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Criminals No Longer Bitcoin-Believers, What is the Coin of Choice for Illicit Crypto Use?

Last Updated July 21, 2023 2:44 PM
Omar Elorfaly
Last Updated July 21, 2023 2:44 PM

Key takeaways

  • The amount of Bitcoin used for illicit activity has decreased drastically over the last two years.
  • Criminals are beginning to favor stablecoins for their accessibility and ubiquity.
  • Ponzi schemes remain a threat in the Web3 space.

Bitcoin is no longer the cryptocurrency of choice for criminals, according to Web3 crime trends outlined in a presentation during EthCC in Paris.

Tara Annison, former head of technical crypto advisory at Elliptic, delved into the world of crypto-related crime, highlighting shifting trends in the cryptocurrencies being used for money laundering and illicit activities.

Unpacking insights from Web3 crime insights from Elliptic, Chainalysis and TRM Labs, Annison highlighted a shift away from criminals using BTC in illicit schemes to stablecoins and other cryptocurrency tokens.

According to the speaker, criminals prefer using dollar-denominated assets, like USDC Coin (USDC), as they are easily accessible and can be laundered through decentralized exchanges (DEXs). 

Ponzi schemes remain prevalent in the industry, with nearly $8 billion worth of funds stolen from unsuspecting users in 2022. 

Criminals are also becoming increasingly more savvy using a variety of cryptocurrency cross-chain bridges, DEXs and mixing services in an effort to avoid blockchain analytics firms’ detection.

A Stable Option for Criminals

A key takeaway from Annison’s presentation was the role that stablecoins are playing in the world of Web3 crimes. 

The accessibility of stablecoins and their ubiquity across DEXs and centralized exchanges makes these assets an easy choice to quickly move funds around. Annison said digital assets 

that are dollar-denominated feel “more accessible” which criminals use as a target point.

“It’s also super easy to launder through DEXs. There’s deep liquidity, really good volume, so that’s pretty worrying.”

The caveat of the increased use of stablecoins like USDC is the ability for issuers like Circle to freeze blacklisted tokens associated with hacks or thefts before criminals are able to cash out the stablecoins to fiat currencies.

“What we’re seeing now is an increased number of accounts with USDC being blacklisted, and these are frozen funds that the criminals now can’t access.”

Feels Like the 80s

Ponzi schemes have been part and parcel of the cryptocurrency space dating back to the early years after Bitcoin’s inception. As Annison highlighted, scams are still prevalent and continually account for major losses.

“It might feel a bit 80s, but they reign supreme. In 2022 we saw $7.8 billion worth of funds stolen from users in the space from ponzis and pyramids. The ten largest of these schemes accounted for about 54%. Ponzis and pyramids tend to get really big and dominate.”

Annison highlighted Forsage and Trade Coin Club, the latter of which was eventually charged by the SEC . Trade Coin Club raised more than 82,000 BTC from 100,000 investors globally over a two year period. The SEC also charged eleven individuals responsible for running Forsage  for operating an illegal pyramid scheme that raised over $300 million from users.

A New Type of Criminal

The presentation also suggested that criminals are becoming more sophisticated in laundering stolen funds by using chain swapping and asset swapping techniques, aiming to evade blockchain analytics firms’ detection.

“Criminals employ chain swapping and asset hoping to throw off blockchain analytics firms and evade detection, making it harder to trace stolen funds.”

Annison also highlighted an interesting correlation between the number of scams in the industry and prevailing cryptocurrency market conditions. Scams in the cryptocurrency space have decreased due to the falling market prices, as fewer new investors are attracted, making it less profitable for criminals.

Terrorists Using Tron, USDT

Annison also touched on sanctions evasion and terrorist financing, suggesting that terrorists are increasingly using crypto to bypass international financial barriers

“Cryptocurrencies are being used for sanctions evasion and terrorist financing, with Tron and USDtt being favored by terrorist organizations.”

Annison also noted that some sanctioned nations have turned to Bitcoin mining in an effort to bypass sanctions. She highlighted reports and data from 2021 that estimated that 4.5% of all Bitcoin mining was carried out in Iran, with the proceeds used to evade sanctions.

Threats From All Sides

The popularity of various metaverse platforms has also led to an element of criminality creeping in. 

Phishing attacks, NFT theft, wallet tainting, and augmented reality hacks have all become commonplace, according to Annison, presenting unique challenges for the sector to tackle with users’ reputations and security at risk.

Overall, the cryptocurrency sector continues to face a range of criminal activities, demanding increased vigilance and security measures to protect users and combat illicit activities.

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