Tom Robinson, the Co-Founder and Chief Scientist at blockchain forensics firm Elliptic, has posted this chart which shows that the percentage of Bitcoin (BTC) transactions linked to illegal activity has plummeted from 35% in 2012 to less than 1% now. Essentially, although criminal activity may have accounted for a significant fraction of Bitcoin use in the early days, now almost all Bitcoin (BTC) transactions are legitimate and above board.
Elliptic offers a tool called ‘The Bitcoin Big Bang’ which sheds more light on this issue via showing all of the entities that popped up in the early days of Bitcoin (BTC) and how they are all interrelated.
This tool shows that 2012, the year when 35% of Bitcoin (BTC) transactions were connected to crime, was also the year that Silk Road rose to prominence. Indeed, Silk Road was a completely new paradigm in the criminal world. It allowed the anonymous purchase of drugs and all other forms of contraband via Tor and Bitcoin (BTC), which was an anonymity combo never seen before.
According to Elliptic’s data, other major pieces of crypto infrastructure helped contribute to the rise of Silk Road, including the crypto exchange Mt. Gox, the crypto mixer Bitcoin Fog, and the peer to peer crypto trading network Localbitcoins.
Notably, Mt. Gox ultimately ended up being connected to other illicit dark web marketplaces including Blue Sky Market, Silk Road 2.0, and a handful of illegal crypto casinos.
This all changed in late 2013 when Silk Road was shut down by the Federal Bureau of Investigations (FBI), and Mt. Gox collapsed shortly afterwards in early 2014.
The seizure of Silk Road and the collapse of Mt. Gox corresponded with a drop in the share of illicit Bitcoin (BTC) transactions from 35% to roughly 1% by 2014.
Of course, countless dark web marketplaces popped up to replace Silk Road, starting with Silk Road 2.0. But the trend was that after Silk Road government authorities had more and more success in compromising and shutting down dark web marketplaces.
Indeed, dark web marketplaces still exist today, but they are regularly seized, and their users are often arrested, largely due to the rise of blockchain forensics technology which can crack through multiple layers of anonymity.
Likewise, crypto exchanges like Mt. Gox, which freely allowed the laundering of crypto linked to the dark web and other criminal activities, are a thing of the past. Now crypto exchanges have to follow strict anti-money laundering (AML) guidelines or they will be forced out of business.
In other words, people can no longer deposit a significant amount of crypto on exchanges unless they have definitive proof that the crypto was earned via legal business activity. Indeed, any criminal daring enough to use a crypto exchange nowadays is really rolling the dice and they could easily have their crypto seized.
For the same reasons, peer to peer crypto trading networks like Localbitcoins are a thing of the past as well. Although Localbitcoins still exists, it no longer allows the anonymous exchange of cash for crypto, which was the factor that made Localbitcoins so popular with criminals who were using the dark web.
In other words, if you zoom out, the big difference between 2012 and 2020, is that in 2012 Silk Road was still baffling authorities, a massive unregulated crypto exchange called Mt. Gox acted as a place to easily launder endless amounts of crypto, and criminals could anonymously buy and sell as much Bitcoin (BTC) as they wanted for cash via Localbitcoins.
Now in 2020, dark web markets are no longer baffling authorities and they are seized relatively quickly, crypto exchanges are tightly regulated in order to prevent money laundering, and there is no longer a hub like Localbitcoins for anonymously buying and selling Bitcoin (BTC) for cash.
The rise of blockchain forensics and regulations has stomped out almost all illicit crypto activity.
Beyond that, the legitimate use of Bitcoin (BTC) for investment and merchant purposes has proliferated, making the percentage of illicit transactions even smaller.
Thus, according to this data from Elliptic, it could have been said in the early days that criminals were one of the primary users of Bitcoin (BTC), via dark web marketplaces like Silk Road and money laundering via unregulated exchanges like Mt. Gox and Localbitcoins. However, dark web marketplaces are now struggling as authorities become more advanced in their policing techniques, and practically no crypto exchanges exist where crypto can be easily laundered.
Crypto activity is now 99% legitimate and it can no longer be said that the crypto space is a haven for criminals. In fact, at this point it appears cash is a much better safe haven for criminals, since blockchain forensics and increasingly strict regulations has made crypto too hot for criminals to handle.