Overview

Does cryptocurrency fuel criminal enterprise—and should I be worried?!

Insights
April 13, 2022

Written by Alexa Langford, VP, Giving Sciences

I’ve shared a lot about cryptocurrency, the blockchain, and how social good organizations can start harnessing the power of web3. As a marketer and technology enthusiast, I’m genuinely excited for many of the promises that web3 brings—specifically authenticity, immutability, and decentralization.

However, technology and progress come at a price. It’s important to be aware of the negative aspects of cryptocurrency and blockchain technology. This and my previous opinion piece cover two of these challenging aspects.

Cryptocurrency + Criminal Activity

When first diving into cryptocurrency application, research, and strategy, I was personally concerned about the idea of funneling money into the dark web and other illicit activity. Is cryptocurrency funding drug sales? Terrorism? What else?! That’s obviously not the type of activity I want to associate with personally or recommend professionally. In short: there is a lot of media coverage about the negatives of cryptocurrency and how it funds criminal enterprise.

But, let’s take a quick detour into defining the criminal activity that is funded by cryptocurrency. Darknet markets are used for selling and buying illicit goods (such as drugs or stolen credit card numbers). Ransomware is malicious software that blocks access to a computer until a payment is made. Cryptocurrency scams prey on investors’ desire to join new enterprises at the ground floor and then take the investments and run. The rise of cryptocurrency has helped enable illicit activity by providing an untraceable, global, and anonymous way to move money.

Cryptocurrency adoption is fighting an uphill battle against its public perception as a crime-ridden sketchy internet fad.

By The Numbers

According to Chainalysis, a firm that tracks the movement of cryptocurrency across exchanges, an estimated $14 billion was received by known bad actors in 2021—an increase of 79% over 2020. In particular, 2021 saw a surge in stolen funds. These hacks typically happen when a bad actor infiltrates a cryptocurrency exchange, such as the December 2021 BitMart hack. Since cryptocurrency is not federally insured, users are at the mercy of their exchange to recoup the loss.

However, it’s important to note that a very small percentage of overall cryptocurrency transactions are illicit in nature—on the order of 0.15% in 2021. And illicit transactions are declining as a percentage of total volume as cryptocurrency becomes more mainstream.

In other words, while the cryptocurrency does indeed fund bad actors via its anonymous and decentralized nature, the amount of known illicit cryptocurrency funds are fractions of a percentage. This is not the money which is being funneled to social good and other nonprofit organizations. You should not feel as though you are helping to fund illicit activities by accepting cryptocurrency. Transactions fueling illicit activity are a legitimate problem that law enforcement agencies worldwide are working towards solving, but they do not pose a significant amount of activity overall.

How To Protect Yourself & Your Organization

  1. Keep your cryptocurrency in a cold wallet (not connected to the internet) and/or routinely exchange it into fiat currency
  2. Report suspicious activity to your local law enforcement agency
  3. Stay vigilant and urge your organization to have solid, documented internet security policies

Understanding the issues with any new technology is key to integrating it into your organizational ecosystem. This piece only begins to scratch the surface on the ways that criminal enterprises are using cryptocurrency. However, the numbers don’t lie—it’s a small percentage of total volume. The majority of US crypto-holders are married, male, Millennial tech enthusiasts who are more likely to be charitable donors than their non-crypto-holding counterparts*. Meeting consumers where they are—whether it’s on the Coinbase exchange, on Facebook, or in the mailbox—is key to a successful marketing strategy.

 

*Source: One & All’s Purpose Insights, 2022.