The Law is Catching Up with Bitcoin’s Criminal Associations
Bitcoin’s high praise since 2009 has been popularly met with stiff resistance on the other side of the fence. Several investors, famously including Jamie Dimon, the CEO of JPMorgan, have dismissed the cryptocurrency as worthless for everything apart from criminal activity. While bitcoin does have legitimate uses and has proven so in the many years of its existence, it definitely has a notorious track record.
Only this year, a notorious malware dubbed WannaCry made headlines for infecting thousands of computers worldwide. The malware would encrypt all the data on a computer. Users were then greeted with a bitcoin address to which they were asked to send $300 before a particular date. Usually known as cyber-ransom, users would only regain access to their data if they forked over the requested bitcoin.
This ransomware attack was made a lot easier entirely because of the pseudonymous and decentralized nature of bitcoin transactions. It is obvious why most contemporary ransomware attacks prefer to use cryptocurrency instead of cash. Bitcoin is also commonly used on the Dark Net, where illegal activities such as human trafficking and drugs run rampant. Law enforcement agencies have been trying to catch up with criminals using the technology and have made notable advancements in that direction.
Almost every cryptocurrency uses a public ledger to keep track of transactions in the form of a blockchain which means that anyone can track an amount of bitcoin as it leaves a wallet. The strategy is similar to what governments have already been using to track money since the pre-digital era and has often been phrased as a “paper trail.”
Chainalysis, a company founded in 2014, exists specifically for blockchain analysis. One of their targets is to provide tools to bitcoin exchanges, enabling them to prevent money laundering. In the past, the company has also helped law enforcement from around the world, including Europol and the Drug Enforcement Administration (DEA) in the US. They claim to have checked over $15 billion worth of transactions.
Using blockchain analysis, Chainalysis can also establish connections between people and track a criminal’s revenue stream. With the entire blockchain at their disposal, a lot of useful data can be extrapolated, including the amount of bitcoin received and where it was further sent to.
Plenty of major players in the cryptocurrency world, including governments and exchanges, stand to benefit from such analysis. The availability of such a service could also be the next big step towards regulating the market, as it helps keep track of net income, taxes owed and other important financial data about a company dealing in bitcoin.
Bitcoin was meant to be a method of transacting securely and anonymously. With analytical services such as Chainalysis rapidly working their way around this, however, that may not remain true for much longer.
Zcash and Monero, two relatively new cryptocurrencies, were introduced as a solution to the problem created by blockchain analytics services. Both of these altcoins intentionally make their transactions much harder to trace through the ledger, as compared to bitcoin. Dark Net Markets have already begun to pivot to privacy-focused cryptocurrencies, for instance, the Libertas marketplace launched in October, which accepts monero only. Time will tell whether criminals will migrate away from bitcoin entirely to remain incognito.