How much are illegal activities behind the demand for crypto-currency?

by on February 6, 2018 at 12:53 am in Data Source, Economics, Law, Web/Tech | Permalink

Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users and one-half of bitcoin transactions are associated with illegal activity. Around $72 billion of illegal activity per year involves bitcoin, which is close to the scale of the US and European markets for illegal drugs. The illegal share of bitcoin activity declines with mainstream interest in bitcoin and with the emergence of more opaque cryptocurrencies. The techniques developed in this paper have applications in cryptocurrency surveillance. Our findings suggest that cryptocurrencies are transforming the way black markets operate by enabling “black e-commerce.”

Here is the paper, by Foley, Karlsen, and Putniņš, via the excellent Kevin Lewis.

1 dave February 6, 2018 at 1:32 am

This is just hyped up outlandish news…. 25% of crypto traders are in some way criminals????….. what garbage!!! And you call yourself a reporter Tyler…..pffft. You clearly don’t know a thing about how crypto currency actually works , not to mention the purpose of it. Go find a job more suited to your skills….. because reporting isn’t one of them!


2 Anon7 February 6, 2018 at 2:01 am

Since when is Professor Cowen a reporter for passing along links to papers highlighted by others?


3 Axa February 6, 2018 at 3:54 am

You can take this misguided comment as proof of Bitcoin being pumped by commenting bots.

Some crawler read and analyzed Tyler’s post. The algorithm outcome is to post a predetermined comment which typically is made for news site comments section.

The question is who is winning by running automated posts pumping Bitcoin.


4 clockwork_prior February 6, 2018 at 4:47 am

Maybe, but compared to something like clockwork_orange, that is quite a sophisticated bot (though nowhere near as entertaining). It actually picked up on the proper percentage, uses Prof. Cowen’s preferred form of address, and seems more or less on point (with an ulterior motive being easily assigned). And a response time of 40 minutes seems pretty fast, unless the bot is specifically scanning this site (it might, of course).

My guess is a bit different, since the comment actually feels personal, as seen by the reference to ‘crypto traders.’


5 clockwork_prior February 6, 2018 at 2:25 am

‘And you call yourself a reporter Tyler’

No, that is not one of the things constructed and managed in his broad portfolio.

And you seemed to have missed the fact that Prof. Cowen did not even find the link, but instead it was the eternally excellent Kevin Lewis that brought it to Prof. Cowen’s attention.


6 Ryan Mckean February 7, 2018 at 12:22 pm

Man, Prof. Cowen never fails to inspire. Loved that link.


7 Anonymous February 6, 2018 at 10:56 am

Imagine that you are a researcher looking for *uses* of bitcoin.

Would you exclude speculative buying and selling?

What would you have left? Who is buying “product” of one sort or another.

I think it is possible, and if so, look forward to countermeasures the world over.


8 Charbes A. February 6, 2018 at 1:59 am

If one did nothing wrong, one has nothing to fear.


9 msgkings February 6, 2018 at 1:08 pm

Except the Red Chinese. Always fear them.


10 Merida February 6, 2018 at 2:33 am

Still, the question remains should gentleman Cowen have given the study more publicity? After all, it disclosed my night time dealings.


11 So Much For Subtlety February 6, 2018 at 4:17 am

It reminds me a little of Father Ted’s Down With That Sort of Thing.

I would be more dismissive but I cannot work up the enthusiasm to criticize their methodology. How do they know any of those figures are true?

The Feds thought that Silk Road was doing something on the order of $15 million worth of business a year. It is likely that no other site has ever come remotely close to that figure and it represented nearly the total sum of illegal internet trading involving bitcoin. After all, there is no marketplace without buyers and sellers – and where else are they going to go?

So either the Feds were out by a factor of about 5,000. Or there is no such market in the world. Given the way the Feds usually quote “street value” for drugs, I don’t believe it is the former.


12 Skip Intro February 6, 2018 at 8:52 am

The FBI claimed that Silk Road did $1.2 billion worth of business between February 2011 and July 2013.


13 Jeff R February 6, 2018 at 9:42 am

Based on what my guy charges for primo nuggs, that’s really not that much.


14 chuck martel February 6, 2018 at 6:09 am

What are the world’s other unregulated markets?


15 rayward February 6, 2018 at 7:45 am
16 Alan Goldhammer February 6, 2018 at 8:17 am

Caveat Emptor should be the guiding phrase regarding investments in crypto-currencies. If one is to accept the Libertarian premise that such currencies should be unregulated, investors really need to be aware of the pitfalls along with the promise of investing/using such “monies.” I think the governments should totally stay out of regulating this area and let it run out as an experiment to see if the concept really works. Right now prices of certain computer parts are inflated (if the parts are even available) because of the rush to build “mining machines.” One wonders how many of these “miners” will recoup their investment.


17 The Anti-Gnostic February 6, 2018 at 8:52 am

Crypto-assets (they do not seem liquid enough to qualify as currency) have always struck me as a near-perfect way to launder money. Perhaps not that there’s anything wrong with that.


18 albatross February 6, 2018 at 3:16 pm

It’s hard to see something that leaves all transactions on a permanent public ledger as an ideal money-laundering tool, somehow. Monero or Zcash, yeah, those might work for money laundering, but Bitcoin isn’t all that great for the purpose.


19 ant1900 February 6, 2018 at 10:35 pm

Deposit cash into a Bitcoin ATM, shapeshift or atomic swap (if they ever become available) to a privacy coin, transfer again into something with stable value (if that ever becomes available), then reverse the whole process to get cash at a Bitcoin ATM.


20 Enrique February 6, 2018 at 11:10 am

The Foley et al. paper is incomplete, since it does not say what the optimal level of illegal trading is.


21 simplicio February 6, 2018 at 1:21 pm

I’d be interested to know what percentage of bitcoin transactions are actual exchanges for legal goods and services. My impression is that its vanishingly small, with trades being basically divided between illegal transactions and investment moves.

Also kind of interesting to think about how much money the worlds criminal community has lost in the last week. Probably best to be extra polite to any drug dealers, weapon smugglers, etc in your life this month.


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