Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?

63 Pages Posted: 17 Jan 2018 Last revised: 23 Oct 2018

See all articles by Sean Foley

Sean Foley

University of Sydney Business School

Jonathan R. Karlsen

University of Technology Sydney (UTS), UTS Business School

Tālis J. Putniņš

University of Technology Sydney (UTS); Stockholm School of Economics, Riga

Date Written: October 21, 2018

Abstract

Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users are involved in illegal activity. We estimate that around $76 billion of illegal activity per year involves bitcoin (46% of bitcoin transactions), which is close to the scale of the US and European markets for illegal drugs. The illegal share of bitcoin activity declines with mainstream interest in bitcoin and with the emergence of more opaque cryptocurrencies. The techniques developed in this paper have applications in cryptocurrency surveillance. Our findings suggest that cryptocurrencies are transforming the black markets by enabling “black e-commerce.”

Keywords: blockchain, bitcoin, detection controlled estimation, illegal trade, black market

JEL Classification: G18, O31, O32, O33

Suggested Citation

Foley, Sean and Karlsen, Jonathan R. and Putnins, Talis J., Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies? (October 21, 2018). Available at SSRN: https://ssrn.com/abstract=3102645 or http://dx.doi.org/10.2139/ssrn.3102645

Sean Foley

University of Sydney Business School ( email )

Sydney
Australia

Jonathan R. Karlsen

University of Technology Sydney (UTS), UTS Business School ( email )

Sydney
Australia

Talis J. Putnins (Contact Author)

University of Technology Sydney (UTS) ( email )

PO Box 123
Broadway
Sydney
Australia
+61 2 9514 3088 (Phone)

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)

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