Editor's Note: This article comes fromMengyan Finance (ID: Meng-eyes), reprinted by Odaily with authorization.
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Editor's Note: This article comes fromMengyan Finance (ID: Meng-eyes)Mengyan Finance (ID: Meng-eyes), reprinted by Odaily with authorization.1) Bitcoin involvement in crime is decreasing.3) Cryptocurrencies may shed the taint of crime and become more mainstream.For some, the concept of cryptocurrencies and illegal activities are closely intertwined. But recent research suggests that giant whales have little to do with that.
Possibly the biggest boost for Bitcoin ahead of 2017 was the news about the illicit market Silk Road. Once the world discovers an online venue where untraceable funds can be sent to buy drugs and weapons, it will never look back. Bitcoin has attracted a legion of new followers, but there has been a mix of good and bad.Soon, authorities banned Silk Road, and the public largely forgot about cryptocurrencies until the 2017 bull run.Unfortunately, this explosive public awareness has created a lot of negative connotations for Bitcoin. Before 2016, the most heard about Bitcoin was that its price fluctuated frequently and that it was often used to fund illicit activities.46% of "dirty" bitcoins
In 2019, a paper by Foley et al. found that up to 26% of Bitcoin users and up to 46% of Bitcoin transactions were associated with illicit activity. These types of transactions accounted for the equivalent of $7 billion in Bitcoin and $76 billion in transaction volume in 2017.As alarming as these figures are, they also come with caveats. Bitcoin has seen more mainstream interest since 2017, but with that comes more attempts at KYC, regulation, and better tracking protocols.Some entities even sell their services specifically for this purpose. Anti-money laundering firm (AML) AMLBot uses its algorithms to track which addresses and Bitcoin transactions are involved in illegal activity.In fact, such tools have shown that regulatory trends in the crypto space are likely to reduce the number of “black” crypto addresses. AMLBot told BeInCrypto: “We think the number of black addresses will fluctuate around 2% due to deepening regulation and strict anti-money laundering/KYC policies of major exchanges. No matter what happens outside the exchange, BTC addresses inside the exchange They're all being purified."AMLBot’s criminal lookup method tags bitcoins associated with crimes, including illicit markets, ransomware attacks, stolen coins, and more. The technique flags the risk of illicit bitcoins.Money laundering is hard, but criminals will find a way. AMLBot gave some examples to BeInCrypto: "There are still many loopholes for money laundering, such as peer-to-peer exchanges, DEX, exchanges with weak anti-money laundering/KYC policies, etc. The easiest way is to sell the currency at a discount."In Foley's 2019 study, the characterization of "dirty" bitcoins requires a similar algorithm, the Union-Find algorithm. This popular method of tracking funds compares transactions and addresses to automatically estimate the source and destination of tagged funds.
However, this method is not 100% accurate. In addition, there are now many more Bitcoin addresses than in 2017. Therefore, "46%" of addresses related to crime also need to be updated.So, even if that $7 billion of illicit bitcoins were still in circulation today, it would be diluted by the much larger bitcoin market cap of almost $700 billion today (bringing that illicit bitcoin percentage down to about 1%).In fact, it has been found that the crime rate related to Bitcoin is decreasing significantly year by year. As of October, crypto crimes in 2020 have dropped to $1.8 billion, compared to a high of $4.5 billion the previous year.Then we have to consider what constitutes a "dirty" bitcoin.What constitutes a "dirty" bitcoin?The upshot of this is that many legitimate and innocent users will end up with bitcoins that are marked as "dirty". Suffice it to say, criminal activity associated with such activities would henceforth disappear.Another problem with these huge numbers is how to qualify a wallet as "dirty". For example, AMLbot flags wallets associated with marketplaces that do not use or use poor KYC standards.
Likewise, some OTC or P2P services such as Local Bitcoins (which recently announced it would be closing operations in several states) can also make an address eligible to be flagged.Due to the lack of KYC, criminally tainted bitcoins are more likely to end up on unregulated exchanges and OTC/P2P services. However, it would be a fallacy to say that all such wallets engage in illegal activities. Innocent regulators will also use Local Bitcoins' P2P services.In this case, some bitcoins may be mislabeled as dirty, when in fact, it is not dirty. On the other hand, those really "dirty" bitcoins may have been successfully laundered. This makes it harder for these algorithms to track down criminal activity (although the tracking is getting better at the moment).For this reason, the number of tainted bitcoins in the paper may be higher than the actual circulating supply. Tracking illicit trading volumes magnifies the problem, as dirty coins are diluted at an ever-increasing rate.AMLBot conducted a study of the top 100 Bitcoin wallet addresses and found that the vast majority of them are clean.According to Glassnode, there are roughly 100 addresses containing more than 10,000 BTC (about $400 million, as of press time). These include an address containing $1.9 billion in BTC that has not been touched since 2014.
While whales may be splitting their bitcoin storage between different addresses, these 100 wallets still hold a huge percentage of existing bitcoin, and the vast majority of these wallets do not have any dark market transactions. sign.Surprisingly, out of these top 100 wallets, only 6 contained any Bitcoin originating from the dark web. Also, only 3 wallets had a combined value of more than 1% that could have come from illicit activity.Likewise, while 15 addresses were flagged for any kind of risky behavior, only 5 of them held more than 1% of funds.While privacy coins are resistant to regulation, AMLBot believes they will be sidelined by most governments and reputable exchanges. These coins may be marginalized, but will remain popular "in certain circles".
