The Evolution of Cryptocurrency Crime in the Darknet

We have the world’s most famous sites like Wikipedia, Amazon, YouTube and Facebook. And then there’s the multitude of sites you can access through Google and other search engines. But they are only a small part of the Internet. Beyond these popular sites are those that are not easily accessible to the general public. These sites are located on what is commonly called the “Darknet” or the “Deep Web”.

The “Darknet” is a generic term for a set of websites hosted on encrypted networks with masked IP addresses, which gives users a solid protection of their anonymity. The “Darkweb” or “Darknet” are precisely these encrypted networks. Since these sites are not indexed by traditional search engines, you can only access them via the Darknet and its specific tools such as I2P (Invisible Internet project), Freenet, and the most famous of all, The Onion Router (TOR). 

Darknet and ransomware

The ethical issue of cryptocurrencies remains closely linked to the very nature and functioning of these assets. Indeed, virtual currencies are not associated with any governmental authority or institution. The bitcoin system was even explicitly designed to avoid relying on traditional trusted intermediaries, such as banks, and to escape the tutelage of central banks. The value of a virtual currency is therefore in principle based entirely on the trust and honesty of its users, as well as on the security of an algorithm capable of tracking all transactions.

However, due to their anonymity, lack of strict regulation and infrastructure gaps, cryptocurrencies also appear susceptible to attracting groups of individuals who seek to use them in a fraudulent manner. Regulatory concerns include their use in illegal trade (drugs, piracy and theft, illegal pornography), cyber-attacks, the potential for terrorist financing, money laundering and tax evasion.

Illegal activities thus accounted for as much as 46% of bitcoin transactions over the period 2009-2017, weighing in at about $76 billion per year during that period, equivalent to the size of the U.S. and European illicit drug markets. As of April 2017, approximately 27 million bitcoin market participants were using it primarily for illegal purposes.

One of the most well-known examples of cybercrime related to the use of cryptocurrencies today remains the “Silk Road.” In this online black market dedicated to the sale of drugs on the darknet, that part of internet accessible only with specific protocols, payments were made exclusively in cryptocurrencies.

In 2014, at a time when the price of bitcoin was around US$150, the FBI’s seizure of more than $4 million in bitcoins on the Silk Road gives an idea of the scale of the problem facing regulators. The FBI estimated at the time that this amount represented nearly 5% of the total bitcoin economy.

Cryptocurrencies have also facilitated the spread of ransomware attacks, malware that blocks companies’ access to their own data and only unlocks it upon payment of a cryptocurrency ransom. A study by Google researchers found that victims paid more than $25 million in ransom money between 2015 and 2016.

Cryptocurrency Launderers

Illicit flows are laundered on platforms 64% of the time, and on peer-to-peer trading platforms 12% of the time. 24% of funds are laundered through paid crypto anonymization services or online gaming sites.

Some organizations have decided to leave the dark web to offer their services on messengers like Telegram. A new type of decentralized organization has emerged where the different layers (drug supply, delivery…) are not in contact with each other to make it more difficult for law enforcement to apprehend them. Clients are no longer delivered by mail but have to go to changing delivery points (parks…) of which they have received the coordinates.