How to Avoid the Bitcoin Laundry

Money laundering is a process of obscuring the origins of criminal proceeds. While it is possible to do this with cash, the ease of using Bitcoin for criminal activities has made it attractive to criminals who want to evade law enforcement. Instead of transporting illicit funds across borders in duffel bags or suitcases, they can simply move digital assets from an exchange to a wallet and then to a bank account without risking their lives or the lives of others.

Cryptocurrencies have the added benefit of being more difficult to trace than cash. While transactions are recorded on a public ledger known as a blockchain, it is usually difficult to link cryptocurrencies to specific people. However, that doesn’t mean money launderers don’t face any risks. Since cryptocurrencies aren’t fully legal in all nations, they must be carefully used to ensure that the criminal activity remains hidden.

Using a specialized cryptocurrency mixer is one way to hide the identity of your transactions. Unlike a regular cryptocurrency wallet, these services mix your coins with thousands of other addresses. This makes it impossible for a determined individual to identify your transactions as being associated with criminal activities. Depending on the service you use, these mixers can be as simple as clicking a button or as complex as combining your private keys with those of thousands of other users.

Many criminals use a 비트코인세탁 mix of methods to obfuscate their links to the crimes they commit. For example, they may start with fiat currency, then move that to a centralized cryptocurrency exchange for a deposit address. Then, they might take the deposit address and use it to purchase a cryptocurrency that’s hard to link to their crime. This is known as an “onion structure” because the money is being sent to multiple locations before it reaches its final destination (Levi, 2015).

Another method criminals use to obscure their ill-gotten gains involves a type of money transfer called a nested service. These are services that operate inside the wallets of a crypto exchange and can be accessed from within the exchange’s app. Nested services are popular with criminals because they eliminate the need for them to have a dedicated wallet and can be more secure than a traditional cryptocurrency wallet. Unfortunately, some exchanges don’t require high compliance standards for nested services, which can allow bad actors to exploit them for money laundering purposes.

In the cryptocurrency world, the most common place to launder stolen money is a cross-chain bridge. These are services that allow you to send cryptos from one blockchain to another, bypassing a centralized exchange and its ability to trace and freeze transactions. A popular choice is RenBridge, which was used to launder over $540 million in criminal funds in 2020 alone, according to research firm Elliptic. This includes a large amount of ransomware payments made by hackers who broke into corporate networks and demanded payment from victims to return their data.