While Ransomware only accounted for 7% of crypto received by criminals, this represents a 311% increase over the year.[7]

Because cryptocurrency is pseudonymous, you can only see where funds were sent but not who sent them, making analysis by companies like Chainalysis easier. This also means that it is an enticing way to launder money or finance terrorist organizations.

In 2019, the PlusToken Ponzi Scheme took over $2B from its victims.[8] PlusToken is based in China and acted as a crypto wallet which would reward users with high rates of return if they bought PLUS tokens using Bitcoin and Ethereum. All in all, 6 individuals connected to the scheme were arrested, however, stolen coins still move through wallets presuming one involved individual is still free.

The main issues that stem from the usage of cryptocurrency in illegal transactions are that legitimate investors will be more wary to get involved as well as some governments making some or all cryptocurrency illegal due to this activity. While only 5.9% of Bitcoin users were involved in illegal activities, this accounts for 30% of all bitcoin activity.[9] “The digital currency market is one of the largest unregulated markets in the world, with about 2,000 different currencies worth about $250 billion and a daily turnover of $60 billion”.[9]

One reason researchers believe that there has been a decrease in illegal bitcoin users is the increase in alternative cryptocurrencies with more anonymity, such as Monero and Dash.[9]

Chainalysis crypto-crime report

Scams make up most of the crypto related crimes, with the darknet market coming in second.


While cryptocurrency has many legitimate uses, its anonymity and decentralization have also made it attractive to criminals for illegal activities. Law enforcement agencies are working to develop strategies to combat these activities, but the anonymous nature of cryptocurrency continues to pose challenges. As cryptocurrency becomes more widely adopted, it will be important for regulators to find ways to balance the benefits of decentralized finance with the need to prevent illegal activities.


  1. Böhme, Rainer; Christin, Nicolas; Edelman, Benjamin; Moore, Tyler (2015-05-01). "Bitcoin: Economics, Technology, and Governance". Journal of Economic Perspectives. 29 (2): 213–238.
  2. Del Monaco, Sofia (2020-12-21). "Money Mules and Tumblers: Money Laundering During the Cryptocurrency Era". Ricerche giuridiche (2).
  3. McGee, Robert W.; Benk, Serkan (2019-01-07). "Christian attitudes toward ethics of tax evasion: a case study". Journal of Financial Crime. 26 (1): 74–94.
  4. Springer, Marie (2020-12-28), "Ponzi Schemes and White-collar Crime", The Politics of Ponzi Schemes, Routledge, pp. 12–17, retrieved 2023-04-25
  5. "Dealing With Medicare Therapy Caps: What You Need to Know". Blog post Digital Object Group. 2020-04-09. Retrieved 2023-04-25.
  6. Fletcher, Emily; Larkin, Charles James; Corbet, Shaen (2020). "Cryptocurrency Regulation: Countering Money Laundering and Terrorist Financing". SSRN Electronic Journal. doi:10.2139/ssrn.3704279. ISSN 1556-5068.
  7. a b Tanzeel Akhtar. (2021, January 19). Criminal Activity in Crypto Transactions Fell Sharply in 2020, Says Chainalysis - CoinDesk. CoinDesk; CoinDesk.
  8. Rooney, K. (2021, January 24). Overall bitcoin-related crime fell last year, but one type of crypto hack is booming. CNBC; CNBC.
  9. a b c TipRanks. (2019, June 4). Dark side of the Coin – Extent of illegal activity in Bitcoin.; AOL.