Study: Sex, drugs, and bitcoin – How much illegal activity is financed through cryptocurrencies?

Study: Sex, drugs, and bitcoin – How much illegal activity is financed through cryptocurrencies?

44% of bitcoin transactions are illegal and 25% of its users are actively engaged in illicit trade a study by professors of the University of Sydney, the University of Technology Sydney and the Stockholm School of Economics in Riga finds - and its skyrocketing value is inevitably linked to these numbers. The study has been published in January 2018.

Through their in-depth study about cryptocurrencies in general, and bitcoin in particular, Sean Foley, Jonathan R. Karlsen and Tālis J. Putniņš (pictured) dive into the vast world of digital currencies thanks to an innovative methodology designed to more effectively monitor them. The study seeks to better understand the role of illicit trade in bitcoin’s skyrocketing value.

Here are some of the key takeaways:

  • The anonymity offered by cryptocurrencies has greatly contributed to the boom in online and cross-border commerce of illegal goods particularly via the darknet.
  • Bitcoins, unlike other cryptos such as Monero, are not fully anonymous. Indeed, thanks to the public nature of the bitcoin blockchain and the fact that each individual “user” is linked to an alpha-numeric address, there are methods to study user behavior and link it to illegal activities.
  • 25% percent of users and 44% of transactions are associated with illegal activity in the bitcoin blockchain. It is estimated that 24 million bitcoin market participants use the cryptocurrency for illegal activities. “These users annually conduct around 26 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin”(p.2).
  • Illegal activity contributes to bitcoin's market value putting a big question mark on the ethics of investing in it or any other anonymous cryptocurrency.

The authors still believe that blockchain technology has the potential to boost a number of industries thanks to the system’s transparency and capacity to track every transaction forever, but the negative publicity that it has attracted because of cryptocurrency hacks, scams and raids has made regulators uneasy with the technology.

The full paper can be downloaded here >


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