Sex, Drugs And Bitcoin? The Reality Of Illegal Transactions On Bitcoin


Sex, Drugs And Bitcoin? The Reality Of Illegal Transactions On Bitcoin

In the mainstream financial world, there has been a pervasive argument that dismissively sees Bitcoin as nothing more than some kind of digital asset used by the seedy, virtual underbelly of the internet we more commonly know as being the Dark Web.

If there are studies used to flaunt this kind of narrative, these would be the duo of similarly titled pieces of research by both the University of Oxford and its Faculty of Law back in February 2018. But also the more recently discussed study brought forward by Talis Putnins of UTS Sydney, which, again, makes use of the same leading title.

So what is it these studies found? For one that, over the period which they both draw sources from, which is anywhere from 2013-2017 – anywhere from 44-46 percent of transactions taking place with Bitcoin were deemed to be ‘illegal' ones. This percentage roughly amounts to $72 to 76 billion, creating a digitalised black market for anything ranging from weapons, narcotics and even human trafficking, according to Putnins.

“These staggering numbers are close to the scale of the US and European markets for illegal drugs and suggest that cryptocurrencies are transforming the black markets by enabling “black e-commerce.”

While we, as investors, traders of or even just holders and enthusiasts of cryptocurrencies like Bitcoin, should be welcoming of research that helps to illustrate a serious problem. Also speaking to the professor of finance shortly after the talk, he concedes that the study has its limitations, one being chronological in nature; because this is information ‘scraped' during the nascent days of BTC as one example.

But it goes further beyond just a matter of time, what was being discussed is not only an old illustration of Bitcoin transactions but one that is damaging to the broader representation of crypto assets; from the kind of rapid improvements they've made over a short period. But also grossly generic in its definition of ‘illegal' activity.

We'll be digging into just some of the aspects that need to be taken into consideration when approaching Bitcoin now as opposed to what it WAS, just years ago, because the difference is significant.

First of All – Are Bitcoin's Transactions 46% Illegal?

The short answer is no. But to both the professor's and Oxford University's credit: they did use to be. But according to more recent research provided by Chainalysis back in June 27, 2019, this number has plummeted. The crypto analytics firm demonstrates that there's been a dramatic amount of self-regulation going on, with only 1% of transactions being illegal.

If we cross-reference this with Bloomberg‘s recent study on the same topic: this 1% counts for $515 million, which is forecasted to double to nearly $1bn by the end of this year (2%).

Putnin suggests that while there is speculation that the amount of illegal transactions has decreased, this is only because the pool of users has increased significantly, which is a fair point to make. If we look at the number of Bitcoin-based digital wallets open during 2017 (5.8-11.5 million) and present-day (25-32 million)[¹],[²].

So if hypothetically, Bitcoin was to reach $1bn worth of illegal transactions by the end of 2019, that would equate to 2% of all transactions using the cryptocurrency. Mathematically speaking, for consisting of a far larger pool of users, the volume of illegal transactions hasn't risen significantly, it's actually drastically declined. 46% of all transactions would still equate to $24.5bn give or take at this figure.

The Problem With A Definition – ‘Illegal'

But the problem is two-fold with this definition of an ‘illegal' transaction. During the course of the talk, Putnins pointed to increased uses of Ethereum, Dash and ZCash within the region of the US from 2014-2017, contributing somewhat to criminal transactions.

What he misses out is what these transactions were in aid of. Since at least 2014, the Venezuelan economy had been undergoing a tumultuous period of hyperinflation, debasing the value of the Bolivar significantly. As a result, desperate citizens resolved to obtain cryptocurrencies in order to exchange for US Dollars and buy food among other supplies[³].

What kind of crypto did these Venezuelans use? Ethereum, ZCash and Dash. CEO of the Dash Core group, Ryan Taylor admitted to CoinTelegraph journalists last year, in fact, that Venezuela was one of its biggest markets ahead of China and Russia[⁴].

“We are seeing tens of thousands of wallet downloads from the country each month…” Taylor continues.

“Earlier this year, Venezuela became our number two market even ahead of China and Russia, which are of course huge into cryptocurrency right now.”

To this day, there are initiatives that intend to provide Venezuelans with access to cryptocurrency in order to obtain US Dollars for supplies they need. Which is great news considering the re-emergence of bartering in the country[⁵]. Initiatives like #AirdropVenezuela provide crypto users with QR codes with which to airdrop crypto to wallet holders there.

Hardly drug trafficking, but it goes to show the glaring problem with labeling something as ‘illegal'.

Crypto-Fuelled Crime Is A “Drop In The Ocean”

Surely the fact that the number of Bitcoin users has risen significantly, relative to the net worth of illegal transactions represents that, much as Putnin's research advises against calling, it is all a ‘drop in the ocean.' Especially since Bitcoin has already seen a rate of decreasing criminal activity never before seen from an asset.

Even more especially the fact that centralized financial institutions have seen illegal activity within their businesses INCREASE significantly.

For example, between 2007 and 2015, Danske Bank alone was found guilty of laundering the money of thousands of already suspicious account users. This resulted in the processing of more than $180 billion over a nine-year period. Deutsche Bank has also faced serious allegations of laundering more than $80 billion, according to The Guardian back in April this year.

These are only some of the criminal activities that banks and financial institutions have helped enable over the years.

In total, it's believed that these same organizations are responsible for more than $2 trillion worth of illegal activity on an annual basis, according to research performed by the UN. So in the context of illegal activity, is Bitcoin's illegal activity a drop in the ocean? Yes, it is.


1 – Rauchs, M. Hileman, G. (2017). Global Cryptocurrency Benchmarking Study. University of Cambridge. Pp.10-11. Link here

2 –  Leilacher, A. (February, 2019) Link here.

3 – Castillo, M, D. (2018). CoinDesk –  “The Anti-Petro? Zcash Throws Venezuelans a Lifeline” – Link Here.

4 – Suberg, W. (August, 2018). “Dash Core Group CEO: Venezuela ‘2nd Biggest Market’ as Interest in Crypto Spikes.” CoinTelegraph. Link here.

5 – Graham-Harrison, E. Torres, P. Parkin, D,  J. (March 2019). “Barter and dollars the new reality as Venezuela battles hyperinflation”. The Guardian. Link Here.

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