6 ms·

Illicit activity a tiny part of cryptocurrency use

45 points by steelstraw 5y ago

pydry 5y ago
I'm very curious how they measured darknet transactions for stuff like child abuse or drugs and how they came out so low. I'm a bit suspicious that the more easily identified transactions (e.g. ransomware with publicized addresses) seem to be orders of magnitude higher.
- epgui 5y ago
  Short answer is they didn't measure that.
woofcat 5y ago
>Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever. As always, we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes. So basically this report is pretty useless.
NovemberWhiskey 5y ago
The ratio here appears to be "transactions used for criminal purposes divided by all transactions on blockchains". I'm not sure that's a very interesting number, even assuming you can be definitive about the former (which the reports admits it isn't). I would love to see, for example, "purchases of illegal goods and services divided by all goods and services on blockchains".
cheriot 5y ago
I'd be interested in the % of crypto transactions that are pure speculation. People do use it to pay for goods, sign contracts, etc. Are there more legal value creating transactions than illegal ones?
- mgraczyk 5y ago
  This metric basically just tells you how liquid the currency market is. Look at forex markets for traditional currencies. USD/EUR trading is over $3B daily. Does that tell you anything about USD as a currency, beside there being liquid markets?
  - cheriot 5y ago
    $3B is far less than the amount of USD used for purchasing goods and services each day.
periheli0n 5y ago
What is the methodology behind determining whether crypto transactions were illicit? I thought the whole point of using crypto was that transactions could not be traced. Edit: The report seems to imply that they somehow identified "illicit addresses", but do not say how. Perhaps I'm too scientific but I would really like to see a "Methods" section in this report. The lack of that makes it very difficult to draw reliably conclusions from that piece.
- NovemberWhiskey 5y ago
  That's not the point at all - every transaction on a distributed ledger can be tracked. It's not necessary to know ownership of an account to know whether a transaction is illicit; for example, a theft from an exchange or a hack on a DeFi contract.
  - pydry 5y ago
    It depends on the crime. If I bought drugs on a darknet exchange how would the researcher know to include that in the 0.15%? They don't. Not unless, e.g. that exchange gets busted and leaks all of its data. This title should really be "easily identified illicit transactions constitute 0.15% of trading volume". Which I'd say counts as a lot.
  - spicybright 5y ago
    Those kinds of heists are probably 1% of illicit transactions. We're talking more about buying drugs and exchanging crypto between two seemingly clean wallets.
  - periheli0n 5y ago
    OK, in that case "illicit" is defined as related to fraud in the crypto exchange itself. It does not refer to activities like e.g. buying banned substances, oligarchs circumventing sanctions, etc. If this is really the message of the article, then it is misleading, perhaps even deliberately so, to make crypto look good.
  - gtvwill 5y ago
    That's a very narrow definition of an illicit transaction. I mean you seem to ignore simple facts like how ownership alone can dictate if a transaction is illicit. Bit hard to tell me your not sending money to foreign nation States or supporting terrorism if you can't prove you know the identity of owners of the accounts your transacting with.
shkkmo 5y ago
This seems like a article that is intended to be misleading. The report itself acknowledges a huge level of inaccuracy. > As always, we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes. For instance, we found in our last Crypto Crime Report that 0.34% of 2020’s cryptocurrency transaction volume was associated with illicit activity — we’ve now raised that figure to 0.62%. A more correct summary is: .15% of transaction activity was with addresses identified by Chainalysis as associated with illegal activity. There are huge assumptions here about Chainalysis's ability and criteria for detecting illicit activity.
noyeastguy 5y ago
This would have to be a shallow definition of illicit. I think wasting energy, hoarding GPUs, baiting unsophisticated investors could be all be considered illicit activity. By that definition all of cryptocurrency is illicit.
- kube-system 5y ago
  Chainalysis is using the prevailing definition of illicit.
  - noyeastguy 5y ago
    https://www.merriam-webster.com/dictionary/illicit https://www.merriam-webster.com/dictionary/illicit "In any case, illicit may be used of behavior that is either unlawful or immoral." Putting carbon into the atmosphere (to the detriment of unborn people) in order to circumvent the laws of society and intentionally create a speculative bubble meant to pray on the unsophisticated investors and rob them of wealth is the definition of immoral behavior. Cryptocurrency was designed to disrupt laws (and has been used, see selling drugs on crypto, ransomware), so it must also be considered unlawful.
    - kube-system 5y ago
      > in order to circumvent the laws of society You have embedded your conclusion in your premise. "Doing [x] 'in order to break the law' is illicit." is true for any activity [x]. > Cryptocurrency was designed to disrupt laws (and has been used, see selling drugs on crypto, ransomware), so it must also be considered unlawful. 1. We don't really know the intentions of the people who invented the first cryptocurrencies. Their stated intent was not for illicit uses. 2. Human intent doesn't transfer through technology to other people via the transitive property through use of a technology.
      - salawat 5y ago
        Your point 1 completely disregards duplicity or the prospect of bait-and-switch. A con that is pitched out the gate as a con does not gather suckers with anything near the success rate of a rationalizable technology. It's a well known fact that "intelligent" marks can be easier to grift if they can be sold that their "getting grifted" is "getting ahead of the idiots on the next big thing". They practically fill in all the blanks for you with their own imagination. The ones who take the time to sit down and actually think about how the value proposition is backed, and look at "what a system does, rather than what it's pitched to do" are far more difficult to tap. Frankly, I assume everything starts as a grift, and only becomes not one through the stakes becoming so large for the "Emperor's New Clothes" moment that no one wants to talk about it. I'd think a board full of VC's would be somewhat more aware of this. Or is this one of the parts no one talks about because it gets the marks nervous?
PragmaticPulp 5y ago
Misleading headline. Very misleading. They took a list of addresses that were known to be associated with illicit activity and calculated what percent of transactions went to those specific addresses: > Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction... Unless you believe they've identified all of the illicit addresses (they haven't) then this report is worthless for anything other than those specific addresses.
- deleted 5y ago
  [deleted]
- amluto 5y ago
  The calculation of licit activity is a bit dubious, too. For example, the foreign exchange market has an overall volume of $6 trillion or so. It does not follow that the US GDP is only about 1% of total currency transactions and is therefore immaterial (or alternatively that currency in general is useless because 99% of global transactions are unproductive). I’m also suspicious that Chainalysis doesn’t understand the UTXO model. If you have $1bn of Bitcoin in a single “account” (UTXO) and you spend $1, you just “transacted $1bn”. I don’t know if there are good stats on what fraction of “total volume” consists of cryptocurrency holders simply making change for themselves. It’s not immediately obvious from the blockchain which transactions outputs are actually intended for parties other than the originator of the transaction.
  - cwkoss 5y ago
    Chainalysis is very misleading, and a lot of naive people are taking their claims at face value. Any chain analysis software either: - Has insider information from all of the major exchanges, or - Is just guessing about almost everything, so their analysis is based on many layers of questionable assumptions.
- steelstraw 5y ago
  What's the alternative? This shows what % is known to be illicit. No crime stats about anything capture 100% of illicit activity, yet it's still useful information. Anything else is just guesswork.
bombcar 5y ago
Conceding a significant (perhaps most) of cryptocurrency use is for speculation, and little is used for "economic" activity of any type, it would follow that most can't be "illicit". This may change now that most speculation is "off book" at exchanges anyway now.
- deleted 5y ago
  [deleted]
jl6 5y ago
Not reporting capital gains on a cryptocurrency sale would also be illicit, and I doubt they checked everyone's tax returns.
- TacticalCoder 5y ago
  > Not reporting capital gains on a cryptocurrency sale would also be illicit... That's really a US-centric view of things. There are places with 0% tax on capital gains and no need to report any.
  - ska 5y ago
    It's not really US-centric, although it is an assumption. At least a large fraction of jurisdictions require reporting of this, and may also require it for transfers, FX etc. It's probably a reasonable assumption that a significant amount (majority?) of blockchain activity is breaking tax and reporting laws somewhere, albeit some of it a mostly technology-outpacing-legislation way rather than intentional.
  - olliej 5y ago
    I suspect even the places with 0% tax on gains, you're required to report the income. That said: The places with 0% gains are generally low population, as an individual you don't get to choose where to report taxes - you report taxes wherever you are resident. Getting to avoid taxes remains a privilege for corporations and those rich enough to justify exciting trust games.
- BLKNSLVR 5y ago
  That's yet another example where the mighty US dollar would dwarf cryptocurrency. Along with money laundering and buying drugs.
jbkiv 5y ago
I would be interested in learning more about that. I have been in discussion with Chainanalysis and other companies. We are building an app / risk management process for average investors in crypto and NFTs. Think about a very secure wallet, with cold storage, and a near real time app that would trigger an alert if you are transferring crypto to a wallet tagged as high risk. We are building a database of what we call good/bad wallet addresses. Just created wallet? Flagged, transaction may be delayed 12 or 24 hours,etc... Can we be wrong? Of course and in that case we would insure that/you would get reimbursed. Example: somebody hacked into your wallet as you were seeking help on discourse, got the QR code, tries to transfer the funds to a new wallet. Bang, transaction on hold and you have to approve it. Any of you working on a list of dubious wallet addresses?
technion 5y ago
I noted yesterday that if you sign up to Independent Reserve, they have an "account reason" section and "ransomware/cryptovirus" is actually a valid account sign up reason from the pull down. I was surprised to see it so openly documented.
- jbkiv 5y ago
  Damn! Good find :-)
- randomhodler84 5y ago
  I suspect it is a trap entry to deny access. Just like if you willingly declare to an exchange that you are going to spend it on drugs. They can deny you, and refuse to be involved in RW pay off purchase to avoid liability.
rednerrus 5y ago
Illicit activity is the only value add to cryptocurrency.
theknocker 5y ago

45 points by steelstraw 5y ago

I'm very curious how they measured darknet transactions for stuff like child abuse or drugs and how they came out so low. I'm a bit suspicious that the more easily identified transactions (e.g. ransomware with publicized addresses) seem to be orders of magnitude higher.

epgui 5y ago
Short answer is they didn't measure that.

woofcat 5y ago

>Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever. As always, we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes. So basically this report is pretty useless.

NovemberWhiskey 5y ago

The ratio here appears to be "transactions used for criminal purposes divided by all transactions on blockchains". I'm not sure that's a very interesting number, even assuming you can be definitive about the former (which the reports admits it isn't). I would love to see, for example, "purchases of illegal goods and services divided by all goods and services on blockchains".

cheriot 5y ago

I'd be interested in the % of crypto transactions that are pure speculation. People do use it to pay for goods, sign contracts, etc. Are there more legal value creating transactions than illegal ones?

mgraczyk 5y ago
This metric basically just tells you how liquid the currency market is. Look at forex markets for traditional currencies. USD/EUR trading is over $3B daily. Does that tell you anything about USD as a currency, beside there being liquid markets?
- cheriot 5y ago
  $3B is far less than the amount of USD used for purchasing goods and services each day.

periheli0n 5y ago

What is the methodology behind determining whether crypto transactions were illicit? I thought the whole point of using crypto was that transactions could not be traced. Edit: The report seems to imply that they somehow identified "illicit addresses", but do not say how. Perhaps I'm too scientific but I would really like to see a "Methods" section in this report. The lack of that makes it very difficult to draw reliably conclusions from that piece.

NovemberWhiskey 5y ago
That's not the point at all - every transaction on a distributed ledger can be tracked. It's not necessary to know ownership of an account to know whether a transaction is illicit; for example, a theft from an exchange or a hack on a DeFi contract.
- pydry 5y ago
  It depends on the crime. If I bought drugs on a darknet exchange how would the researcher know to include that in the 0.15%? They don't. Not unless, e.g. that exchange gets busted and leaks all of its data. This title should really be "easily identified illicit transactions constitute 0.15% of trading volume". Which I'd say counts as a lot.
- spicybright 5y ago
  Those kinds of heists are probably 1% of illicit transactions. We're talking more about buying drugs and exchanging crypto between two seemingly clean wallets.
- periheli0n 5y ago
  OK, in that case "illicit" is defined as related to fraud in the crypto exchange itself. It does not refer to activities like e.g. buying banned substances, oligarchs circumventing sanctions, etc. If this is really the message of the article, then it is misleading, perhaps even deliberately so, to make crypto look good.
- gtvwill 5y ago
  That's a very narrow definition of an illicit transaction. I mean you seem to ignore simple facts like how ownership alone can dictate if a transaction is illicit. Bit hard to tell me your not sending money to foreign nation States or supporting terrorism if you can't prove you know the identity of owners of the accounts your transacting with.

shkkmo 5y ago

This seems like a article that is intended to be misleading. The report itself acknowledges a huge level of inaccuracy. > As always, we have to caveat this figure and say that it is likely to rise as Chainalysis identifies more addresses associated with illicit activity and incorporates their transaction activity into our historical volumes. For instance, we found in our last Crypto Crime Report that 0.34% of 2020’s cryptocurrency transaction volume was associated with illicit activity — we’ve now raised that figure to 0.62%. A more correct summary is: .15% of transaction activity was with addresses identified by Chainalysis as associated with illegal activity. There are huge assumptions here about Chainalysis's ability and criteria for detecting illicit activity.

noyeastguy 5y ago

This would have to be a shallow definition of illicit. I think wasting energy, hoarding GPUs, baiting unsophisticated investors could be all be considered illicit activity. By that definition all of cryptocurrency is illicit.

kube-system 5y ago
Chainalysis is using the prevailing definition of illicit.
- noyeastguy 5y ago
  https://www.merriam-webster.com/dictionary/illicit https://www.merriam-webster.com/dictionary/illicit "In any case, illicit may be used of behavior that is either unlawful or immoral." Putting carbon into the atmosphere (to the detriment of unborn people) in order to circumvent the laws of society and intentionally create a speculative bubble meant to pray on the unsophisticated investors and rob them of wealth is the definition of immoral behavior. Cryptocurrency was designed to disrupt laws (and has been used, see selling drugs on crypto, ransomware), so it must also be considered unlawful.
  - kube-system 5y ago
    > in order to circumvent the laws of society You have embedded your conclusion in your premise. "Doing [x] 'in order to break the law' is illicit." is true for any activity [x]. > Cryptocurrency was designed to disrupt laws (and has been used, see selling drugs on crypto, ransomware), so it must also be considered unlawful. 1. We don't really know the intentions of the people who invented the first cryptocurrencies. Their stated intent was not for illicit uses. 2. Human intent doesn't transfer through technology to other people via the transitive property through use of a technology.
    - salawat 5y ago
      Your point 1 completely disregards duplicity or the prospect of bait-and-switch. A con that is pitched out the gate as a con does not gather suckers with anything near the success rate of a rationalizable technology. It's a well known fact that "intelligent" marks can be easier to grift if they can be sold that their "getting grifted" is "getting ahead of the idiots on the next big thing". They practically fill in all the blanks for you with their own imagination. The ones who take the time to sit down and actually think about how the value proposition is backed, and look at "what a system does, rather than what it's pitched to do" are far more difficult to tap. Frankly, I assume everything starts as a grift, and only becomes not one through the stakes becoming so large for the "Emperor's New Clothes" moment that no one wants to talk about it. I'd think a board full of VC's would be somewhat more aware of this. Or is this one of the parts no one talks about because it gets the marks nervous?

PragmaticPulp 5y ago

Misleading headline. Very misleading. They took a list of addresses that were known to be associated with illicit activity and calculated what percent of transactions went to those specific addresses: > Transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction... Unless you believe they've identified all of the illicit addresses (they haven't) then this report is worthless for anything other than those specific addresses.

deleted 5y ago
[deleted]
amluto 5y ago
The calculation of licit activity is a bit dubious, too. For example, the foreign exchange market has an overall volume of $6 trillion or so. It does not follow that the US GDP is only about 1% of total currency transactions and is therefore immaterial (or alternatively that currency in general is useless because 99% of global transactions are unproductive). I’m also suspicious that Chainalysis doesn’t understand the UTXO model. If you have $1bn of Bitcoin in a single “account” (UTXO) and you spend $1, you just “transacted $1bn”. I don’t know if there are good stats on what fraction of “total volume” consists of cryptocurrency holders simply making change for themselves. It’s not immediately obvious from the blockchain which transactions outputs are actually intended for parties other than the originator of the transaction.
- cwkoss 5y ago
  Chainalysis is very misleading, and a lot of naive people are taking their claims at face value. Any chain analysis software either: - Has insider information from all of the major exchanges, or - Is just guessing about almost everything, so their analysis is based on many layers of questionable assumptions.
steelstraw 5y ago
What's the alternative? This shows what % is known to be illicit. No crime stats about anything capture 100% of illicit activity, yet it's still useful information. Anything else is just guesswork.

bombcar 5y ago

Conceding a significant (perhaps most) of cryptocurrency use is for speculation, and little is used for "economic" activity of any type, it would follow that most can't be "illicit". This may change now that most speculation is "off book" at exchanges anyway now.

deleted 5y ago
[deleted]

jl6 5y ago

Not reporting capital gains on a cryptocurrency sale would also be illicit, and I doubt they checked everyone's tax returns.

TacticalCoder 5y ago
> Not reporting capital gains on a cryptocurrency sale would also be illicit... That's really a US-centric view of things. There are places with 0% tax on capital gains and no need to report any.
- ska 5y ago
  It's not really US-centric, although it is an assumption. At least a large fraction of jurisdictions require reporting of this, and may also require it for transfers, FX etc. It's probably a reasonable assumption that a significant amount (majority?) of blockchain activity is breaking tax and reporting laws somewhere, albeit some of it a mostly technology-outpacing-legislation way rather than intentional.
- olliej 5y ago
  I suspect even the places with 0% tax on gains, you're required to report the income. That said: The places with 0% gains are generally low population, as an individual you don't get to choose where to report taxes - you report taxes wherever you are resident. Getting to avoid taxes remains a privilege for corporations and those rich enough to justify exciting trust games.
BLKNSLVR 5y ago
That's yet another example where the mighty US dollar would dwarf cryptocurrency. Along with money laundering and buying drugs.

jbkiv 5y ago

I would be interested in learning more about that. I have been in discussion with Chainanalysis and other companies. We are building an app / risk management process for average investors in crypto and NFTs. Think about a very secure wallet, with cold storage, and a near real time app that would trigger an alert if you are transferring crypto to a wallet tagged as high risk. We are building a database of what we call good/bad wallet addresses. Just created wallet? Flagged, transaction may be delayed 12 or 24 hours,etc... Can we be wrong? Of course and in that case we would insure that/you would get reimbursed. Example: somebody hacked into your wallet as you were seeking help on discourse, got the QR code, tries to transfer the funds to a new wallet. Bang, transaction on hold and you have to approve it. Any of you working on a list of dubious wallet addresses?

technion 5y ago

I noted yesterday that if you sign up to Independent Reserve, they have an "account reason" section and "ransomware/cryptovirus" is actually a valid account sign up reason from the pull down. I was surprised to see it so openly documented.

jbkiv 5y ago
Damn! Good find :-)
randomhodler84 5y ago
I suspect it is a trap entry to deny access. Just like if you willingly declare to an exchange that you are going to spend it on drugs. They can deny you, and refuse to be involved in RW pay off purchase to avoid liability.

rednerrus 5y ago

Illicit activity is the only value add to cryptocurrency.

theknocker 5y ago