Is Bitcoin for criminals?

Explore the truth about Bitcoin and criminal activity. From pseudonymity to traceability, we debunk myths and share real-world examples.

Is Bitcoin for criminals?
February 7, 2024

Is Bitcoin a tool for illicit transactions?

Bitcoin is often pointed out by its critics as an asset used by criminals for money laundering. But what is the reality?

When one understands the basics of what Bitcoin is and how it works, it becomes apparent that it is not the perfect tool for executing a transaction discreetly.

Although described as anonymous, Bitcoin is actually pseudonymous. This means that users identify themselves with a pseudonym materialized by their wallet address.

It's a bit like a pseudonym on social media; instead of displaying their real name, a user can use a pseudonym. But if this user breaks the law, it is relatively easy for the authorities to link the account to the person.

Bitcoin is based on a decentralized blockchain

A blockchain is a digital ledger that records all transactions. Bitcoin's blockchain is decentralized, meaning anyone can download and/or view it on the internet, as with the website

Even though it might be complicated for an average user to link an address to its user, authorities have developed specific tools to trace them.

Considering all these characteristics, a criminal would be more interested in conducting their activities in cash or through complex financial setups rather than using a ledger that leaves a permanent mark on the internet.

What do the statistics say about Bitcoin and criminal activity?

In addition to the authorities, a company specializing in transaction tracking, Chainalysis, produces an annual report on registered transactions and estimates of illicit transactions on various blockchains.

In its 2024 report, Chainalysis reveals that 0.34% of cryptocurrency transactions were illicit, representing only 20 billion dollars.

Illicit share of all cryptocurrency transaction volume since 2017 - Chainalysis

Chainalysis data show that the share of illicit transactions made with cryptocurrencies is decreasing over time as authorities specialize in this field.

Total cryptocurrency value received by illicit addresses since 2017 - Chainalysis

But these transactions are not just about Bitcoin. The majority of them are transactions executed on blockchains like Ethereum, where scams (in dark blue) via malicious protocols are much more frequent, and the infrastructures allow for transaction anonymization, attracting more criminals.

It's also worth noting that 44% of illicit transactions in 2022 involve entities sanctioned by the OFAC (in light blue), a financial control body dependent on the U.S. Department of the Treasury.

In comparison, the United Nations Office on Drugs and Crime reported 2.1 trillion dollars used for criminal purposes. The office stated:

“The estimated US$2.1 trillion of crime proceeds believed to be generated in 2009 of which US$1.6 trillion available for laundering, including crime proceeds of US$0.9 trillion from transnational organized crime of which US$0.6 trillion available for laundering, help existing crime to flourish and expand, with a large number of negative socio-economic consequences, depending on the specific predicate crimes.”

The report specifies that all illicit transactions around the world in 2009 could represent between 2.3% and 5.5% of the global GDP.

Some examples of criminal cases using Bitcoin

If you're still not convinced that the blockchain makes it easy to trace criminals, here are some examples:

In November 2021, the Internal Revenue Service (IRS) seized 50,676 Bitcoins, worth 3.36 billion dollars, belonging to James Zhong, who was convicted of electronic fraud after hacking Silk Road in 2012. Zhong had exploited a vulnerability in Silk Road's withdrawal system, allowing him to divert 50,000 Bitcoins.

In 2020, authorities were able to identify Zhong when he tried to transfer his funds to an exchange platform to sell his Bitcoins. In total, the U.S. government seized 99,607 BTC related to this case, representing nearly 4.33 billion dollars.

In July 2023, Ilya Lichtenstein and Heather Morgan were convicted of laundering over 120,000 Bitcoins stolen from Bitfinex in 2016. The U.S. authorities were then able to recover more than 108,068 Bitcoins through various operations.

Blink’s position

Blink, based in El Salvador, operates as a fully regulated entity. We adhere strictly to legal and regulatory standards, ensuring our services are used responsibly. Blink categorically opposes the use of our platform for any criminal activities and is committed to maintaining compliance and integrity in all operations in accordance with the laws and regulatory bodies of El Salvador.

Learn more about how Blink delivers an accessible, reliable and secure custodial Bitcoin experience in the recent post “Know Your Custodian” on the Blink blog. 

Explore the “Earn” section in Blink Wallet. It covers a variety of introductory topics about Bitcoin similar to this one, and you can earn sats for learning!

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