The Crystal analytics team have compiled a detailed report based on investigations into darknet interactions using bitcoin, and how regulation is changing trends.
The immutability and transparency of the Bitcoin Blockchain enables us to trace bad actors all over the world, an effort that would be impossible for fiat payments. Additionally, guidelines and regulations for exchanges, online wallets, and other VASPs significantly contribute to the identification of bad actors.
In this article, we analyze the current darknet market and its interaction with other types of entities in 2019, along with dynamics in the last nine years, to see how increased regulation and transparency will impact the darknet markets. All transactions on the blockchain can be traced due to blockchain’s immutability. This paired with the active introduction of crypto regulations, which will sufficiently increase traceability of funds, aided even further through analytical tools like Crystal.
The percentage of BTC received by darknet entities from exchanges directly has declined from 33% to 5% over the last eight years. But if we consider interactions via intermediate addresses with unknown owners, we find that the incoming amount from exchanges exceeded $700m and $900m in 2018 and 2019, respectively. This is compared to $370m in 2014 and $420m in 2015.
Darknet entities received only 0.3% from online wallets in 2019 compared to 4.6% in 2011. But during the last two years, the incoming flow from wallets has doubled. In 2019, it exceeds $20m to date.
Between 2011 and 2019, darknet entities received 5–15% of their bitcoin from other darknet entities. For the period between 2013 and 2018, darknets received $30m to $50m from other darknet entities. This amount has significantly and consistently increased in 2019 and is currently equal to $100m in bitcoin.
The total amount of BTC received by darknet entities decreased from 6m BTC in 2012 to 150k BTC in 2019. However, if we consider the amounts in USD, we see that darknet entities are receiving increased amounts of money — in 2019, currently about $920m.
We can see that the popularity of mixers among darknet entities is decreasing (amount transferred to mixers decreased from $40m in 2014 to $5m in 2019), while peer-to-peer payments are becoming more popular. The connections between darknet entities themselves without intermediary parties is rather strong (for the period between 2013 and 2018, darknets received $30m to $50m from other darknet entities annually). Unfortunately, we see that the annual flow of funds to darknet entities is increasing. This may be partly explained by the growing capitalization of bitcoin. (at the same time, darknet entities are getting more popular (at the time of writing — November 2019 — Darknet received $920m since beginning of the year). However, the overall decreasing BTC flow to and from these entities may also be explained by the growing popularity of altcoins.
Bitcoin is available to anyone in the world to use — this means that while it is increasingly a place for legitimate business, it is also used for malicious and criminal activities. What is reassuring however, is that all transactions on the blockchain can be traced due to blockchain’s immutability. This paired with the active introduction of crypto regulations, will sufficiently increase traceability of funds, aided even further through analytical tools like Crystal.
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