Fact or Myth: Cryptocurrencies are more traceable than paper money

Fact or Myth: Cryptocurrencies are more traceable than paper money: Since the development of blockchain technology, which eventually resulted in the creation of cryptocurrencies, many experts and regulators have expressed concern about the types of people who are using this new technology for criminal and unlawful operations. While many members of the bitcoin community ignore this discourse, their concerns are legitimate.


Senator Elizabeth Warren, for example, is a United States senator. Due to her influence as chair of the Senate Banking, Housing, and Urban Affairs Committee’s Subcommittee on Economic Policy, many have interpreted her ‘grandstand’ against cryptocurrencies as an attack on the space; however, she has raised legitimate concerns about how cryptocurrencies are being used.

Although she stated in a letter to the US Securities and Exchange Commission (SEC) that cryptocurrencies are the financial system’s “wild west,” she added that the entire cryptocurrency space “desperately needs rules of the road and common sense oversight to protect the stability of our financial system and ensure that every investor has access to a safe cryptocurrency marketplace.”

According to Chainalysis, a blockchain analysis tool, ransomware payments will reach at least $602 million in 2021. The report added that the actual figure could be significantly higher because, when looking at ransomware payments in 2020, the firm initially reported $350 million stolen at the start of 2021 due to both underreporting by ransomware victims and our ongoing identification of ransomware addresses that have previously received victim payments. By the end of 2020, the sum had increased by 97.71 percent to $692 million. This demonstrates how legitimate these concerns are.

There is this notion that cryptocurrencies are the preferred medium of exchange for criminals, that the ecosystem is rife with illegitimate and unlawful transactions. Numerous central banks and politicians have pushed this notion. Janet Yellen, President Joe Biden’s nominee for Secretary of the Treasury, warned during a Senate Finance Committee hearing that cryptocurrencies are “a special concern” when it comes to criminal activities and terrorist financing.

“I believe that many (cryptocurrencies) are utilized, at least in a transactional sense, primarily for illicit financing,” she explained. And I believe we should seriously consider measures to limit their use and to ensure that anti-money laundering (sic) does not occur through those channels.”

Apart from Yellen, many go so far as to compare cryptocurrencies to paper money, claiming that criminals can get away with much more with cryptocurrencies than with conventional money. We shall examine the traceability of these two separate modes of payment/transaction in this post.

Is it possible to trace paper money?

According to Madhuri Thakur, a Wall Street Mojo author, paper money is “a country’s currency in the form of bank notes with a fixed value that are used to purchase goods and services.” Paper money is backed by the government of a country, but the central bank retains authority over its printing and circulation.”

Europol, the European Union’s law enforcement agency, reports that almost all types of crime use cash to facilitate money laundering at some point, not just traditional crimes that generate cash profits, but also threats posed by new technologies such as virtual currencies, in which cash is used to conceal the criminal origin of proceeds.

Cash is the preferred currency of criminals because, while bills have serial numbers, there is no method to track who possesses which bill in real time. As a result of this issue, several organizations have ceased accepting cash payments from individuals and implemented systems that allow for easy payment by credit cards, debit cards, or internet payment gateways in order to maintain a record of transactions. While currency is traceable in the long run, it is ineffective for real-time tracking.

Cryptocurrencies are they traceable?

Cryptocurrencies are based on a Distributed Ledger Technology (DLT) known as a blockchain, which provides permissionless and cross-border access to anybody who wishes to use it. Additionally, this includes real-time recording of transactions on the blockchain being used for transactions. Although the story of cryptocurrencies as the currency of the underworld persists, according to Ben Weiss, CEO of crypto ATM operator CoinFlip, it will be foolish to use cryptocurrencies for illicit and unlawful transactions such as money laundering dirty money.

“This is not an anonymous message. This is a pseudo-anonymous account. Without KYC, ID, or driver’s licenses, you cannot purchase any significant amount of bitcoin,” Weiss explained, referring to “know your customer” and similar identity checks. He continued, “Bitcoin is actually more transparent in many aspects than traditional financial instruments.”

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A notable ransomware attack in 2021 is the hack syndicate group DarkSide’s attack on oil pipeline firm Colonial Pipeline. The incident was notable in 2021 because it resulted in fuel shortages in certain areas of the United States, which were worsened by later panic buying when word of the strike’s impact spread.

The Colonial Pipeline attack, on the other hand, became a success story, as the US Department of Justice (DoJ) was able to track and seize $2.3 million of the ransom paid to DarkSide by Colonial. This demonstrates that it is possible to track and seize bitcoin transactions, therefore ending the claim that cryptocurrencies are ‘untraceable’ currencies.

Another important development demonstrating how transparent the cryptocurrency ecosystem is is the recovery of 94,000 BTC out of 119,756 BTC taken from Bitfinex in 2016 as a result of a hack. The 119,756 Bitcoins, which were worth $72 million at the time of the August 2016 hack, are now worth around $5.2 billion. The Department of Justice reported that it was able to obtain and seize roughly 94,000 BTC worth approximately $4.1 billion.

Indeed, after the 2016 theft, the persons associated with the stolen currencies have moved minor amounts of BTC in separate transactions, leaving the majority of the assets undisturbed. The DoJ said that it had traced 25,000 BTC of these transactions to perpetrator-controlled financial accounts.

What experts have to say

Adetayo Adesola, a Bybit marketing professional, shared his perspective on the subject. “The debate over whether cryptocurrencies are more traceable than conventional currency is a bit heated,” he explained. However, we have seen numerous cases in recent years where authorities have been able to ‘follow the money’ so long as they are looking in the appropriate way. While there are no names associated with specific wallet addresses, there is still a paper trail that is more visible than the present banking system in most circumstances.

“Have you ever pondered why the majority of cryptocurrency hacks end with the criminals haggling for a fraction of the money they stole?

“When you consider it from the standpoint of a centralised exchange – which, in my opinion, functions as banks and financial institutions. There is a reason why they demand authentication and have tiered withdrawal limitations based on your level of KYC. Simply said, they are able to ban particular accounts or recover funds that may have been obtained illegally if the law requires it (in their registered jurisdiction).”

According to Ajibola Lawal of Kaicho Capital, “For the most part, it would appear that because Crypto transactions are shrouded in secrecy, the simple assumption would be that anyone can attempt to shift money around without being traced.” This is largely incorrect. The entire nature of cryptocurrencies is that they are completely transparent. And with increased visibility comes increased traceability. With cash, we lack that level of visibility.

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“However, counterarguments can be made in instances when users employ privacy-enhancing technologies such as mixers or privacy-focused cryptocurrencies such as the Secret Network or Monero in an attempt to conceal their transactions from examination. However, even these solutions occasionally experience scaling challenges and are out of reach for the majority of customers.

“To summarize, yes, cryptocurrencies are significantly more traceable than cash.”

In conclusion

The fact is that, while the volume of crypto-related ransomware attacks appears staggering, it pales in comparison to the usage of fiat money in comparable crimes. In 2020, criminal conduct accounted for just 0.34 percent of all cryptocurrency activity. By comparison, money laundering and illicit activity account for between 2% and 5% of global gross domestic product ($1.6 billion to $4 trillion) yearly.

Given the difficulty of tracing paper money, the anonymity it provides, and the ongoing enhancement of law enforcement powers, it seems evident that cryptocurrencies should be pushed for usage as a means of payment rather than currency.

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