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Cryptocurrencies have been so impactful to the economy. It has made transactions faster and cheaper.
Cross border transactions are even more convenient. Still, it comes with the concern of use in illicit transactions.
This analysis looks into illicit transactions. It also looks into the reasons for use and how to manage it.
Top Illicit Transactions Involving Cryptos
1. Money laundering
Money laundering has been the primary concern for cryptos. It comes with decentralization, which means there is no regulatory figure. Several entities have now resorted to them for illegal money transfer. They are usable in channeling proceeds of crime and embezzlement from developing countries.
Criminals use crypto exchanges to launder money using cryptocurrencies. They use a cleansing process through mixing and layering. The process starts by changing the fiat currency into a digital currency. The crypto is then transformed into different other virtual currencies. For example, Bitcoin converts into Ethereum, Ripple, and Others. The many accounts make it hard to trail.
The users can also consider privacy coins like Zcash and Monero. The coins then mix with other existing cryptos in the addresses. They are afterward sent to a particular one. These addresses, in turn, lead to the last convergent point.
A report shows exchange theft and gambling as the main ways for crypto in money laundering.
2. Financing Terrorists
Cryptocurrencies have also become the best premise for terror funding. Like in money laundering, terrorist take advantage of cryptos anonymity to conduct transactions. Several terrorist outfits have been using the various coins for financing.
The issue came to light when the US government seized Bitcoin for terror groups. In one of the largest swoops so far, the US intercepted over $2m for the terror outfits. The interception revealed how the groups share Bitcoin addresses with funders. They then use social media to reach out to prospective funders. Social media and digital currencies have made it easier for them to fundraise.
Even bad news, the crypto use for terror has been becoming more sophisticated. The Chain analysis report show terror groups finding quicker ways to raise funds. The terror groups have been making high-end campaigns that are harder to track.
An example of such tactics is providing a unique Bitcoin address for every donor. They also encourage funders to use public Wi-Fi instead of PC internet. This keeps their IP address away from the authorities.
3. Avoiding Economic sanctions
Rogue countries have been looking to crypto to help evade economic sanctions. The US dollar is the world’s fiat currency reserve. For that, the US has leverage over the other markets. It has since been using economic sanctions to punish rogue countries.
The countries are using cryptos as the best alternative to the traditional economy. The cryptocurrency economy does not have control like the fiat currency economy. They can then use it to circumnavigate the economic bottlenecks.
The only concern, though, is cryptos are yet to be as widespread. They also come with lower transaction speeds. Still, countries have been looking for local solutions. Venezuela, for example, launches its crypto coin, Petro. It then forbade the use of other cryptos. Even though the currency failed, they can still use other cryptos like Ethereum.
Iran has also been at the forefront using its Instruments in Support of Trade Exchanges. Several other countries have also been looking for cryptos. Most of them will be okay even without having to use the USD.
Reasons for the use of Crypto in Illicit Transactions
Cryptocurrencies are useful in illegal transactions due to their various characteristics. These features include;
The decentralization of cryptos is such that it has no control figure. It also relies on no other commodity for value. Even the founders like Satoshi Nakamoto do not control the supply of Bitcoin.
The lack of control means one does not need permission to start trading cryptos. It means nobody would keep anyone from using the currencies. One only needs access to the internet and other software.
The decentralization is great for value. It also keeps the system secure due to a lack of interference. It still makes the platform easy to use by criminals. Drug and human traffickers don’t have to worry about any higher authority.
Crypto transactions do not need any identity for completion. The sender and the receiver do not need to know each other for the transactions. They only use addresses that never have any connotations.
The criminals tend to hide behind the addresses to conceal identities. The only concern is on the IP addresses. Still, they use software like VPNs to mask the addresses. Some also use public computers and the internet to avoid the location.
The need for anonymity has seen the rise of privacy coins in recent times.
Like any other user, criminals also need security when transacting. Cryptocurrencies operate on a secure public cryptographic system. The blockchain system uses encryption not to permit any unauthorized users. The system is also verified such that miners verify all transactions.
The criminals understand no other system offers similar safety. It is even for cross-border transactions.
How to Stop the Use of Cryptos for Illicit Transactions
No matter how useful digital currencies are, they will not be as accepted when they aid illegalities. For that, different entities have been looking for ways to make the crypto sector secure. One of the leading ways is regulation.
Countries have been formulating laws to control the use of cryptos. Even though they don’t control the coins, they can control the service. For one, some countries have banned cryptos. Others have made it hard to use within the countries.
Still, some countries are monitoring the crypto service providers. The Bitcoin exchanges and other service platforms have to follow authority provisions. Most of these must increase scrutiny on transactions. The users must provide identification and the use of large amounts.
Once regulated, the crypto sector will become secure for investors and users. It will also be ideal for institutional investors.
Cryptocurrencies have become useful due to operation on cross border transactions. They are also safe and do not need permission to use. They still have to clear the concerns on use for illicit transactions. The best way, for now, is to increase regulations within the crypto regulations.
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