The Rise in Popularity of Cryptocurrency and Associated Criminal Activity

Abstract

Cryptocurrency such as bitcoin, Ethereum, and, more recently, Monero has become the currency of choice for many drug dealers and extortionists. The criminal activities extend to tax evasion, money laundering, Ponzi schemes, and the theft of cryptocurrencies to kidnapping for ransom. As the demand for cryptocurrencies increases, it provides opportunities for criminals to hide behind the presumed privacy and anonymity. Identifying these cryptocurrency-related crimes have posed challenges for law enforcement due to the cross-border nature of transactions, the use of evasion technology to mask the identity of users, and inconsistent regulations. To address the role of cryptocurrencies in criminal activities, the study focused on four research questions: (1) What role do cryptocurrencies such as bitcoin (BTC) play in criminal activities? (2) What factors facilitate cryptocurrency-related criminal activities? (3) What role do politics play in regulating cryptocurrencies? and (4) What are the challenges they pose for regulators and law enforcement? To answer the questions, the study utilized a systematic content review of the news reports, court cases, scholarly articles, online search engines, and commentaries relevant to regulations and reforms. The findings help to understand the current climate of virtual currencies, their use in criminal activities, and the complexities involved in regulating cryptocurrencies.

Keywords

cryptocurrency virtual currency cybercrime legal regulations cyber securities

Get full access to this article

View all access options for this article.

References

Adesulu

(2018, January 14). Bitcoin craze! Is cryptocurrency real money or a Ponzi scheme? Vanguard. Retrieved February 22, 2018, from https://www.vanguardngr.com/2018/01/bitcoin-craze-cryptocurrency-real-money-ponzi-scheme//

Alexander and Symington v. BF LABS Inc . Civil Action No. 14-2159-KHV2016 (2016). Retrieved April 2, 2018, from https://ecf.ksd.uscourts.gov/cgi-bin/show_public_doc?2014cv2159-156

Alexander

(2017, December 14). New York woman charged with sending $85,000 in bitcoin to support ISIL. The Telegraph News. Retrieved March 3, 2018, from https://www.telegraph.co.uk/news/2017/12/14/new-york-woman-charged-sending-85000-bitcoin-support-isil/

Anderson

(2017, July 9). Currencies, policies and politics are all intertwined. Miami Herald. Retrieved December 7, 2018, from https://www.miamiherald.com/news/business/biz-monday/article160241369.html

Andreasyan

(2018, March 14). Eastern Caribbean Central Bank to pilot blockchain tech with Bitt. Fintech Futures. Retrieved October 25, 2018, from https://www.bankingtech.com/2018/03/eastern-caribbean-central-bank-to-pilot-blockchain-tech-with-bitt/

Bachmann

(2008). What makes them click applying the rational choice perspective to the hacking underground (Doctoral dissertation). University of Central Florida. Retrieved December 7, 2018, from https://stars.library.ucf.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=4790&context=etd

Bangera

(2018). Mastermind of a bitcoin [BTC] Ponzi scheme worth over $300 Billion arrested in India. 2018. Retrieved April 6, 2018, from https://ambcrypto.com/mastermind-of-a-bitcoin-btc-ponzi-scheme-worth-over-300-billion-arrested-in-india/

Baron

O’Mahony

Manheim

Dion-Schwarz

(2015). National security implications of virtual currency: Examining the potential for non-state actor deployment. Santa Monica, CA: Rand.

Bitcoin Exchange Guide. (2018). Top 100 cryptocurrency coins explained in a single phrase. Retrieved September 26, 2016, from https://bitcoinexchangeguide.com/top-100-cryptocurrency-coins-summary/

10.

Bloomberg

(2017, December 8). Using bitcoin or other cryptocurrency to commit crimes? Law enforcement is onto you. Forbes. Retrieved October 20, 2018, from https://www.forbes.com/sites/jasonbloomberg/2017/12/28/using-bitcoin-or-other-cryptocurrency-to-commit-crimes-law-enforcement-is-onto-you/#776e383c3bdc

11.

Bonn

(2018, March 2). Politicians are getting in on the cryptocurrency craze to fund campaigns. CNBC. Retrieved December 12, 2018, from https://www.cnbc.com/2018/03/01/cryptocurrency-candidates-politicians-embrace-bitcoin.html

12.

Brenig

Rafael

Müller

(2015). Economic analysis of cryptocurrency backed money laundering. ECIS 2015 Completed Research Papers. Paper 20. Retrieved October 25, 2018, from http://aisel.aisnet.org/ecis2015_cr/20

13.

Brill

Keene

(2014). Cryptocurrencies: The next generation of terrorist financing. Defense Against Terrorism Review, 6, 7–30.

14.

Buck

(2018, September 13). Are state-backed cryptocurrencies the future? DEX. Retrieved December 8, 2018, from https://dex.openledger.io/are-state-backed-cryptocurrencies-the-future/

15.

California Legislative Reform. (2016). AB-1326 digital currency. Retrieved March 2, 2018, from https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB1326

16.

Carlisle

(2017). Virtual currencies and financial crimes: Challenges and opportunities. Royal United Service Institute for Defense and Security Studies. London, England: Stephen Austin. Retrieved September 30, 2018, from https://rusi.org/sites/default/files/rusi_op_virtual_currencies_and_financial_crime.pdf

17.

Cellan-Jones

(2018, February 11). Hackers hijack government websites to mine crypto-cash. BBC News. Retrieved February 2, 2018, from http://www.bbc.com/news/technology-43025788

18.

Chapman

(2018). Bitcoin latest: Vladimir Putin “considers launching cryptocurrency to help Russia evade sanctions.” Independent. Retrieved March 2, 2018, from https://www.independent.co.uk/news/business/news/bitcoin-latest-updates-putin-cryptocurrency-russia-sanctions-blockchain-tech-sergei-glazev-a8138021.html

19.

Ciancaglini

Balduzzi

Goncharov

McArdle

(2013). Deebweb and cybercrime: It’s not all about TOR. A trend micro research paper. Retrieved April 6, 2018, from http://www.trendmicro.ie/media/wp/deepweb-and-cybercrime-whitepaper-en.pdf

20.

Cohen

L. E.

Felson

(1979). Social change and crime rate trends: A routine activity approach. American Sociological Review, 33, 588–608.

21.

Demant

Munksgaard

Houborg

(2016). Personal use, social supply or redistribution? Crypomarket demand on Silk Road 2 and Agora. Trends in Organized Crime, 21, 42–61. doi:10.1007/s12117-016-9281-4

22.

Element Group. (2018, August 8). 8 countries exploring use-cases for a state-backed cryptocurrency. Retrieved October 16, 2018, from https://medium.com/datadriveninvestor/8-countries-exploring-use-cases-for-a-state-backed-cryptocurrency-a8947903c58b

23.

Emmanuel

O. O.

(2018, September 5). Thailand’s anti money laundering office set to create own cryptocurrency wallet for confiscating ill-gotten cryptoassets. BTCManager.com. Retrieved October 25, 2018, from https://btcmanager.com/thailands-anti-money-laundering-office-set-to-create-own-cryptocurrency-wallet-for-confiscating-ill-gotten-cryptoassets/

24.

Engle

(2016). Is bitcoin rat poison: Cryptocurrency, crime, and counterfeiting (CCC). Journal of High Technology Law, 16, 340–393.

25.

Federal Bureau of Investigation. (2017, July 24). FBI: Darknet takedown: Authorities shutter online criminal market AlphaBay. Retrieved April 6, 2018, from http://www.mcac.maryland.gov/newsroom/Critical%20Infrastructure%20News/fbi-darknet-takedown-authorities-shutter-online-criminal-market-alphaba

26.

Federal Election Commission. (2014). Advisory opinion. Retrieved March 3, 2018, from https://www.fec.gov/resources/updates/agendas/2014/mtgdoc_14-24-b.pdf

27.

Financial Action Task Force. (2014). FAFT report: Virtual currencies key definitions and potential AML/CFT risk. Retrieved September 29, 2018, from http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

28.

Financial Crime Enforcement Network (2013, March 18). Guidance. Retrieved from https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf

29.

Foley

Karlsen

J. R.

Putniņš

T. J.

(2018). Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies. SSRN. Retrieved October 21, 2018, from doi:10.2139/ssrn.3102645

30.

Frost

(2016, April 11). The impact of bitcoin on central banks. International Banker. Retrieved December 12, 2018, from https://internationalbanker.com/banking/impact-bitcoin-central-banks/

31.

Gary

Camp

L. J.

(2015). Why cybercrime? SIGCAS Computers & Society, 45, 20–28.

32.

Gloudeman

(2014). Bitcoin’s uncertain future in china. USCC Economic Issue Brief, 4, 1–21.

33.

Goldman

Z. K.

Maruyama

Rosenberg

Saravalle

Solomon-Strauss

(2017). Terrorists use of virtual currencies: Containing the potential threat. Center for a New American Security. Retrieved March 3, 2018, from https://www.cnas.org/publications/reports/terrorist-use-of-virtual-currencies

34.

Government of Australia. (2017). Budget 2017: Australia as the innovation and FinTech nation. Retrieved September 30, 2018, from https://www.budget.gov.au/2017-18/content/glossies/factsheets/download/FS_Innovation.pdf

35.

Greenberg

(2017, January 26). Monero, the drug dealer’s cryptocurrency of choice, is on fire. Wired.com. Retrieved September 30, 2018, from https://www.wired.com/2017/01/monero-drug-dealers-cryptocurrency-choice-fire/

36.

Higgins

(2016, February 22). California bankruptcy judge says bitcoin is property, not currency. Coindesk. Retrieved April 2, 2018, from https://www.coindesk.com/bankruptcy-judge-bitcoin-property-currency/

37.

Hosia

Perry

(2018, March 5). This is the first country to adopt a cryptocurrency as its official currency. Time Magazine. Retrieved from http://time.com/money/5186316/this-is-the-first-country-to-adopt-a-cryptocurrency-as-its-official-currency/

38.

Hughes

(1993). A cypherpunk’s manifesto. Retrieved October 25, 2018, from https://www.activism.net/cypherpunk/manifesto.html

39.

Hundeyin

(2018, August 31). Crypto mining attacks up nearly 1000% in first half of 2018. CCN.com. Retrieved October 25, 2018, from https://www.ccn.com/crypto-mining-attacks-up-nearly-1000-in-first-half-of-2018/

40.

Internal Revenue Service. (2014, March 25). IRS Virtual currency guidance: Virtual currency is treated as property for U.S. Federal tax purposes: General rules for property transactions apply. Internal Revenue Service. Retrieved February 1, 2018, from https://www.irs.gov/newsroom/irs-virtual-currency-guidance

41.

Jaishankar

(2008). Space transition theory of cyber crimes. In Schmallager

Pittaro

(Eds.), Crimes of the Internet (pp. 283–301). Upper Saddle River, NJ: Prentice Hall.

42.

Jose

(2018, October 11). Brazil’s largest Bitcoin (BTC) exchange loses case to Itau Bank. AMBCRYPTO. Retrieved December 13, 2018, from https://ambcrypto.com/brazil-largest-bitcoin-btc-exchange-loses-case-to-itau-bank/

43.

Karsten

West

D. M.

(2018, March 9). Venezuela’s “Petro” undermines other cryptocurrencies—And international sanctions. Brookings Institution. Retrieved March 3, 2018, from https://www.brookings.edu/blog/techtank/2018/03/09/venezuelas-petro-undermines-other-cryptocurrencies-and-international-sanctions/

44.

Kesari

Hoofnagle

McCoy

(2017). Deterring cybercrime: Focus on intermediaries. Berkeley Technology Law Journal, 32, 1093–1130.

45.

Kethineni

Cao

Dodge

(2018). Use of bitcoin in darknet markets: Examining facilitative factors on bitcoin-related crimes. American Journal of Criminal Justice, 43, 141–157.

46.

Kyung-rak

Yang-Jin

Su-ji

(2017, December 30). Rise of bitcoin causing a reexamination of basic questions about finance and currency. Hankyoreh. Retrieved April 3, 2018, from http://english.hani.co.kr/arti/english_edition/e_business/827512.html

47.

Lelzrowice

(2018, February). Why market cap is more important than price. Wirex. Retrieved September 30, 2018, from https://wirexapp.com/market-cap-important-price/

48.

Lester

(2017, January 9). Terrorists use bitcoin and PayPal in Indonesia, AML official claims. CCN.com. Retrieved September 30, 2018, from https://www.ccn.com/terrorists-use-bitcoin-and-paypal-in-indonesia-agency-official-claims/

49.

Library of Congress. (2014, January). Regulation of bitcoin in selected jurisdictions. Retrieved April 3, 2018, from https://www.loc.gov/law/help/bitcoin-survey/index.php

50.

Malwa

(2018, July 5). $1.2 Billion in cryptocurrency laundered through bitcoin tumblers, privacy coins. Yahoo! Finance. Retrieved December 5, 2018, from https://finance.yahoo.com/news/1-2-billion-cryptocurrency-laundered-224521652.html

51.

Marsali

(2018, April 26). Crypto money-laundering: Will crypto help the money launderers of the future. The Economist. Retrieved December 5, 2018, from https://www.economist.com/finance-and-economics/2018/04/26/crypto-money-laundering

52.

May

C. T.

(1994). The cyphernomicon. Retrieved October 27, 2018, from http://www.kreps.org/hackers/overheads/11cyphernervs.pdf

53.

Miller

Hansen

J. D.

Rosini

(2016). Florida state court order in Espinoza case raises questions about classification of bitcoin under Florida law. Virtual Currency Report. Retrieved April 2, 2018, from https://www.virtualcurrencyreport.com/2016/07/florida-state-court-order-in-espinoza-case-raises-questions-about-classification-of-bitcoin-under-florida-law/

54.

Moeller

Munksgaard

Demant

(2017). Flow my FE the vendor said: Exploring violent and fraudulent resource exchanges on cryptomarkets for illicit drugs. American Behavioral Scientist, 61, 1427–1450.

55.

Musiani

Cogburn

D. L.

DeNardis

Levinson

N. S.

(2016). The turn of infrastructure in internet governance. New York. NY: Palgrave Macmillan.

56.

Nakamoto

(2008) Bitcoin: A peer-to-peer electronic cash system. Bitcoin.org. Retrieved March 4, 2018, from https://Bitcoin.org/Bitcoin.pdf

57.

Norry

(2017, July 24). The history of Silk Road: A tale of drugs, extortion and Bitcoin. Blockonomi. Retrieved April 6, 2018, from https://blockonomi.com/history-of-silk-road//

58.

O’Keeffe

(2018, July 19). The pointlessness of state-backed cryptocurrencies. Cryptodisrupt. Retrieved October 15, 2018, from https://cryptodisrupt.com/the-pointlessness-of-state-backed-cryptocurrencies/

59.

Ossinger

(2018, February 2). Roubini says bitcoin is the “biggest bubble in human history.” Bloomberg. Retrieved September 30, 2018, from https://www.bloombergquint.com/business/roubini-says-bitcoin-is-the-biggest-bubble-in-human-history

60.

Panda

(2018, February 28). Cryptocurrencies and national security. Council on Foreign Affairs. Retrieved September 30, 2018, from https://www.cfr.org/backgrounder/cryptocurrencies-and-national-security

61.

Peck

B. M.

(2017). The value of cryptocurrencies: How bitcoin fares in the pockets of federal and state courts. University of Miami Business Law Review, 26, 191–223.

62.

Peter

G. W.

Panayi

Chapelle

(2015). Trends in cryptocurrencies and blockchain technologies: A monetary theory and regulation perspective. Journal of Financial Perspective: Fin Tech, 3, 1–43.

63.

Pollock

(2018, July 23). Can state-backed cryptocurrencies work, are they the answer? U.Today. Retrieved December 8, 2018, from https://u.today/undefined

64.

Popper

(2018, February 18). Bitcoin thieves threaten real violence for virtual currencies. New York Times. Retrieved April 4, 2018, from https://www.cnbc.com/2018/02/19/bitcoin-thieves-threaten-real-violence-for-virtual-currencies.html

65.

Reese

(2018, March 14). Trial planned for central bank-issued cryptocurrency in eastern Caribbean . ETHNEWS. Retrieved December 3, 2018, from https://www.ethnews.com/trial-planned-for-central-bank-issued-cryptocurrency-in-eastern-caribbean

66.

Riley

Dayu

(2013, December 5). China cracks down on bitcoin. CNN. Retrieved January 2, 2018, from http://money.cnn.com/2013/12/05/investing/china-bitcoin/index.html

67.

Roberts

J. J.

(2018, January 22). Criminals drop bitcoin for other cryptocurrencies. Forbes. Retrieved October 15, 2018, from http://fortune.com/2018/01/22/bitcoin-monero-cryptocurrency-crime/

68.

Securities & Exchange Commission (SEC). (2014). Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. Civil Action No. 4:13-CV-416. Retrieved November 25, 2018, from https://www.sec.gov/litigation/litreleases/2014/lr23090.htm

69.

Securities & Exchange Commission. (n.d.). Investor alert: Ponzi schemes using virtual currencies. Retrieved March 22, 2018, from https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf

70.

Security and Exchange Commission v. Shavers . No. 4:13-CV-416, 2012. Retrieved April 4, 2018, from http://www.law.du.edu/documents/corporate-governance/securities-matters/shavers/SEC-v-Shavers-No-4-13-CV-416-E-D-Tex-Sept-18-2014.pdf

71.

State of Florida v. Michell Abner Espinoza , Criminal Division Case No. F14-2923 (Fla. 11th Cir. Ct.2016). Retrieved March 20, 2018, from https://www.scribd.com/document/319504645/State-of-FL-v-Michell-Abner-Espinoza

72.

Swartz

(2018). What was bitcoin, what will it be? The techno-economic imaginaries of a new money technology. Cultural Studies, 32, 623–650.

73.

Thompson

(2018, August 16). The US and cryptocurrency crime. Axcess News. Retrieved October 15, 2018, from https://axcessnews.com/national/breaking-national/us-cryptocurrency-crime_6635/

74.

Tomkies

M. C.

Valentine

L. P.

(2018). Virtual currency: A commodity, property, security, or payment substitute. Banking & Financial Service Policy Report, 37, 1–6.

75.

Torpey

(2017, December 29). Comparing bitcoin and other cryptocurrencies by “market cap” can be very misleading. Forbes. Retrieved September 30, 2018, from https://wirexapp.com/market-cap-important-price/

76.

K. V.

Meredith

M. W.

(2015). Rethinking virtual currency regulation in the bitcoin age. Washington Law Review, 90, 271–346.

77.

Turpin

J. B.

(2014). Bitcoin: The economic case for a global, virtual currency operating in an unexplored legal framework. Indiana Journal of Global Legal Studies, 21, 335–368.

78.

United States of America v. Alexandre Cazes. Case No. 1:17 CR-00144. 2017. Retrieved March 3, 2018, from https://www.justice.gov/opa/press-release/file/982826/download

79.

United States of America v. Ali Shukri Amin , 1:15-cr-65. 2015; 5. Retrieved March 3, 2018, from https://bloximages.chicago2.vip.townnews.com/insidenova.com/content/tncms/assets/v3/editorial/9/56/95614c86-1044-11e5-bcc4-338312cfc1cf/5579988a4f732.pdf.pdf

80.

United States of America v. Ulbricht , 31 F. Supp. 3d 540-Dist (Court, SD New York, 2014).

81.

U.S. Commodity Futures Trading Commission. (n.d.). Bitcoin and other virtual currencies. Retrieved March 3, 2018, from https://www.cftc.gov/Bitcoin/index.htm

82.

U.S. Department of Justice. (2015, May 5). Ripple Labs Inc. resolves criminal investigation. Justice News. Retrieved March 2, 2018, from https://www.justice.gov/opa/pr/ripple-labs-inc-resolves-criminal-investigation

83.

U.S. Government Accountability Office. (2018, May). Virtual currencies: Emerging regulatory, law enforcement, and consumer protection challenges. Report to the Committee on Homeland Security and Governmental Affairs, U.S. Senate. Retrieved December 8, 2018, from https://www.gao.gov/assets/670/663678.pdf

84.

Vasek

Moore

(2015). There’s no free lunch, even using bitcoin: Tracking the popularity and profits of virtual currency scams. 19th International Conference on Financial Cryptography and Data Security (FC), San Juan, PR, January 26–30.

85.

Virtual Currency Working Group. (2014, June). Regulating virtual currencies: Recommendations to prevent virtual currencies from being used for fraudulent purposes and money laundering. Tracfin. Retrieved June 15, 2018, from Shttps://docs.google.com/viewerng/viewer?url=http://www.economie.gouv.fr/files/regulatingvirtualcurrencies.pdf

86.

Weese

(2018, April 12). How Hong Kong Bitcoin traders defend against scams. Forbes.com. Retrieved April 14, 2018, from https://www.forbes.com/sites/leonhardweese/2018/04/12/how-hong-kong-bitcoin-traders-defend-against-scams/#23975fd4148b

87.

Weinglass

(2018, June 22). Cryptocurrency-related crime will surpass all other cyberattacked in 2018: Expert. Times of Israel. Retrieved September 30, 2018, from https://www.timesofisrael.com/cryptocurrency-related-crime-will-surpass-all-other-cyberattacks-in-2018-expert/

88.

Weiss

(2018, June 7). Investor beware: State-sponsored cryptocurrencies are worthless. Money and Markets. Retrieved September 30, 2018, from https://moneyandmarkets.com/state-sponsored-cryptocurrencies-worthless/

89.

Wood

Buchanan

(2015). Advancing egalitarianism. In Chuen

D. L. K.

(Ed.), Handbook of digital currency: Bitcoin, innovation, financial instruments, and big data (pp. 385–402). New York, NY: Elsevier.

90.

Wroughton

Alexander

(2018, March 19). U.S. bans transaction with Venezuela’s digital currency. Reuters.com. Retrieved February 2, 2017, from https://www.reuters.com/article/uk-crypto-currencies-venezuela-usa/u-s-bans-transactions-with-venezuelas-digital-currency-idUSKBN1GV2AX

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.52 MB