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Illicit Cryptocurrency Transactions Reach All-Time High

Illicit Cryptocurrency Transactions Reach All-Time High

January 25, 2023399 view(s)

Chainalysis is a blockchain data platform that provides statistics and insights about the crypto market to governments, financial institutions, and cybersecurity companies in over 70 countries. Chainalysis released a preview of its annual illicit cryptocurrency transactions report. The initial estimate was more than $20 billion in illegal transactions in 2022. The $20 billion number comprises transactions "on-chain" and not tied up in legal proceedings. The report states that several ongoing investigations, like FTX, have made transactions harder to measure. Also, many illicit transactions are recorded "off-chain," so there is no visibility of such transactions.  

In 2022, 44% of illicit cryptocurrency transactions were connected to sanctions. Two Russian darknet platforms, Hydra and Garantex, and one North Korean platform, Toronto Cash were responsible for most illicit transactions in 2022. Garantex was the most prominent platform with the most illicit transactions. Still, it is uncertain if the Garantex transactions were Russians avoiding sanctions or transacting with other Russians. The U.S. sanctioned Toronto Cash in 2019 after it was found responsible for a $620 million heist. Toronto Cash is in the news again today.

The FBI has confirmed North Korean groups were behind a $100 million crypto hack of California-based Harmony Horizon Bridge last June. Cryptocurrency platform Binance cooperated with authorities to help recover $2.8 million from the hackers. 

Hydra is also in the news again today. The Department of Justice has indicted Anatoly Legkodymov, a Russian national with money laundering over $700 million through his company Bitzlato on the Hydra platform.

 Chainalysis estimates that 0.24% of all 2022 cryptocurrency transactions were illicit. The bear market caused a significant drop in all cryptocurrency transactions, not just illicit ones. Due to how crypto scams and illicit transactions happen, it can be several months or years before the full scope of the transactions is known. For example, Chainalysis initially reported $14 billion of illicit transactions in 2021. However, several scandals and money laundering schemes have manifested, and they now say $18 billion for 2021. None of Chainalysis' 2022 numbers include any transactions from companies like FTX that are being investigated for fraud or going through a bankruptcy like Three Arrows Capital.

The cryptocurrency space is riddled with scandals and scams. Ruja Ignatova is on the FBI's ten most wanted list for swindling $4 billion with her Ponzi scheme cryptocurrency, OneCoin. Bitfinex refused to return $2.3 billion of recovered Bitcoin to their customers. The FTX debacle is still ongoing, but at least $7 billion is missing. The investigator of Enron, Jon Ray III, described the FTX situation as “unprecedented” and the craziest thing he ever saw. 

Where Does This Go?

Cryptocurrencies are a playground for fraudsters. In another article, I argued that cryptocurrency fraud and scandals would usher in regulation, leading to criminalization and a CBDC. The central bank of India wants to skip the regulation part and jump to all private cryptocurrencies becoming illegal internationally. Read the article here.

Are there legitimate ways to make money in cryptocurrencies? It depends on what is meant by legitimate because legal and legitimate are not synonymous. There are legal ways to make money in cryptos, but that doesn't mean it is legitimate. Cryptocurrencies are a limited supply of nothing. In contrast, fiat currencies, like the Dollar, are an unlimited supply of nothing. A tangible asset backs neither currency in a legal way. Still, the most critical function of government is regulating the currency. The government can only enforce taxes if it controls the currency. If it can't get taxes, everything else is a moot point. As they say, "don't steal. The government hates competition." For this reason, governments will prohibit private cryptocurrencies just as China has.

The cryptocurrency lie is the same as the fiat currency lie. The lie says, "nothing is worth something." The word fiat is Latin and means "by degree." Fiat currency has value because the government says it does. Cryptocurrencies have value because companies say they do. Since both can go to zero, neither is true wealth. True wealth can never go to zero, which is why people keep a portion of their assets in durable assets like precious metals, collectibles, and real estate. Most people want enduring wealth, not fleeting paper or digital “riches.” How about you? Do you choose enduring wealth or the digital playground?

Suppose you won a contest. You can choose a suitcase with $100,000 worth of gold or $100,000 worth of cash. The catch is that you can't touch it for five years. Which one do you choose? In our hypothetical situation, most people choose gold. They say it's a no-brainer. The Dollar will have less purchasing power in five years due to inflation, so the price of gold will increase. So, how about the money sitting in the bank? Will it have more value as cash or gold five years from now?

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Ryan Watkins, Op-Ed ContributorbyRyan Watkins, Op-Ed Contributor
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