What’s the Reality of Crypto in Crime?

The DOJ's Eun Young Choi said the agency is constantly finding crypto connections in its criminal investigations. But how deep does the problem go and how much should we blame the blockchain?

AccessTimeIconMay 11, 2023 at 5:57 p.m. UTC

In hindsight, the U.S. Department of Justice (DOJ) naming veteran cybersecurity expert Eun Young Choi in the winter of 2022 as the first director of the agency’s National Cryptocurrency Enforcement Team (NCET) may have been the first harbinger of the U.S. government’s recent and decidedly-antagonist approach to the industry this year. The NCET enforcement team, which is now making a beeline for cyber and money laundering crimes in crypto, was tasked with ensuring users stay safe “as the technology surrounding digital assets grows and evolves,” as Choi, who previously worked as a federal prosecutor at the Southern District of New York, said at the time.

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Little did anyone know exactly what type of crimes would be revealed as the financial tide flowed out of crypto exposing all those who were “swimming naked” (as Warren Buffett likes to say). Instead of major headline-drawing scandals like FTX and 3AC, Choi’s department seems primarily focused on relatively smaller issues like social media scammers, darknet misuse and online fraudsters – activity that’s rarely discussed openly, but which exists as a sort of background hum for anyone spending time on Crypto Twitter and Discord. (Paul Dylan-Ennis, a frequent contributor to CoinDesk, calls this crypto’s “trash moat,” which seems to fill in anywhere crypto is discussed online.)

While scams like these often only damage a single victim at a time, it can still be big money. NCET, along with other agencies, booked upwards of $112,000,000 from busting six such U.S.-based scams. The Federal Bureau of Investigation (FBI) estimates $3.31 billion was stolen from people in 2022 through investment fraud, with crypto-related scams accounting for more than a third (~$2.57 billion) of that figure. Worse than just money lost, the proliferation of confidence games – which require bad actors to cultivate long-term relationships and build trust with their marks – has tainted crypto’s reputation.

Any conversation about crypto and crime needs to disclose that, according to the folks with the data, less than 1% of total crypto transactions can be tied to illicit use – at least that’s what Chainalysis reports. It’s a notable point, and one that industry advocates won’t let you forget. Most people using crypto are trading, with growing adoption in “inflation-weary” countries like Turkey and Argentina, Reuters reported. But as much as people want to believe Chainalysis has a God’s eye view into crypto and crime, it’s more likely the figure it cites is a conservative estimate based on the limited number of blockchain addresses it can actually tie to known individuals.

In fact, at a conference hosted by the Financial Times, Choi said recently that “We [the NCET] are seeing cryptocurrency and digital assets really touch every aspect of criminal activity we investigate.” This includes things like ransomware exploits, confidence games and even sanctions-evasion, Choi said, according to Decrypt.

Considering the U.S. Treasury Department has said it’s not all that concerned about blockchain being used to, say, evade the economic blockade on Russia, and that an immutable ledger of transactions (i.e. a blockchain) genuinely is a horrible tool for crime, maybe this should be taken with a grain of salt. Afterall, Choi’s agency was founded to study crypto-related crime, so it shouldn’t be too surprising it’s finding crypto-related crime – but the statement is a reality check.

All this is worth talking about because there’s often a disconnect between the promises made about crypto and the reality on the ground. The statistic may be “only 1% of crypto use is illegal,” but anecdotal experience would say otherwise. I know people who have been SIM-swapped and rug-pulled and bought drugs with bitcoin – and chances are you do too. Choi said part of the reason people fall victim to crypto fraud is because of the haze of misinformation around the technology – like the “FOMO” and hype, but also, possibly, the pretense blockchain is not used for crime.

Still, the very reason crypto attracts scammers and hype-men is why the technology is so necessary. Crypto, being open-source, is open to abuse. Bitcoin is powerful because it’s “money for your enemies,” and if it wasn’t, it wouldn’t be revolutionary. I’m of the mind that it’s a good thing that companies like Chainalysis shattered the illusion that bitcoin is private in any way, because it brings expectations closer to reality. Likewise, it's hardly a bad thing that in a world with police officers, at least some of them direct their attention to surveilling the chain. It’s open, it’s public, it’s bound to happen.

All that’s left is for crypto insiders to get wise, and maybe come up with a plan to dredge the moat.


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Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.