The Dark Side of Cryptocurrency | Analytics Steps (2024)

Bitcoins and cryptocurrencies have made sensational headlines in the past, turning nerds into millionaires, and are now considered by bankers to be the largest financial market bubble in history. Bitcoin is destroying the markets thanks to its high prices and widespread attention.

It isn't the only one; there is currently a slew of cryptocurrencies available for trading on the non-traditional market. In fact, there are specialized platforms, particularly for cryptocurrency trading. If you want to describe it that way, there is a broad excitement about the entire cryptocurrency business. The use of cryptocurrency in financial crime is less well-known, especially since the features of cryptocurrencies are ideal for hiding unlawfully created funds.

While these transactions are extremely safe, there is a darker aspect to the story. This is without even considering the quick volatility in bitcoin prices or the numerous new shapes they are taking.

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The Risk of Cryptocurrencies

The same thing that makes crypto-assets—or crypto-currencies, as some call them—so alluring is also what makes them so dangerous. These digital services are often developed without the need of a central bank and are decentralized. This provides anonymity to crypto-asset transactions, similar to cash transactions.

As a result, a potentially significant new vehicle for money laundering and terrorism financing has emerged. One recent case exemplifies the problem's scope.

AlphaBay, the largest online illegal marketplace on the internet, was shut down in July 2017 by an international operation led by the United States. AlphaBay has been selling illegal drugs, hacking tools, guns, and dangerous chemicals all around the world for more than two years. More than $1 billion had been moved in crypto-assets before the site was shut down.

Money laundering and terrorist financing are, of course, only one facet of the danger. Another is financial security. Crypto-assets' quick growth, severe volatility in traded prices, and ill-defined linkages to the existing financial world might readily generate new risks.

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Watch this: The dark side of Bitcoin, by the Law Society NSW

We've compiled a list of some of the restricted or unknown elements that could jeopardize bitcoin/cryptocurrency acceptance.

1. Inefficient for Retail

Cryptocurrency transactions are based on blockchain technology, which is a system based on mutual agreement. Blockchain technology requires several locations to share, update, and validate ledgers (contracts), making the system highly slow for retail transactions. Cash and cards are much faster in such situations.

2. Lack of market regulations

There are currently no legitimate market regulations for cryptocurrency trading. Even governments are doubtful of bitcoin's long-term viability. As a result, no government-regulated financial institutions support cryptocurrency transactions (e.g. encashing).

Furthermore, cryptocurrencies are particularly difficult to trace due to a lack of restrictions, which is why they are frequently used for underground trading. As a result, if all transactions are outside the jurisdiction of regulators, bitcoins are likely to cause financial turmoil.

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3. No refunds or cancellations are available

Because Crypto is not controlled by any body or organisation, you will be unable to request a refund or cancellation once the cryptocurrency has left your wallet. Because it is a direct transaction between two people, none of them can bring a claim if something goes wrong.

However, certain sites, like Binance, act as a middleman between the buyer and the seller. These platforms will also consider refund or cancellation requests, but if you do not use one of these platforms, you will be on your own.

4. Inefficient use of Energy

Mining bitcoin requires a lot of energy and can account for over a quarter of a miner's revenue. It's not worth it unless we have access to renewable energy sources. In India, for example, mining bitcoins consumes around INR 180000 in electricity. As a result, even if the Indian economy were to run entirely on bitcoins, the world's electricity would not be enough to sustain the transactions.

5. Volatility in Prices

When it comes to cryptocurrencies, price volatility is a major issue because it is so closely tied to intrinsic values. The bitcoin ecosystem is similar to a bursting bubble that can occur at any time. This could be avoided by tying the cryptocurrency to a physical or intangible item.

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6. Regulation

Authorities have failed to keep any control on cryptocurrencies, as previously stated. Some governments have attempted to regulate it as merely a formality since they recognize that it is beyond their control.

Even countries that have not yet regulated cryptocurrency have seen an increase in its use. Crypto is dangerous and easy to obtain for criminals because it is fully out of reach of authorities.

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Is there anything that can be done about it?

The use of specialist crypto analytics and blockchain intelligence is important to detecting and de-anonymizing unlawful behavior on the blockchain and preventing bad actors from using cryptocurrency to fund their activities.

This is the only way law enforcement and security agencies can properly confront and mitigate a variety of complex threats, including:

1. Determining whether or not transactions and crypto addresses are unlawful or suspicious

2. Using the blockchain to keep track of activities

3. Following the trail of money that has been utilized for illegal purposes.

4. Discovering the true identity of people involved in these transactions and bringing them to justice.

However, having advanced technology is insufficient. This is an ever-changing landscape that includes a variety of services that help criminals and terrorists disguise their traces more readily, such as:

1. Mixers - for combining potentially identifiable crypto money with others to increase the cryptocurrency's anonymity.

2. Shapeshifters - for combining and transforming cryptocurrency funds from one cryptocurrency to another.

3. Privacy-enhanced Crypto Wallets – Which incorporate privacy or security features such as anonymized TOR browsers and/or mixing services for mixing and converting crypto funds from one crypto coin to another. As a result, blocking crypto funding of crime and terrorism also necessitates a high level of topic knowledge.

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Watch this: A Documentry on The Darkside of Bitcoin in El Salvador

Bottom Line

Will the cryptocurrency make it to the future or will it crash and burn along the way? The hazards that crypto poses will force governments to either regulate it or ban it entirely in the future. Many experts have expressed their concerns about the hazards of cryptocurrency and its harmful impact on society and the economy.

The objective behind block-chain and crypto was to develop a currency that would replace fiat money and become the primary mode of payment. However, the makers may be unaware of the cost to the rest of the world of this shift.

Cryptocurrency can easily be exploited for illegal purposes, it produces a large quantity of carbon emissions, it is unregulated, and there is no guarantee of a profit in every scenario. These are only a few of the bad aspects of crypto, which some may argue are far worse than the benefits it may give to society as a whole.