Illegal Bitcoin Transactions Occurring on the Dark Web

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The Worldcore.trade European crypto exchange conducted its own research seeking an answer on whether in mid-2018 Bitcoin transactions can be considered the currency of hackers, drug addicts and weapon traders. In January 2018 two independent groups of researchers published the results of their evaluation of Bitcoin involvement in sale and purchase transactions of illegal and criminal goods online. Especially, in its most concealed and mysterious parts of the Dark Web – the Darknet Marketplaces (DNM). They are an equivalent of Ebay, Amazon and Alibaba with far more particular and also illegal goods.

The first study was conducted by the Elliptic agency under the Fonda Foundation for Defense of Democracies, and demonstrated on a sample from 2013-2016 that only 0.61% of all Bitcoins that pass through conversion services (exchanges, change services, mixers, casinos) were obtained as a result criminal transactions (Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services, 2018). The second research study was conducted by a group of Australian scientists and the Sydney School of Economics, which demonstrated on a sample from 2009-2017 that approximately 51% of Bitcoin wallets hold illegal funds and about 20% of the Bitcoin transactions traffic is comprised of funds obtained in a criminal manner.

Yet again a great research by Worldcore

A direct explanation of the difference in the results of method application may be in the fact that the absolute majority of Bitcoin transactions don’t go through exchanges or change services, being transferred between the buyer’s and seller’s wallets and as a result is not detected by the first research team’s algorithms. In order to explain the divergence in the results of the two groups’ researches and the construction of its own model of evaluating the movement of criminal capital through the Bitcoin blockchain, in June 2018 the worldcore.trade exchange team from the Europena fin-tech startup, Worldcore.eu conducted a research according to its own methodology.

According to the leader and CEO of Worldcore, Alexey Nasonov, an indirect method was adopted in order to estimate the volume of transactions involving illegal goods. It does not entail the direct analysis of blockchain transactions with “exposed” criminal wallets, but rather it first determines the capacity of the criminal goods market and its segments services by the Darknet based on big data obtained from trusted sources. Only then is the total volume of illegal trades compared to the total volume of Bitcoin transactions in the same period of time.

You can see below the calculated results of sale and purchase transactions of illegal goods in the total volume of Bitcoin transactions:

  • Daily Bitcoin transaction volume for June-July 2018: 1 000 000
  • Lower estimate of monthly drug turnover through Darknet Marketplaces: 14 000 000$
  • Upper estimate of monthly drug turnover through DNM: 25 000 000$ (RAND Europe, 2016; World Drug Report 2018, Vol. 2 Global Overview of Drug Demand and Supply)
  • Average Bitcoin price accepted in the research June-August: 6500$
  • Minimal estimate of volume of blockchain mining transactions per purchase: 20
  • Maximum domination coefficient in Darknet, June-August as a % of total volume of Darknet Marketplace transactions: 50%
  • Coefficient inducing the drug turnover in the total turnover of illegal goods traded in DNM as a % of total volume of transactions: 47,7%
  • Minimal illegal goods daily sale volume in DNM, including mining as a % of Bitcoin transactions: 15%
  • Maximum illegal goods daily sale volume in the total DNM, including mining as a % of Bitcoin transactions: 0,67%

Bitcoin transactions on Darknet Marketplaces have declined

The volume of transactions was obtained from blockchain explorer, the estimate of drug turnover from UN Commisions’ materials, the average price was calculated according to the data of exchange transactions, the share of drugs among all the illegal goods- according to Europol data.

Structure of goods and drugs offered by Darknet Marketplaces

  • Illicit Drugs: 77%
  • Drug-related chemicals: 18%
  • Pharmaceuticals: 5%
  • All of the above form 62% of all goods offered on DNM and 38% for Other
  • The 38% are distributed at the following manner: 44% for Fraud and Counterfeit, 30% Guides and Tutorials, 5% hacking and malware, 2% Firearms and explosives, 19% Other

As demonstrated in the most recent study of the joint commission of the Europol and EMCDDA (European Monitoring Center for Drugs and Drug Addiction), 62% of Darknet trading volume comprises of drugs, their precursors or medicine, and the remaining 38% of the share, for fraud, counterfeit documents, various manuals, unidentifiable goods, hacking utilities, weapons, ammunition and explosives. The number of requests to mixing services for ensuring transaction security was obtained from the confessions of a trading platform manager. Alexey Nasonov commented:

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“The second value in the research, which was not computed analytically or obtained from the statistical data from blockchain, exchange, EU agencies or the Europol is the coefficient of Bitcoin domination in Darknet Marketplace transactions. It demonstrates the tendency to use specifically Bitcoin, rather than other cryptocurrencies, for the purchases. The lower value limit for summer 2018 was obtained by experts after an analysis of internet sources and Telegram-channel discussions with people who possess information on the turnovers of several DNMs.”

Darknet Marketplaces favor using Monero

Worldcore’s research determined the maximum volume of Bitcoin turnover of illegal goods, which compromises 0.67% of the entire Bitcoin turnover. The resulting amount closely approximates the Bitcoin turnover in illegal sale and purchase transactions through the converting services, which was received independently by the Elliptic research group in the first cited research study – a total of 0.61% of all the transactions through the services. This allows us to assume that the total volume of the Bitcoin network’s monetary transactions contains no more than 1% obtained as a result of criminal activity. Why do the Australians’ results differ by more than an order of magnitude?

According to Alexey Nasonov, this is linked to the method of the conducted research – both his team and Elliptic analyzed the volume of monetary traffic regardless of its distribution over specific transactions / blockchain transfer orders. Meanwhile, their colleagues from the Sydney Technological Institute specifically analyzed blockchain transaction chains where either the sender or the recipient was “exposed” illegal volumes. Clearly, after the work of Bitcoin mixers was done, the criminal money, split up into small amounts, come up as part of even the entirely legal transactions of licensed exchanges and change services. Thus, this rather small (on the scale of crypto markets) criminal monetary turnover of 1% is traced by Australians to 44% of all the Bitcoin transactions. An interesting fact is that Bitcoin’s dominance over Darknet Marketplaces is decreasing in favor of anonymous and security coins

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