From speculation almost its inherent value to theories about it beingness the payment method of choice for criminals, cryptocurrency is having a tough time keeping a clean name. One of the most common accusations is that cryptocurrencies perpetuate the sale of illicit drugs, a view recently expressed past Us Treasury Secretary Steven Mnuchin. Cointelegraph takes a look at the bear upon of cryptocurrency on illegal drug sales and whether information technology should shoulder more than of the blame than greenbacks.

U.South. government clamps down

The watershed moment for the U.Due south. taking decisive activeness against illicit drugs being purchased with cryptocurrency happened in 2022, when FBI agents rushed into the San Francisco Public Library to abort Ross Ulbricht, a man who played a primal role in the digitalization of the international drug trade. Operating under the pseudonym ''Dread Pirate Roberts," Ulbricht was the mastermind backside the Silk Route — an anonymous, Amazon-similar marketplace located on the darknet — which allow users buy and sell anything, regardless of legality. Although the site listed weapons, stolen credit card details equally well every bit legal products, illicit drugs were past far the nearly mutual list. The Silk Road pioneered the use of Tor, the network software used to admission the darknet, and Bitcoin (BTC) escrow to muffle purchaser and seller identities and their activity. Although U.S. agents had hoped the seizure of the Silk Road would adjourn darknet activity, the news site DeepDotWeb wrote that the bust was "the best advertising the darknet markets could have hoped for," with a number of copycat sites popping up in subsequent years. In 2022, the FBI seized 27 darknet sites during Functioning Onymous, a articulation effort between the FBI and the European Wedlock Intelligence Agency Europol to stamp out illicit markets. In 2022, darknet markets are still selling illicit drugs that can be purchased with cryptocurrency, just U.S. police force enforcement continues to take a hardline approach, arresting a couple in California on Aug. 6 for selling drugs on the darknet in commutation for Bitcoin and Bitcoin Cash (BCH).

Recent events seem to ostend the house policy of U.S. government officials. Less than two weeks agone, the Department of the Treasury added multiple crypto addresses to its Peculiarly Designated Nationals, or SDN, list under the Foreign Narcotics Kingpin Designation Act.

The addresses are said to be associated with three Chinese citizens, all of whom are agile Bitcoin users. One Litecoin (LTC) address was also included in the list.

The Kingpin Act serves to clamp downward on transactions between international drug traffickers seeking to smuggle drugs into the U.South. and ban transactions betwixt those traffickers and U.S. entities. The act besides gives the government the power to coordinate and investigate foreign traffickers, the names of whom are brought to the attention of the president, who ultimately decides whether or not to impose sanctions.

Such legislative measures have been established in response to the land of illicit drug consumption in the U.South.: The land is currently in the throes of a serious opioid epidemic, with a person in America dying every 16 minutes from an opioid overdose. The White House issued two advisories outlining its business organization that fentanyl, forth with other synthetic opioids, are being purchased using cryptocurrencies.

Related: Tracking Drugs on Blockchain: How Significant Is Walmart and IBM's New Collaboration

Intended to help financial institutions and digital payment platforms, the advisories named the cryptocurrencies most requested by sellers of illegal drugs:

"Individuals located in the United states search for fentanyl and identify potential websites that may provide the opportunity to purchase illicit drugs online. Foreign representatives will instruct the U.Due south.-based individual to ship payments through CVC, such every bit Bitcoin, Bitcoin Cash, Ethereum, or Monero."

In an act to clench downwards on the online drug trade, the advisories urged financial institutions to come up frontwards with any suspicious user data, including:

"Virtual currency wallet addresses, business relationship information, transaction details (including [...] hash), relevant transaction history, bachelor login information (including IP addresses), data obtained from assay of the customer'due south public online profile and communications, mobile device data."

Where are drugs bought with crypto?

Co-ordinate to Ciphertrace's study on Anti-Money Laundering, or AML, nigh all drugs sold on darknet marketplaces are purchased with cryptocurrencies. For the nigh office, "drug sales on the nighttime spider web" is a phrase that has get synonymous with "drugs purchased with cryptocurrencies." The dark spider web is a office of the cyberspace that is accessible via specialized network software that allows users to navigate anonymously while their activity is largely untraceable. Given the increased surveillance powers of governments — nearly notably in the U.S. following 9/11 — the dark spider web provides an environment that is attractive, lucrative and, for the well-nigh part, safe for illegal drug traffickers.

Professor Talis Putnins, co-author of an influential Academy of Technology Sydney report on cryptocurrency and illegal drugs, told Cointelegraph that cryptocurrencies take had a large bear on on the mode drugs are purchased:

"Cryptocurrencies have fundamentally transformed the way illegal drugs are bought and sold, shifting much of the activity from a cash-based, concrete 'on the street' market to an online marketplace.The online illegal drugs trade needed two fundamental things to accept off. One is an anonymous communications platform, which was provided by the darknet and underpinned past TOR (an anonymous communications protocol). And the second important piece was an anonymous or private way of making digital payments that was difficult to trace by authorities. That is the function that cryptocurrencies have played. Thus, they are an integral function of the online drugs trade."

On the other hand, Europol spokesperson January Op Gen Oorth expressed the stance that the transparent nature of cryptocurrency renders transactions easier to trace compared to those involving cash:

"Payment for drugs using cryptocurrencies naturally makes more than sense when compared to, for instance, bank transfers. On the other hand, most cryptocurrency transactions are far improve traceable due to their inherently transparent nature than cash."

How widespread is cryptocurrency in illegal drug sales?

By virtue of their unaccountable nature, it is difficult to estimate the verbal marketplace share of cryptocurrencies in illicit trade. The Academy of Engineering science Sydney study estimates that around 46% of illegal activeness per year is associated with Bitcoin. While it is fair to notation that this figure does non represent illegal drug sales lone, the report found that Bitcoin is the most commonly used cryptocurrency for purchasing drugs on the darknet. Putnins too noted to Cointelegraph that, although the apply of Bitcoin for illegal purposes has increased, legal transactions using the cryptocurrency are likewise on the rise:

"What our research shows is that the dollar value of illegal activity in Bitcoin has continued to rise, as has the number of Bitcoin users involved in illegal activity, those growth rates take recently been outpaced by the strong growth in legal users, largely speculators. As a upshot, the percentages or shares of Bitcoin activeness that is involved in illegal activity have fallen in recent years. Therefore, while the online black market has continued to grow, cryptocurrencies are increasingly being used for legitimate reasons."

A articulation report between Europol and the European Monitoring Centre for Drugs and Drug Habit (EMCDDA) found that when compared with the annual retail value of the European union drug marketplace, darknet sales volumes are still modest simply have potential to abound. The 2022 Global Drugs Survey notes an best loftier of 27.i% of surveyed drug users obtained illegal substances for the first fourth dimension via the darknet in the last 12 months, up from 19.nine% the previous year, which highlights the trend of the increasing digitalization of drug trade.

The market share of online drug trade is growing

The written report states that over the last vi years, in that location has been a year-on-year increment in the percentage of surveyed participants obtaining drugs on the darknet. In addition, xxx% of respondents claimed that the range of drugs they utilise has increased, and a further 5% reported that they had never tried drugs earlier accessing them via the darknet. The increase in both darknet sales and wider drug usage amidst respondents indicates that the digitalization of the drug trade is making narcotics more attainable — thank you to anonymous buying and selling likewise equally untraceable payments using cryptocurrency.

Moreover, according to the Global Drugs Survey, the ready availability of drugs on the darknet that are purchasable using cryptocurrency has increased their use and made them more attractive to those considering first time utilize:

"Over ane quarter of participants reporting darknet market use in the last 12 months began their use in the year 2022: that is, they were new recruits to the darknet. These information ostend that darknet markets continue to concenter new participants and that they are an increasingly significant players in the auction of distribution of illicit and prescription medication."

How does cryptocurrency compare to other payment methods for drugs?

Prior to the appearance of cryptocurrencies, cash was largely considered to be the well-nigh anonymous ways of carrying out illicit transactions, owing to the fact that it is largely untraceable. Yet, even as Bitcoin's popularity grows, cash still seems to retain its central part in facilitating criminal gains.

In its report, Europol notes that this happens for several reasons. The first of which is that cash is a tried-and-tested payment method that has been used for centuries. Consequently, well-established methods for laundering cash exist. Another advantage that greenbacks has over its digital counterparts is the fact that it is equally as untraceable (with the exception of serial numbers) and anonymous while beingness easier to substitution.

Related: Crypto Vs. Cash — How the Numbers Stack Upwards on Drugs, Guns, Murders

Most — just not all — cryptocurrency exchanges and online wallet providers require at least some basic Know Your Customer, or KYC, procedures in order to confirm the identities of their customers. The Europol report states that exchanges are commonly very cooperative when it comes to identifying bad actors. Cash, on the other paw, tin be physically exchanged between strangers and laundered in any number of ways without information nearly those involved being made public.

A Ciphertrace report found that, while there is a variety of cryptocurrencies used on so-called nighttime markets, Bitcoin remains the coin of choice in 76% of transactions. This is perhaps unsurprising, considering Bitcoin is — past a considerable stretch — the well-nigh well-known and widely accepted cryptocurrency: Litecoin is reported as being used in only 7% of cases, while privacy coins such as Monero (XMR) are simply cited as being used in iv% of transactions, contrary to popular belief.

The most popular cryptocurrencies on the darknet

How have cryptocurrencies changed the purchase of illegal drugs?

The most primal alter that cryptocurrencies brought to the drug market is the prepare availability of anonymous electronic payments. Beforehand, a drug trade would accept to accept place via traditional, offline networks where payments were made via a physical transfer of cash. This naturally restricts the accessibility of illegal drugs to established networks and exposes the unabridged supply concatenation and payment structure to a adventure of interception past government. On the other hand, the anonymous digital payments made possible by cryptocurrencies are peculiarly attractive to drug dealers and play a role in creating an increasingly large and sophisticated network of dark marketplaces and "blackness e-commerce."

Co-ordinate to Tom Robinson, co-founder and principal scientist at blockchain analytics firm Elliptic, the benefits of anonymity for drug dealers can be limited by the ability to greenbacks out their crypto profits:

"The challenge for drugs traffickers is how to cash-out the gain of their sales. About cryptocurrency exchanges brand utilize of cryptocurrency transaction monitoring tools such as Elliptic's, which employ blockchain analysis to decide whether funds are coming from sources such equally dark markets."

Although Ciphertrace'southward report found that a very small share of darknet transactions involve privacy coins, Robinson believes that they are nevertheless an impediment to law enforcement's ability to help victims of cybercrime, compared to cases that involve other cryptocurrencies:

"One trend we are seeing is the increased credence of privacy coins such as Monero on nighttime markets where narcotics are available to buy. Most new markets now accept Monero payments, typically alongside Bitcoin. This represents a threat to police force enforcement's ability to trace this kind of activeness and bring those involved to justice."

Robinson explained to Cointelegraph via email that while Monero use is increasing, he is surprised that it has non disrupted the overall popularity of Bitcoin in illegal trade:

"First, what has become apparent and is slightly unexpected is that the emergence of privacy coins has not overly impacted the widespread use of the less bearding Bitcoin in illegal trade. The privacy coins offer many advantages to criminals, but it seems the 'first mover advantage' of Bitcoin makes it difficult to supplant now that its adoption in dark markets has get widespread. Put simply, information technology is not the best cryptocurrency to utilise for crime, but nevertheless remains the nigh popular."

The demographics of darknet users

Are cryptocurrencies the best payment selection for drug dealers?

Anonymity is a fundamental feature of cryptocurrencies that has been both historic and criticized in equal measure ever since their invention. Nonetheless, people ownership and selling drugs with cryptocurrency aren't as untraceable equally they might wish. The blockchain records publicly attainable details virtually every transaction made from 1 address to another. Unless the user launders the transaction through a serial of intermediary accounts, both the origin and destination of the transaction can easily be discovered. The addresses can then be linked to public records, every bit was confirmed by Robinson:

"Cryptocurrencies are far less anonymous and less private than many people in the drug trade might promise. The belittling methods that nosotros have developed for the Bitcoin blockchain permit a lot of the illegal activeness to be identified and monitored. Connected raids and crackdowns by law enforcement agencies also speak to the ability of regime to rail at least some of the illegal activity in Bitcoin and other cryptocurrencies."

Cryptocurrency is still a young engineering with express usage. Although it may make transactions more anonymous than conventional wire transfers, cashing out crypto that was previously used for illegal purposes remains a complicated and unsafe procedure. For these reasons, cryptocurrency is unlikely to fully replace cash as the currency of choice for illegal activity whatsoever time presently. While the view that cryptocurrency is but a payment organisation like any other may exist more or less correct, its anonymity undeniably makes it more bonny to individuals looking to purchase or sell illegal drugs. All the same, every bit technology advances and anonymous cryptocurrencies become more widely accepted, privacy coins have the potential to touch on the structure and development of night markets and the illicit drug trade in a pregnant way.

Countries where online drug trade is the most developed