Human and drug trafficking organizations quickly hopped into using virtual currencies when they became popular in the past few years. They quickly gained traction because they are more difficult to detect due to their anonymous nature.
Using cryptocurrencies, users can connect directly with producers, users, and illicit drug suppliers. That could eventually cut the middle level of the market. However, on the other hand, it is also clear that a substantial portion of the customers who use cryptocurrencies are drug dealers. While cryptocurrencies are fairly effective for drug dealers and buyers, some ridiculous methods can help mitigate drug trafficking. In this article, we shall dive into these methods. Let’s get to it;
Volatility
Bitcoin’s volatility can be a bit unsettling for fans of short-term trading and drug traffickers. Since it involves making quick decisions, it can take time to predict the price movement. There are also multiple strategies that you can use, such as working on a longer time frame.
Suppose Bitcoin’s price drops dramatically; the crypto market experiences FOMO(Fear of Missing Out). Hence, the market gets into confusion and could cause instability in the market. An inexperienced drug trafficker looking to cash in might sell their crypto; thus, they could experience losses.
Wallet Loss and Private Keys
While Bitcoin’s value has greatly exceeded that of many people, its owners have yet to be able to capitalize on it. One of the main reasons is that they have lost access to their accounts, with an estimated $100 billion of Bitcoin lost.
Crypto owners control cryptos by digital keys and addresses, which they can use to transfer crypto. If a crypto holder loses their wallet or forgets their password, they could lose their Bitcoin. If they have yet to back up their mnemonic phrase, then recovering the crypto is a challenge and nearly impossible.
Drug traffickers are also human, prone to forgetting passwords and losing their wallets.
Suspicious Patterns Raise Alarm
Regulators can link the sources of crypto assets to illicit activity. For instance, people can transfer funds from a platform that has little-to-no AML or KYC regulations. That could be a red flag for potential illegal activity.
If a single crypto wallet transfers funds across multiple credit cards and banks, it could be a group of people moving funds using one wallet. Hence, this raises suspicion, as traffickers are known for transferring funds multiple times without providing a clear explanation. Other suspicious patterns can also emerge, such as high-frequency transactions and crypto wallets that do not match the customer’s profile.
Drug traffickers often make repeated high-volume trades to remain in operation and cash in on quick profits. While drug traffickers may think they are clear, they might end up signalling regulators.
Permanent Trail
According to Kim Grauer, an economist at Chainalysis, cryptocurrencies have a reputation for being anonymous and cross-border, making them attractive to bad actors. However, due to their immutable, public, and permanent nature, they can offer unprecedented transparency regarding financial transactions.
When it comes to laundering money through bitcoin, it is like pulling off a jewelry heist. You can shred a map of your apartment using various accounts or wallets to hide your tracks, but with sufficient processing power, other people can easily reconstruct the clues.
Inheritance Issues
We often hear about drug lords transferring their mandates and operations to members they choose for inheritance. Even in cases where they abruptly died in a raid or natural causes, they can easily transfer money, whether in cash form or bank, due to the presence of lawyers and moderators appointed.
Due to the nature of cryptocurrency, it’s hard to pass it down. The blockchain stores crypto, which is a digital ledger made up of computers all around the world that records transactions. People use private and public keys to make transactions, such as a crypto exchange.
A public key is like a bank account number, allowing you to send other people money. On the other hand, a private key is like a type of password but with a long string of characters that allow you to unlock your crypto. Unlike other types of passwords, users cannot recover private keys once lost or forgotten. That means that people entitled to receive their loved one’s cryptocurrency will only be able to do so if they have these keys.
Hence, if a drug trafficker has not made any arrangements in the future for an inheritance, then the crypto will remain lost.
Patchwork Regulation Creates Uncertainty
The lack of uniform and clear regulations regarding cryptocurrencies has created significant uncertainty for regular investors and drug traffickers. For instance, regulators are still determining if a cryptocurrency is considered a security or commodity under the regulations of the U.S. Securities and Exchange Commission.
In some extreme countries, there is an outright ban on crypto trading and mining. For example, China decided in 2021 to ban all forms of cryptocurrency trading and mining.
Despite the positive outlook of crypto at the moment, plenty of dark clouds remain in the cryptocurrency ecosystem.
Liquidity Constraints
Another aspect that comes into play is the nature of liquidity constraints associated with cryptos. Liquidity refers to the ease of purchasing and selling an asset.
For example, if you have Bitcoin and want to trade it for U.S. dollars, there would need to be enough demand on both sides to make the sale.
If you’re planning on selling $1 million worth of Bitcoin and there are only $500,000 worth of buy orders at the current market rate, you’ll end up with a lower price for your Bitcoin. Also, your sell order might cause the price of Bitcoin to drop because there needed to be more buyers at your request.
For a drug trafficker, this is a deal breaker due to potential liquidity issues. In addition, it could lead to the inability to sell their assets due to their lack of liquidity.
Final Thoughts on drug trafficking in cryptocurrencies
While there are numerous virtual currency transactions on public blockchains, the U.S. Department of Justice (DOJ) and other law enforcement agencies have developed tools to analyze and monitor these transactions. These tools use machine learning algorithms to identify and prevent illegal activity.
Meanwhile, there are already organizations working on the blockchain dedicated to ensuring that cryptocurrency transactions are secure and efficient operation takes place. By partnering with these organizations, financial institutions and crypto businesses can benefit from their transactions’ increased safety and security.