Money laundering is seen as one of the critical risks in the cryptocurrency market. By design, anonymous and difficult-to-track crypto market transactions encourage financial crimes and can be used to launder illegally earned income. In the article below, we discuss cryptocurrency money laundering statistics. How are cryptos used in financial crimes? How can they be prevented?
What does money laundering consist of?
Before we look at the cryptocurrency money laundering statistics, let’s explain what this illegal practice actually consists of. According to the accepted definition, it is a process in which the origin of illegal funds is concealed by introducing them into legitimate economic circulation. Money laundering became a common way to avoid responsibility for illegal transactions in the 1980s, with the rise of organized crime. For example, money laundering allows drug traffickers, tax evaders, human traffickers, or terrorist organizations to hide their income and remove themselves from legal responsibility.
How is money laundering done with cryptocurrencies?
With the emergence of Bitcoin, cryptocurrencies have been seen as a potential tool for fraud. Skeptics point out that in the hands of cybercriminals, digital assets are an easy way to launder funds. To some extent, anonymous, easy to transfer, and with a global reach – cryptocurrencies, due to their characteristics, can be used to put illicit money into circulation. In this regard, several cryptocurrency money laundering techniques can be distinguished. Statistics show that the most common way to hide illegal funds is using so-called mixers, by which transactions on the blockchain are mixed. As a result, tracking them and thus detecting irregularities is much more difficult. The scale of crime in the cryptocurrency world is increasing year on year. In 2022, the value of crypto-assets stolen through various crimes increased by 51% over the previous year, reaching a value of more than $3.5bn. Let’s look at a few events from this period for a better understanding of the scale of this problem.
Ronin bridge Hack
One of the most popular games built on the blockchain- Axie Infinity, experienced a hack in March 2022. Funds of 173,600 ETH and 25.5 million USDC tokens were taken from its bridge service- Ronin Bridge; connecting the original blockchain with Ethereum; with a total value of $612m USD.
Wormhole Bridge Exploit
In February 2022, a hacker manipulated Wormhole, Solana’s bridge, to credit 120k ETH on Ethereum. This allowed them to mint the equivalent amount of wrapped whETH (Wormhole ETH) on Solana. Total value of the hack is estimated at $312 million.
Nomad bridge exploit
August 2022: Nomad Bridge- a decentralized protocol that enables users to transfer their crypto assets between different blockchains, including Avalanche (AVAX), Ethereum (ETH), Evmos (EVMOS), and Moonbeam (GLMR). An attacker and copycats were able to exploit a bug in the Nomad bridge contract and withdraw over $190 million worth of cryptocurrency from the platform.
How often do cryptocurrency exchanges serve as money launderers?
Not since today have cryptocurrencies stirred up considerable controversy. Illegal activities are facilitated by the digital form and decentralized nature of cryptocurrencies, which can contribute to their use by criminals.
Detailed cryptocurrency money laundering statistics are difficult to provide – many procedures have not been detected. At the same time, it should be emphasized that it is still cash, not cryptocurrencies, that is the primary tool used to purify dirty money.
How to prevent money laundering with cryptocurrencies?
Crypto money laundering statistics reflect negatively on their perception and further adoption. Governments around the world are focusing on combating cryptocurrency money laundering. Increasing attention is being paid to tracking the flow of funds and identifying suspicious transactions. In addition, data analytics tools are helping to identify behavior indicative of money laundering. As a result, crypto money laundering statistics can be expected to decline in the coming years.
The risks associated with the possibility of money laundering via cryptocurrencies are one of the arguments for comprehensive regulation. The proliferation of AML regulations implemented by more countries, as well as the obligation to conduct KYC, contribute to blocking potential money laundering attempts. With the regulation of the cryptocurrency market, it can be expected that the fight against money laundering in this rapidly growing sector will become more and more effective.
Illegal activities can also be prevented through close cooperation between market players, especially regulators and cryptocurrency exchanges, and with the help of improvements such as AML platform. In doing so, it is necessary to exchange information between them, allowing for easier detection of financial crimes linked to cryptocurrencies. Undoubtedly, an effective fight against money laundering through cryptocurrencies will play a vital role in the sector’s further development.