Criminals Account for Almost Half of All Bitcoin (BTC) Transactions
C R I M I N A L S
… or only 0.08 percent?
A new paper claims that criminal activities are responsible for almost 50 percent of all Bitcoin transactions. Other analysts, on the other hand, put the figure at 0.08 percent, which is much lower. How can it be that the results are so radically different? And where is the truth?
Scientists from Australia call Bitcoin the “PayPal of the Darkweb” in a paper to be published soon. According to Talis Putnis and Jonathan Karlsen of the University of Technology in Sydney and the UTS Business School, almost half of all Bitcoin transactions are associated with selling illegal products and services, such as drugs, weapons or pirated software.
About one-third of all Bitcoin users are involved in such activities. These users are very active, they buy, sell and trade a lot, while the “legal” users mainly buy and hoard.
This finding is in stark contrast to other studies. For example, in an excerpt from its annual report, the blockchain analyst Chainalysis states that Darknet markets are only associated with 0.08 percent of all Bitcoin transactions. Although Darknet markets are only part of Darknet and only part of illegal activity, they are likely to be the most popular. Even if they accounted for only one percent of all criminal transactions, this would still be a far cry from what Australian researchers predict.
With such glaring differences in the results, the question arises as to whether the results of block-chain analyses should be taken seriously at all. Nevertheless, it is worth asking about differences in method. Chainalysis keeps relatively quiet about this in the report. The excerpt reports in detail about how the transaction volume of darknet markets has increased by 70 percent in the past year, and how their users quickly migrate to a new market as soon as an old market disappears.
The analysts from Chainalysis start with the markets. Presumably, they reconstruct their wallets by registering and sending small amounts of money to an address in the market, and then retroactively reveal the entire wallet — or large parts of it — based on this address. They will then investigate where the deposits come from, presumably tracing them through several steps in the blockchain until they end up at a known entity. These are largely P2P exchanges and stock markets, while other Darknet markets and unknown sources account for only small parts.
Researchers from Australia, on the other hand, have developed what they call a “breakthrough method” for detecting illegal transactions. They began by tracking the activity of Bitcoin users convicted by the FBI or other law enforcement agencies. They then analyzed their trading network by collecting and aggregating information from the Darknet. They then identified user characteristics that distinguish users who are involved in illegal or legal activities. One of these indicators is how far someone goes to hide their identity and trade records.
One could explain the sharp differences in the results of the two studies by the fact that Chainalysis only works with validated information. The number of unreported cases is likely to be high: Wallet clustering can probably only reconstruct parts of the wallets of the Darknet markets, and it does not include users who trade illegally outside the known Darknet markets. The Australian researchers, on the other hand, are working with estimates; they seem to suspect all users of illegal activities who have similar transaction patterns to criminals — i.e. who respect their privacy by using mixers and exchanges without KYC regimes. This method is likely to carry a considerable amount of “false positives”, i.e. false reports.
However, the two groups of scientists should agree that illegal activities play a significant role in the Bitcoin ecosystem. Chainalysis has already stated in a post about exchanges and illegal assets that brokers who exchange funds from illegal sources for their customers are among the most active traders on several major exchanges. In the Post about Darknet markets, analysts describe not only that the volume of trading in the markets has reached new records, at $600 million last year, but also — and they call it the possibly interesting insight — that the related transactions are “less affected by the ebb and flow of crypto markets” than other types of services, such as stock exchanges, payment service providers and gambling sites. This could show that for other users, using Bitcoin is more of a fleeting “fashion”, but for criminals, it is often a necessity.
The Bitcoin scene reacts to such reports with mixed feelings. On the one hand, we see media like Decrypt.co, who headline in an article that 99 percent of all Bitcoin (BTC) transactions do NOT go to Darknet markets, only to declare that Bitcoin is totally unsuitable for criminals because of its lack of privacy — while Bitcoin (BTC)Magazine explains to its readers how CoinSwaps can confuse blockchain analysts to help the privacy of everyone. On the one hand, Bitcoin (BTC)ers like to point out the high transparency of blockchain to explain that Bitcoin is not money for criminals — on the other hand, they demand more privacy for transactions.
Published at Sat, 15 Feb 2020 02:15:09 +0000
