How does money laundering work through Bitcoin?
We hear about cryptography exchanges that are under pressure to implement things like KYC (Know your client) e AML (Anti-money laundering) all the time, which means that cryptocurrencies can probably be used for such illicit activities. However, not many people understand how the process of using cryptography for money laundering it really works. This is something that Hard Fork of thenextweb.com has explained better in their basic concepts of Hard Fork
According to them, Bitcoin has been accused of being a money laundering tool since it was created. Using it, the criminals managed to recycle more than $ 2.5 billion. However, there was a big misunderstanding about whether Bitcoin was anonymous, which is why these individuals felt safe to do so.
As we know today, Bitcoin transactions they are transparent and linking them to identify a transactional is not that difficult. This is why many of these criminals have been identified and captured. Transparency is one of the main reasons we use cryptocurrency first and only a handful of these can actually claim that they are able to completely mask the user's identity.
So, how does money laundering work through Bitcoin?
Division of BTC through mixing services
It should be clear to everyone by now Bitcoin is not anonymous However, it still has many users who wish to use it anonymously. For this reason, new services called mixer or tumbler were invented. The way these services work is pretty simple: they bounce dirty coins between numerous addresses while dividing the quantity in the process. Once they are sure that no one can track down which coins come in as part of a dirty transaction, they reassemble the original amount through the dark web wallet.
The use of such services can be quite expensive, and requires a regular portfolio, as well as two portfolios on the dark web. Finally, the last ingredient is BTC itself. In a step-by-step explanation, the process would be as follows:
Bitcoin it is sent for the first time from a normal portfolio to a hidden Tor portfolio. This is a type of transaction that we call "hop" and can be executed as often as necessary between the BTC addresses on the dark web. Each hop makes it increasingly difficult to keep track of coins, which is why the process ends when BTC disappears from the radar.
At this point, the coins are in a dark Web wallet, which sends them into a mixer. Mixers usually claim to be fairly reliable and their rates depend on the level of anonymity that the user wants to have. They will split BTC into multiple transactions, as stated above, and send it through numerous addresses hosted by Tor until they can be tracked down and connected to each other.
Once done, Bitcoin is considered clean since nobody can say that it is the same coins obtained through dirty money. This is when it usually ends in an exchange, where it is traded for other cryptovalves or for legal currencies.
Recycling of BTC through unregulated cryptocurrency exchanges
Previously, we have said that exchanges are mostly forced to pass KYC and AML procedures to ensure that no criminal activities are carried out on them. However, there are still many completely unregulated exchanges. They do not control the identity of the user, nor do they care where the dirty coins come from.
They are also used for cleaning dirty coins, eliminating the need for a mixing service. The process is quite simple and all you need is that the owner of the dirty coins will exchange them several times on different markets. An example of this is the exchange dirty Bitcoin for a variety of clean altcoins. Whenever this happens, their funds remain cleaner and more difficult to track down. It is not yet impossible to put the information together, but it becomes more complex.
After several exchanges of this type, when the user is satisfied, he can withdraw his currency on an external wallet or retrieve legal currency. However, this can be complicated, as legal currencies are difficult to obtain on unregulated exchanges. Because of this, money recyclers they usually tend to turn to shady P2P markets.
Following this process, the researchers were able to provide information to the police and help put an end to numerous money-laundering campaigns around the world. However, the use of unregulated exchanges for illegal activities remains a common practice. Some estimates argue that these exchanges receive 36 times more BTC than those with KYC and AML rules in place.
After completing these exchanges, almost all end up in countries that have been dissolved KYC / AML regulations, usually those who barely deal with crypts, if at all. Furthermore, these mix trades and services are often used for other questionable activities, such as the use of crypts for gambling purposes and in the same way.