Despite the widely-held belief that crypto is a vehicle for illicit activities, criminals still prefer to deal in cash. This is according to a new report published by the Crypto Information Sharing and Analysis Center, or CryptoISAC, a not-for-profit organization that seeks to improve upon crypto and blockchain security challenges.
For a long time, crypto has been viewed as a shady industry that finances drug trafficking, terrorism and other illegal activities, an opinion substantiated by the downfall of FTX and the Silk Road. New data collected by CryptoISAC and Merkle Science, however, suggests this conclusion may be unfair and that it is traditional financial systems that may be more conducive to criminal activity.
The report, titled ‘Blockchain’s Role in Mitigating Illicit Finance’ was published in collaboration with Robert Whitaker, the director of law enforcement affairs at Merkle Science and former supervisory special agent at the Department of Homeland Security. “Cash will always be king because of its true anonymous nature,” Whitaker said.
He added that crypto exchanges in the U.S. are obligated to follow a strict compliance regime—including know-your-customer and anti-money laundering rules— that make it easier to “de-anonymize” transactions that occur on the blockchain, which serves as a deterrent.
“It’s law enforcement friendly in the sense that it has an immutable ledger behind it that is public,” he said. Cash, on the other hand, is much more difficult—at times, impossible—to trace.
An estimated 2 to 5% of the global GDP is laundered through traditional financial systems every year, equating to between $800 billion and $2 trillion, according to a figure from the United Nations Office of Drugs and Crime cited in the report.
In contrast, only 0.34% of total on-chain crypto transaction volumes were flagged as potentially illicit 2023, down from 0.42% in 2022, according to data cited from Chainalysis, a blockchain analysis firm.
Even stablecoins, which are used by some crypto criminals to protect their ill-gotten gains from volatility, are rarely used for illicit transactions. Between July 2021 and June 2024, only 0.61% of transactions involving Tether’s USDT and 0.22% of Circle’s USDC were flagged as potentially illicit, according to data collected by Merkle Science.
The U.S. Department of Treasury came to the same conclusion, declaring “…the use of virtual assets for…
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