As the drug trade digitalises, is the popularity in cryptocurrencies fueling illegal activity?

News | Dezember 16, 2020, 17:31 PM | Brought to you by a Guest author

The online platform has opened up the scope and opportunity for an array of different prospects. Thanks to the internet we are now able to do many things such as online shopping which didn't exist before. As our finances and almost anything you can think of has moved online, it is only natural that other, less lawful, illicit activities have too, crept online.

The internet is helping to facilitate online drugs trading, which is unsurprisingly increasing. Drug trading online caught the attention of the FBI when an online marketplace named Silk Road was taken down in 2013. Silk Road was an e-commerce selling illegal goods on the dark web. But how is cryptocurrency fulling illegal activity of this kind?

Where is crypto being used to buy drugs?

A report by Ciphertrace found that in the second quarter of 2019, thieves and scammers stole a colossal $4.26billion from cryptocurrency exchanges. From this, the primary use of the crypto, a large portion of it being Bitcoin, was used for buying and selling illegal drugs, banking credentials and weapons on the dark market. It is thought that almost all drugs which are purchased on the dark market are brought using cryptocurrency.

(Source- Ciphertrace)

The figure above indicates the portion size of various cryptocurrencies used on the dark web. From both charts, it is evident that Bitcoin is the most used for both activities. The dark web is part of the internet, but it works in a different way in that it allows users to access it via a specialized network software on smart devices, this software allows the users to navigate through it anonymously making their activity untraceable.

Although there have been many efforts from governments to crack down on the happenings of the dark web, it offers an untraceable environment for activity which attracts users making it lucrative and safe to sell drugs and conduct illicit behaviour.

How big is the issue?

Due to the obscurity in tracing, it's hard to estimate the exact share and involvement of cryptocurrencies in illicit trade. Some reports have suggested that there is an estimated 46% of illegal activity carried out per year directly associated with Bitcoin. This could be due to the value and popularity of Bitcoin.

According to a report conducted by Europol and the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), they found that illicit behaviour was one of the biggest trades recognized on the dark market and was one of the biggest providers of organized crime in the EU. It is estimated that about two-thirds of the offers and purchases on the darknet markets are related to drugs.

The graph below indicates the levels of illicit behaviour on the darknet. It only covers encrypted parts of the internet and not sales that are carried out on the surface web, which is the part of the web that can be accessed through typical search engines. It is evident that for the most part, the darknet is used primarily for the drug trade.

(Source- EMCDDA)

The darknet is part of what is known as the deep web and cannot be accessed via a standard web browser. Its intended use is for storing encrypted data which consist of government files and personal banking records.

Why crypto over other methods of payment?

Before the introduction of digital currencies, cash was the biggest and most anonymous way of carrying out means of illicit transactions largely down to the fact that it is untraceable. Despite crypto adoption growing year on year, cash still holds the number on position. However, as cash is not adapted to work online the way crypto is, the use of crypto for drug purchases was the next best thing.

Even when trading internationally, cash is much harder to use for bigger operations, and so the use of crypto opened up the door for illicit trading online. Well established methods of laundering cash just won't cut it for the dark web work which reflects in the amount of crypto used.

How have the purchases of drugs changed thanks to cryptocurrencies?

The biggest and most fundamental change crypto has brought to the drugs, and the criminal market is the ready availability of anonymous electrical payments. In the past, drug trades would have taken place offline where payment would have been carried out traditionally as physical cash transfers. Trading in this way naturally restricted ease and access to illicit drugs. Much caution was taken in this way to prevent being found out by authorities and intercepting the entire supply chain.

The pandemic in no way has halted the drug market and, in a surprising turn, it has helped the market boom even more. The covid pandemic required quick solutions to an unexpected situation, and with many suffering from mental health issues in this challenging year, it has seen pandemic drug activity increase. However, with the use of cryptocurrencies and their nature, it has provided an opening which made it possible to use crypto, attracting drug dealers who took the opportunity to create sophisticated black e-commerce via the dark marketplace.