Chainalysis reports that only 0.34% of Bitcoin transaction volume is criminal – but itself explains why this number is crooked

Blockchain analyst Chainalysis has released its 2023 crypto sector crime report. At first glance, criminal activity fell significantly.

Not everyone is a fan of blockchain analysts like Chainalysis. After all, they are intentionally undermining the privacy that cryptocurrencies are supposed to provide. But they undeniably provide interesting insights into what is happening on the various blockchains. An example of this is Chainalysis’ “Crime in Crypto” report.

The analyst recently published an advance report for 2023. He initially shines with a nice piece of news that many crypto media outlets are happy to share: The year saw “a significant decline in values ​​received through illegal addresses.” In 2022, the criminal volume was $40 billion, in 2023 it was only $24 billion. So it’s almost halved!

According to Chainalysis, this sum corresponds to 0.34 percent of the total onchain volume. This is quite low and is probably well below the shares of fiat currencies, especially the dollar. While Bitcoin is decried everywhere as gangster money, in reality it is probably the cleanest currency around.

Or? Unfortunately, there is a small but sharp catch.

Why the percentage is meaningless

First of all, the trend towards “less crime” is not as clean as it sounds so far. 2022 was an absolute record year, not least due to the FTX bankruptcy. The claims of FTX creditors amount to approximately $10 billion, which makes the decline in criminal payments a little less impressive.

Above all, Chainalysis itself blatantly explains why the total is far too low and the percentage “0.34” is useless. Because the analyst lists which transactions are NOT included in the statistics:

• Illegal addresses not yet discovered. The analysis often lags behind the criminal reality. In January 2023, Chainalysis was still expecting a volume of $20.6 billion for 2022. This amount almost doubled after some highly active addresses of sanctioned service providers were identified. It is therefore expected that the final figures for 2023 will also be higher.
• Income from conventional crime is not included in the statistics, for example when Bitcoin is used for drug trafficking outside the darknet. These transactions are simply indistinguishable from others.
• Payments to platforms that are accused of fraud but have not yet been brought to justice also do not appear. Anyone who knows the crypto economy knows that the number of unreported cases is likely to be enormous. If the authorities and courts act at all, it is often years later.
• Proceeds from market manipulation are not included as this is a gray area.
• Ultimately, payments for money laundering no longer apply. Because Chainalysis only calculates the income, but not the transaction volume. As a rule, every Bitcoin taken by criminals results in a large number of money laundering transactions.

The last point shows clearly: the percentage of the total onchain volume is completely meaningless. It’s not about volume, it’s about income. If you compare the two against each other, you are mixing up two different categories. This makes the statement “0.34 percent” simply misinformation that does not illuminate reality but rather obscures it.

Crypto crime through the ages

But we don’t want to reduce the report to this faux pas. He provides too many interesting insights, for example about how crypto crime has changed.

Until 2021, Bitcoin was by far the most commonly used cryptocurrency. From 2022, stablecoins have taken over this position, which was also the case in 2023. This corresponds to the further trend in the crypto markets and also in remittance (the remittances from guest workers), where stablecoins such as Tether and USDC have dethroned Bitcoin from 2021.

But the really interesting thing is yet to come: The Chainalysis report shows that this trend is NOT reflected in the criminal sector. In classic Bitcoin crime, Bitcoin is still king: in the darknet markets, the trade in prohibited goods such as medicines, ransomware payments, the distribution of malware – Bitcoin’s position as the leading currency of the darknet remains unchallenged. Neither stablecoins nor other cryptocurrencies have gained significant market shares here, not even the privacy coin Monero.

Stablecoins, on the other hand, govern other criminal disciplines. These are in particular transactions by sanctioned persons or companies as well as in or from sanctioned jurisdictions such as Russia, Iran, North Korea or Venezuela. Bitcoin plays and has played almost no role here. Stablecoins didn’t displace Bitcoin – they opened up criminal activities where Bitcoin could never gain a foothold.

Until Russia’s war of aggression against Ukraine, sanctions played almost no role in crypto crime. Since then, they have taken up an ever larger share of the illegal payment volume. In 2023 they even represented significantly more than half of the volume.

A decline has been observed in other criminal sectors since 2021. Fraud and theft are declining, even though Chainalysis emphasizes that the number of unreported romance scams, which are becoming increasingly common, is likely to be high.

Chainalysis has noticed growth in ransomware and darknet markets compared to the previous year. In the case of darknet markets, the analyst explains this by the recovery after the Hydra shutdown in 2022. For both areas, however, it should be recognized that the volume has largely stagnated since 2020, and fluctuations can more likely reflect changed detection rates.