Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?
58 Pages Posted: 17 Jan 2018 Last revised: 30 Jan 2018
Date Written: January 15, 2018
Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users and one-half of bitcoin transactions are associated with illegal activity. Around $72 billion of illegal activity per year involves bitcoin, 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 way black markets operate by enabling “black e-commerce.”
Keywords: blockchain, bitcoin, detection controlled estimation, illegal trade
JEL Classification: G18, O31, O32, O33
Suggested Citation: Suggested Citation