bitcoin use in dark markets growing
Bitcoin

Criminals are using bitcoin more than ever for illegal activity

If police shut down one darknet market, another one opens

Criminals are using bitcoin for activities like buying illegal drugs on dark markets more than ever. And shutting down the markets doesn’t work, because another one simply opens again. 

After a small dip in criminal activity in 2018, total dark market activity, which included mainly drug sales but also other things like stolen credit cards, soared 70% in 2019 to more than $790 million worth of cryptocurrencies—primarily bitcoin—according to a crime report released Tuesday by cryptocurrency forensic firm Chainalysis. 

This is the first time in Bitcoin’s history that online black market sales have surpassed $600 million, the report said. Not only that, but the percentage of all cryptocurrency transactions linked to darknet market sales doubled from 0.04% in 2018 to 0.08% the following year, according to the report. 

The rise in activity comes at a time when many cryptocurrency projects are still hoping to make Bitcoin look legitimate and draw institutional money into the markets. Chainalysis’s data doesn’t account for all of the illegal activity either. A lot of cryptocurrency use still happens in the realm of ransomware, tax evasion, and money laundering.  

And, as is no surprise, most of the darknet activity flows through exchanges. “Exchanges are by far the most common service customers use to send cryptocurrency to vendors, and for vendors to send funds to cash out,” Chainalysis said. 

(Photo: Chainalysis)

Whac-A-Mole

Closing one darknet market simply leads to another opening to feed customer demand, Chainalysis said. Although eight of the darknet markets active in 2018 closed the following year, eight new ones opened, keeping the total number of active markets steady at 49, the report found.  

On average, each active market last year collected more revenue than those active in any other year, apart from the height of Silk Road’s heyday in 2012 and 2013, it said.   

Silk Road was the first modern darknet market, best known for selling illegal drugs, but also guns and even hitmen. As part of the dark web, it was operated as a Tor hidden service, allowing users to browse it anonymously. The FBI shut it down in 2013, when it arrested operator Ross Ulbricht.  

Chainalysis data confirms that the increase in revenue is driven by an increase in the number of purchases, not larger purchases. While median purchase size remained relatively constant in dollar value, the number of transfers jumped from 9 million to 12 million year-over-year, according to the report.

“This suggests that either more customers bought from darknet markets in 2019, or that old customers are making more purchases,” the research firm said. 

In the past, the strategy for law enforcement has been to shut down illicit online markets. Law enforcement made big strides when it shut down prominent dark markets Alphabay and Hansa. In fact, they are getting good at tracing cryptocurrency spends to illicit activities.    

Agencies “are getting smarter about cryptocurrency evidence identification and collection,” John Jefferies, chief financial analyst at blockchain forensic firm CipherTrace, told Modern Consensus right after the FBI busted child porn site Welcome by Video last year. “They are training officers and agents. They are more widely deploying advanced tracing tools… to follow the money through dark markets effectively.”

The only problem with shutting down markets, Chainalysis said, is that new one rush in to meet the demand. 

 






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Amy Castor has more than 20 years' experience in journalism. Her work on crypto and blockchain has appeared in consumer and trade publications throughout the U.S., including CoinDesk, Forbes, Bitcoin Magazine, and The Block.

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