The Rise in Popularity of Cryptocurrency and Associated Criminal Activity

• Published date: 01 September 2020
• Date: 01 September 2020
• DOI: 10.1177/1057567719827051
• Subject Matter: Articles

Article
International Criminal Justice Review
2020, Vol. 30(3) 325-344
The Rise in Popularity of
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Cryptocurrency and Associated
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DOI: 10.1177/1057567719827051
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Criminal Activity
Sesha Kethineni1 and Ying Cao1
Abstract
Cryptocurrency such as bitcoin, Ethereum, and, more recently, Monero has become the currency of
choice for many drug dealers and extortionists. The criminal activities extend to tax evasion, money
laundering, Ponzi schemes, and the theft of cryptocurrencies to kidnapping for ransom. As the
demand for cryptocurrencies increases, it provides opportunities for criminals to hide behind the
presumed privacy and anonymity. Identifying these cryptocurrency-related crimes have posed
challenges for law enforcement due to the cross-border nature of transactions, the use of evasion
technology to mask the identity of users, and inconsistent regulations. To address the role of
cryptocurrencies in criminal activities, the study focused on four research questions: (1) What role
do cryptocurrencies such as bitcoin (BTC) play in criminal activities? (2) What factors facilitate
cryptocurrency-related criminal activities? (3) What role do politics play in regulating crypto-
currencies? and (4) What are the challenges they pose for regulators and law enforcement? To
answer the questions, the study utilized a systematic content review of the news reports, court
cases, scholarly articles, online search engines, and commentaries relevant to regulations and
reforms. The findings help to understand the current climate of virtual currencies, their use in
criminal activities, and the complexities involved in regulating cryptocurrencies.
Keywords
cryptocurrency, virtual currency, cybercrime, legal regulations, cyber securities
In recent years, cryptocurrencies, also known as virtual currencies, are increasingly accepted by
traditional commercial vendors, such as Whole Foods, Expedia, Microsoft, Dell, Dish, and Cheap-
Air. E-retailors (e.g., Overstock.com, eBay, and Shopify) and payment processors (e.g., PayPal and
Square) and companies such as Bloomberg, Wikipedia, WordPress, Reddit, and Tesla are also
accepting virtual currencies such as BTC. In the United States, the Financial Action Task Force
(FATF, 2014) defines virtual currency as “a digital representation of value that can be digitally
1 College of Juvenile Justice and Psychology, Prairie View A&M University, Prairie View, TX, USA
Corresponding Author:
Sesha Kethineni, College of Juvenile Justice and Psychology, Prairie View A&M University, P.O. Box 519, MS 2600, Prairie
View, TX 77446, USA.
Email: srkethineni@pvamu.edu

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International Criminal Justice Review 30(3)
traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of
value but does not have legal tender status . . . issued nor guaranteed by any jurisdiction” (p. 4).
Instead, the functions are carried out by the “community of users of the virtual currency” (p. 4). Fiat
currency, otherwise known as the “real money” or national currency, is coin- or paper-based
currency, designated by a country as its legal tender, circulated and used as a medium of exchange
(FATF, 2014). This article uses the terms “virtual currency” or “cryptocurrency” regarding con-
vertible or open virtual currencies such as BTC, Ethereum (ETH), Rippel (XRP), Litecoin (LTC),
and Zcash (ZEC) instead of “nonconvertible” or “closed virtual currencies,” which are used in
specific virtual domains such as online games (e.g., World of Warcraft Gold, QCoin, and Project
Euphoria Dollars).
As of 2018, there are over 1,800 different types of cryptocurrencies in circulation, and the most
popular ones are BTC, ETH, Monero (XMR), XRP, LTC, digital cash (DASH), NEO (formerly
Antshares), Internet of Things Application (IOTA/MIOTA), New Economic Movement (NEM/
XEM), and ZEC. The original cryptocurrency, BTC, is presumed to have been developed by an
individual who called himself or herself Satoshi Nakamoto in 2008 (the individual’s actual identity
is unknown but has a domain “bitcoin.org”). BTC allows peer-to-peer direct electronic payment and
eliminates the need for any middleman such as banks or government authorities (Nakamoto, 2008).
BTC’s value depends on the supply and demand as well as the public perception that BTC’s worth,
in the long run, is similar to gold (Gloudeman, 2014). BTC’s source code is open, and anyone can be
rewarded with a new BTC through the process of mining (Kethineni, Cao, & Dodge, 2018). Despite
its popularity, economist and cryptocurrency critic Nouriel Roubini claims that BTC is worthless,
and the cryptocurrency will experience the biggest bubble in human history (Ossinger, 2018).
Lelzrowice (2018) argues that the price of one BTC is not a good indicator of its overall value
because it does not provide the overall worth. He states that a “company could have a low price per
share because there are a lot available and still have a high market cap. And vice versa—a company
could have a high price per share and a low market cap” (para. 9). Others contend that it is better to
look at monthly trading volumes to avoid hysteria caused by volatility on a given day (Torpey,
2017). With its recent capitalization of US$268 billion, BTC exceeded the value of Coca-Cola
(US$195 billion) and Boeing (US$175 billion; Adesulu, 2018).
Although there are commonalities among cryptocurrencies such as the use of encryption tech-
nology (cryptography) to secure transactions, a peer-to-peer network, and a decentralized system
without a server or central authority, there are also differences regarding the degree of privacy and
anonymity offered to users, the speed of transactions, and the type of technology utilized. For
example, cryptocurrencies that followed BTC, such as ZEC, brag about providing privacy and
security similar to https. Many cybercriminals and online criminal markets find the anonymity and
security of virtual currency extremely attractive and opt for virtual currencies. Some securities
experts worry that virtual currencies gradually become criminal currencies (Baron, O’Mahony,
Manheim, & Dion-Schwarz, 2015; Carlisle, 2017). Although virtual currencies have not overtaken
traditional methods of money laundering, the head of Europol, RobWright, estimates “that 3–4% of
the continent’s annual criminal takings, or £3bn–4bn ($4.2bn–5.6bn), are crypto-laundered” (Mar-
sali, 2018, para. 2) and expects the problem to get worse. To put virtual currencies in perspective, a
California-based blockchain and cryptocurrency security firm, CipherTrace, stated in its 2018
second-quarter report the worth of cryptocurrency-related money laundering to be about
US$1.2 billion (Malwa, 2018). The U.S. Federal Bureau of Investigation (FBI) noted a 6-fold
increase in these crimes from 2015 to 2018 (Malwa, 2018).
In recent years, governments such as Venezuela, Iran, Russia, and North Korea have focused their
efforts on developing their own cryptocurrencies. For example, the Venezuelan government devel-
oped cryptocurrency “petro” in early 2018. Some experts claim that state-backed cryptocurrencies

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add another layer of security challenge because governments may use cryptocurrency to circumvent
sanctions as well as use them for other illegal activities (Panda, 2018; Weiss, 2018).
As more and more businesses are accepting virtual currencies, there is an increased opportunity
for criminals to take their business online. Therefore, it is important to understand the use of popular
virtual currencies such as BTC, ETH, and XMR in criminal activities involving money laundering,
drug trafficking, Ponzi schemes, and hacking. Also, inconsistent regulations hinder the legitimate
use of cryptocurrencies and encourage illegal activities.
Some prior studies have used different methodologies, such as BTC blockchain, to document the
transactions between market participants (Foley, Karlsen, & Putnin
¸ sˇ, 2018). Others have focused on
the role of intermediaries in deterring financially motivated cybercrime (Kesari, Hoofnagle, &
McCoy, 2017), the link between Internet infrastructure and cybercrime (Musiani, Cogburn, DeNar-
dis, & Levinson, 2016), measuring cryptomarket demand using customer reviews (focusing specif-
ically on Silk Road 2.0 and Agora; Demant, Munksgaard, & Houborg, 2016), or addressing specific
cryptomarkets for illegal drugs using ethnographic observations of user forms, forum posts, and
interviews of experts (Moeller, Munksgaard, & Demant, 2017).
The current research uses systematic content analysis to address the broader implications of
cryptocurrencies in criminal activities and the challenges they pose for financial regulators, policy
makers, and law enforcement. The article focuses on four research questions: (1) What role do
cryptocurrencies such as BTC play in criminal activities? (2) What factors facilitate
cryptocurrency-related criminal activities (e.g., money laundering, contraband transactions, tax
evasion, and extortion)? (3) What role do politics play in regulating cryptocurrencies (e.g., state-
backed vs. nonstate backed cryptocurrencies)? and (4) What are the challenges they pose for
regulators and law enforcement? From a policy and prevention perspective, it is important to
understand the political or financial motivations behind the development of state-backed versus
decentralized cryptocurrencies, illegal opportunities, and threats presented by...