A novel study has found that only 0.3% of cryptocurrency transactions are flagged as illegal, and cash remains king

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A recent study found that despite the long-held belief that crypto assets facilitate criminal activity, perpetrators still overwhelmingly prefer cash in their illicit transactions.

It’s a revelation published by Fortune and from the Crypto Information Sharing and Analysis Center (CryptoISAC), challenges the narrative that digital assets are the first choice for criminal organizations like Hamas.

TradFi systems are estimated to launder up to $2 trillion annually

The study, titled “Blockchain’s Role in Reducing Illicit Financing,” was developed in collaboration with Robert Whitaker, director of law enforcement at Merkle Science and former supervising special agent at the Department of Homeland Security.

According to Whitaker, “cash will always reign supreme due to its truly anonymous nature,” highlighting the difficulty law enforcement has in tracking cash transactions compared to those conducted online blockchain.

For years, cryptocurrencies have been seen as a breeding ground for illicit activities, especially after high-profile incidents such as the collapse of FTX and the Silk Road marketplace. However, data from CryptoISAC and analytics firm Chainalytic suggest this perception may be skewed.

The report indicates that only 0.34% of all cryptocurrencies are on-chain transaction volumes were considered potentially illegal in 2023, down from 0.42% in 2022. On the other hand, time-honored financial systems (TradFi) are estimated to launder between 2% and 5% of global GDP annually, equivalent to between $800 billion and $2 trillion.

Whitaker pointed out that U.S. cryptocurrency exchanges must adhere to stringent compliance measures, including get to know your customer (KYC) and anti-money laundering (AML) regulations.

These requirements make it much easier to track transactions on the blockchain, which may deter criminals. “It is law enforcement friendly in the sense that it has an immutable record behind it that is public,” he explained.

Whitaker pushes for adjustments to cryptocurrency regulations

The report also highlights that even stablecoins, often considered favored by crypto criminals due to their stability, are rarely involved in illegal transactions. Between July 2021 and June 2024, only 0.61% of transactions involving USDT Tether and 0.22% of USDC Circle were flagged as potentially illegal.

The U.S. Treasury confirms these findings, stating in its 2024 Money Laundering Risk Assessment that “the use of virtual assets for money laundering remains significantly lower than for fiat currency.”

The report also highlighted the need for international cooperation to combat national security threats, especially as much of the illicit activity related to digital assets takes place on foreign exchanges US regulations.

Whitaker advocates for tailored legislative solutions that take into account the unique aspects of cryptocurrencies, stating: “Stop trying to force cryptocurrencies, a round peg, into a square hole called fiat currency regulation.” Calls on policymakers to take decisive action to effectively regulate space.

With concerns surrounding national security issues such as financing of terrorist organizations and sanctions evasion, Whitaker emphasizes the urgent need to address these challenges. “The longer we ignore the problem, the more we will allow illegal entities to profit from this space,” he warns.

Chart 1D shows the total cryptocurrency market capitalization valuation of $2.12 trillion. Source: TOTAL on TradingView.com

Featured image from DALL-E, chart from TradingView.com

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