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An Analysis of Bitcoin’s Use in Illicit Finance

Crypto for Innovation | Michael Morell | Apr 6, 2021

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Today, the rapid adoption of blockchain technologies, and the cryptocurrencies they support, are on their way to revolutionizing global financial and payment systems. And, as expected, we are beginning to see a balancing between innovators and regulators, with prominent voices weighing in— some touting cryptocurrency as the future of finance and others raising concerns about the illicit finance implications of the cryptocurrency ecosystem.

Having devoted my career to protecting and advancing the national security interests of the United States, I recognize the importance of ensuring that technological advancements related to critical industries are accompanied by smart, informed, and timely adjustments to regulatory frameworks, policies, and laws. Those who safeguard our nation simply must have the right tools to do their jobs. Period.

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It is against this backdrop that I, and two of my colleagues from Beacon Global Strategies, conducted an analysis regarding the degree of illicit activity associated with cryptocurrencies in general and Bitcoin in particular. The project was sponsored by a group of leading cryptocurrency innovators and investors. The terms of the engagement were that I would “call it as I see it,” with objectivity and transparency, just as I had done throughout my career as an intelligence analyst. I am hopeful that this analysis will help advance a healthy and fact-based dialogue as policymakers determine how to best ensure that these financial innovations serve the national interest.


So far, 2021 has been a year of significant developments and milestones for Bitcoin. Its price surpassed $60,000 for the first time in its history.1 Major corporations, from Tesla to Square to MicroStrategy, are adding it to their balance sheets.2 Large banks are providing Bitcoin-related services, with Morgan Stanley saying it will soon offer access to three Bitcoin funds for its wealth management clients.3 Canada has approved Bitcoin exchange traded funds (ETFs).4 There is grow-ing momentum for Bitcoin’s emerging use as a store of value.

Yet there is a common belief that the Bitcoin market is rife with illicit activity, with many holding this belief pointing to several high-profile incidents. When the illicit Silk Road darknet market (DNM) was shut down in 2013, more than 26,000 Bitcoin were seized by the FBI.5 AlphaBay, formed in 2014 and widely viewed as an heir to Silk Road, was shuttered by international authorities in 2017 after building a customer base of over 400,000, with transactions conducted largely in Bitcoin.6 The 2017 WannaCry ransomware attack that infected more than 200,000 computers worldwide required payment in Bitcoin.7 Bitcoin was even used to help fund some of those involved in the insurrection at Capitol Hill on January 6.

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The conventional wisdom on this issue has been rein-forced by public statements from senior government officials on both sides of the Atlantic who have sug-gested that Bitcoin is used primarily for illicit activities. Eye-catching media reports, like a recent Buzzfeed article titled, “Secret Documents Show How Terrorist Supporters Use Bitcoin – And How the Government is Scrambling to Stop Them,” add weight to such remarks.

In undertaking our analysis, we consulted a diverse group of experts in the fields of cryptocurrency tech-nology and investment, financial services, payment sys-tems, global intelligence and security, financial regula-tion, and law enforcement. We interviewed executives from major blockchain analytics firms, former senior Treasury Department officials, a senior official from the Commodity Futures Trading Commission (CFTC), and a former CIA intelligence analyst, as well as aca-demics, venture capital investors, former federal pros-ecutors, and a former leader in the banking industry. We also consulted studies from the U.S. Department of Justice; the Financial Crimes Enforcement Network (FinCEN); the Financial Action Task Force (FATF); major blockchain analytics firms; the Brookings In-stitution; RAND Corporation; BAE Systems; and the Foundation for the Defense of Democracies.

Sigal Mandelker, former Acting Deputy Secretary of the Treasury and Under Secretary of the Treasury for Terrorism and Financial Intelligence, as well as a former Department of Justice official and prosecutor, gave us a significant amount of her time to tap into her wealth of experience on the issue.

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I began this work expecting that I would find a set of facts supporting the conventional wisdom on this issue. After all, I believed that Bitcoin and other cryptocurrencies are a largely anonymous way to transfer funds anywhere in the world nearly instantaneously. And I assumed that those officials who have raised concerns about the use of Bitcoin in illicit activity—with the objective of ensuring regulatory vigilance—must be among the best-informed experts on this issue.

However, based on our research and discussions with industry experts, I have confidence in two conclusions:

• The broad generalizations about the use of Bitcoin in illicit finance are significantly overstated.

• The blockchain ledger on which Bitcoin transactions are recorded is an underutilized forensic tool that can be used more widely by law enforcement and the intelligence community to identify and disrupt illicit activities. Put simply, blockchain analysis is a highly effective crime fighting and intelligence gathering tool.

Download the 11 page PDF report on 'Analysis of Bitcoins Use in Illicit Finance --> here


NCFA Jan 2018 resize - An Analysis of Bitcoin’s Use in Illicit FinanceThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit:

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