Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?
Review of Financial Studies, Forthcoming
63 Pages Posted: 17 Jan 2018 Last revised: 15 Dec 2018
Date Written: December 14, 2018
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: Suggested Citation