Bitcoin money laundering is a classically dumb crime

Anybody can see your dirty laundry on the bitcoin blockchain, including law enforcement.
Anybody can see your dirty laundry on the bitcoin blockchain, including law enforcement.
Image: Reuters/Fabrizio Bensch
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Laundering money through bitcoin is a bad idea—not only because it’s illegal, but also because it leaves a permanent trail. Defendants have repeatedly been undone because they’ve relied on the cryptocurrency for some part of their nefarious activities. Sometimes, they’ve been arrested years after their alleged crimes.

According to the United Nations Office on Drugs and Crime, it’s estimated that 2% to 5% of the global GDP—or $800 billion to $2 trillion—is laundered each year, much of it in cash. But over the last few years, with cryptocurrencies growing in prominence and price, they’ve become a popular option, too. Government agencies have started contracting crypto-analytics firms like Chainalysis and CipherTrace to track down money launderers and other criminals.

“Cryptocurrencies have the reputation for being cross-border and anonymous, and therefore attractive to bad actors across the world,” Kim Grauer, senior economist for Chainalysis, explained to Quartz over email. “But because transactions involving cryptocurrencies like bitcoin are recorded on a permanent, public, and immutable ledger, cryptocurrencies can actually offer unprecedented transparency into financial transactions.”

Laundering money through bitcoin is like pulling off a jewelry heist, but leaving a map to your apartment at the scene of the crime. You can shred the map into tiny pieces—by sending bitcoin through multiple wallet addresses, or accounts, to hide your tracks—but with sufficient time and data-crunching power, it’s possible for other people to reassemble the clues.

What cryptocurrencies save in time (versus say, buying and selling bars of gold) they lose in efficacy. When it comes to financial crime, the vast majority of cryptocurrencies, including bitcoin and ether, are blunt instruments.

“The goal of money laundering is to create a chain of transactions that can’t be traced, so since the bitcoin blockchain is designed to have an indelible public record of all transactions, it makes ‘laundering’ much more difficult,” Dave Weisberger, CEO of CoinRoutes, a crypto order-routing service, said. “The technology from [blockchain analytics] firms such as Elliptic and Chainanalysis is sophisticated as well. They can trace [wallet] addresses quite well, which also make law enforcement easier.”

That’s part of why the arrest of a crypto expert last week is confounding. Virgil Griffith, a special projects researcher for the Ethereum Foundation, was detained last week in Los Angeles. The US accuses him of traveling to North Korea earlier this year “in order [to] deliver a presentation and technical advice on using cryptocurrency and blockchain technology to evade sanctions.”

Regardless of whether Griffith is innocent or guilty, what he’s accused of is, well, dumb. Is it possible to launder money and evade US sanctions using cryptocurrencies? Yes. Is it advisable, or even practical? Hell no. Crypto’s limited trading volumes, traceability, and storage risk affect everybody.

Reuters additionally reported that Griffith may have planned to send mining equipment to North Korea, ostensibly so the government or others could generate their own ether. Apparently he called the idea “cool.” But again—regardless of whether a crime was committed—it’s laughably unrealistic at scale, and anybody who got within 100 miles of North Korean bitcoin would put themselves on the blockchain (and watchlists) forever.

Bits & Pieces

  • The SEC has a new chief crypto cop (CoinDesk)
  • DOJ arrests Ethereum Foundation coder for teaching North Korea how to launder money, evade sanctions (Amy Castor)
  • Virgil Griffith: Internet Man of Mystery (NYT, 2008)
  • Ethereum is game-changing technology, literally (Virgil Griffith on Medium)
  • Ex-CFTC chair Giancarlo to push for digital dollar in new role at white-shoe law firm (CoinDesk)
  • Crypto needs more journalists than it wants to admit (Fortune)

Tomorrow at Princeton University: The future of money and the payment system, BIS General Manager Agustín Carstens (Watch here)

Please send news, tips, and gold bars to Today’s Private Key was written by Matthew De Silva and edited by Mike Murphy. You must study the endgame before everything else.