Privacy Coins and the Dark Web: Monero’s Role in the Criminal Economy

Privacy Coins are Contributing to the Spread of Child Sexual Abuse Material (CSAM), According to Chainalysis's Crypto Crime Report of 2024.

Exploring the Dark Web How Privacy Coins Drive Online Criminal Activity

Last updated: March 1, 2024 12:18 EST | 2 min read

by Tim Hakki

Privacy coins are gaining notoriety for their role in fueling the proliferation of child sexual abuse material (CSAM), according to Chainalysis’s 2024 Crypto Crime Report. The report emphasizes the growing use of cryptocurrencies as legal tender on the dark web, especially among vendors of CSAM. While Bitcoin has been the preferred choice for transactions in this illicit market, Monero (XMR), a privacy coin, is rapidly gaining popularity among criminals.

The report highlights that many CSAM vendors have started adopting Monero as their preferred cryptocurrency. However, data suggests that Monero is more commonly used for money laundering purposes rather than for actual purchases. Vendors often collect their earnings in Bitcoin and then use Monero-friendly instant exchangers to convert them into Monero. These instant exchangers, which allow quick trading between cryptocurrencies while obscuring transactions, provide an easy way for vendors to obtain Monero and hide the money’s destination wallet.

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🔍 Image source: Chainalysis

According to Chainalysis, the use of instant exchangers by CSAM vendors has significantly increased in recent years, enabling them to convert their Bitcoin hauls into Monero. While conventional exchanges (CEXes) have been the primary recipients of illicit crypto funds, the use of instant exchangers is closing the gap. This trend suggests that Monero may be playing a crucial role in helping CSAM vendors survive longer.

Privacy Coins’ Lax KYC Enables Money Laundering

Earlier this month, Monero faced a 40% crash in value following news of its delisting from Binance. Exchanges have been under pressure from regulators to delist privacy coins due to their lack of Know Your Customer (KYC) guardrails. Binance, in particular, is currently dealing with multiple lawsuits and probes from various U.S. government agencies, including the Department of Justice, Internal Revenue Service, US Treasury, Securities and Exchange Commission, and the Commodity Futures Trading Commission.

All of these agencies have one common concern: Binance’s lack of KYC and anti-money laundering (AML) measures facilitate money laundering and can be seen as criminal conduct. However, it is important to note that the transparent nature of blockchain technology has also aided law enforcement in fighting crime.

In a notable example mentioned in the Chainalysis report, New York law enforcement officers trained in blockchain analysis used Chainalysis software to identify the administrator of a large CSAM dark web retailer. This led to two arrests and the rescue of a 12-year-old victim. Therefore, while privacy coins like Monero present challenges in combating criminal activities, blockchain analysis tools have also proven to be effective in apprehending criminals and saving lives.

Q&A: Addressing Additional Concerns and Providing Insights

Q: Why are privacy coins like Monero becoming popular among CSAM vendors?

Monero’s focus on privacy and anonymity makes it an attractive option for criminals involved in illegal activities. It allows them to hide their identity and transactions on the blockchain, making it difficult for law enforcement agencies to trace their activities.

Q: How can regulators tackle money laundering facilitated by privacy coins?

Regulators can implement stricter KYC and AML measures on exchanges and instant exchangers to reduce anonymity in cryptocurrency transactions. They can also work closely with blockchain analytics companies like Chainalysis to identify suspicious transactions and entities involved in illicit activities.

Q: Are privacy coins a threat to the overall crypto market?

Privacy coins may pose challenges for regulators, but they do not necessarily represent a threat to the entire cryptocurrency market. Their adoption by criminals highlights the need for improved regulations and enforcement, rather than condemning the entire industry.

Future Outlook and Investment Recommendations

While privacy coins like Monero face scrutiny for their potential misuse, the underlying technology has the potential to revolutionize finance, enhance user privacy, and provide new opportunities for innovation. As the cryptocurrency market matures and regulations evolve, it is likely that privacy coins will face increasing scrutiny. However, these challenges can also drive innovation and the development of privacy-preserving technologies that strike a balance between privacy and compliance.

Investors should carefully evaluate the regulations and compliance measures surrounding privacy coins before investing. It is essential to choose platforms that prioritize security, KYC, and AML standards to mitigate risks associated with illicit activities.

References

1. Chainalysis’s 2024 Crypto Crime Report
2. Crashed 40%: Monero’s Delisting Impact
3. Internal Revenue Service (IRS) Investigating Binance
4. Securities and Exchange Commission (SEC) Probing Binance
5. Commodity Futures Trading Commission (CFTC) Investigation of Binance

📣 Share your thoughts and insights!

What are your views on the role of privacy coins in illicit activities? How can regulators strike a balance between privacy and anti-money laundering measures? Share your thoughts in the comments below and let’s spark a discussion! Don’t forget to share this article on social media to raise awareness about the challenges and opportunities presented by privacy coins.

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Disclaimer: This article is for informational purposes only and should not be considered financial or investment advice. Always conduct thorough research and consult with a professional before making any investment decisions.

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