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Published online by Cambridge University Press: 09 August 2023
INTRODUCTION
Blockchain technology and cryptocurrencies are innovative technologies that facilitate trust in distrusted systems. The technological ecosystem of cryptocurrency has experienced rapid growth since its inception in 2009, with all cryptocurrencies totalling a value of $590 billion in December 2017. Criminals exploit cryptocurrency as a way to process private transactions that cannot be revoked. Alongside the growth of this ecosystem, criminal activities such as ML, tax evasion, fraud, theft and hacking have been increasing. Cryptocurrency can be used to transfer funds across borders and to disguise the ownership and possession of funds. Virtual currency is used as means of payment for darknet markets such as Alphabay (Moore & Rid 2016) and blackmailing, as in the WannaCry hack (Fox-Brewster 2017). The irreversibility of the transactions makes cryptocurrency companies a target for hackers, which has resulted in large thefts. To date, the regulation of cryptocurrencies, blockchain technology and other relevant interfaces remains unclear. Criminals try to utilize, or rather abuse, new technology to enforce the level of information asymmetry (McCusker 2006; Stokes 2012). As cryptocurrency transactions are irreversible and processed instantaneously, and offer (pseudo-)anonymity and cross-border transactions, they are a convenient and attractive means for criminals to hide, launder and move their criminal revenues.
In the following, I provide an introduction to blockchain technology and cryptocurrencies and show why Bitcoin, as the most prominent example, may in fact be unsuited for criminal purposes owing to its pseudoanonymity, whereas other currencies, such as Monero and Zcash, provide fully anonymous payment options. I also explain how criminals are using cryptocurrency for ML, criminal trade, theft and hacks. As a new industry and technology, the relevant interface between virtual currency and fiat currency lacks know-your-customer (KYC) and AML procedures, making it possible to cover up illicit activities. I propose regulatory recommendations on how the cost of crime could significantly rise, potentially making it unprofitable to plan criminal activities that use cryptocurrency.
BLOCKCHAIN AND CRYPTOCURRENCY
As explained in the previous chapter, blockchain technology can be defined as a way to store, access and transfer information on a distributed ledger.
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