Why Cryptocurrencies Are a Bad Choice for Criminals and Money Launderers
Pseudonymous Vs. Anonymous
An anonymous individual can function or communicate in ways that make them unidentifiable. A pseudonym user can be identified, but their identity is hidden. People can post anonymously in a website's comments section without logging in. It's anonymous. The Rock, whose real name is Dwyane Johnson, is an example of a pseudonym, as is any other professional who uses a stage name. Although many cryptocurrencies, like bitcoin (BTC), are more traceable than cash transactions, others, including Zcash (ZEC), Monero (XMR), Grin (GRIN), and Beam (BEAM), were designed with anonymity and privacy in mind. While many transactions take place anonymously and often aid unlawful conduct, privacy is a fundamental human right that governments provide to individuals and is a crucial component of greater freedom.
Anonymous transactions let people transfer significant quantities of money without being detected. Many individuals of the crypto community use pseudonyms on social platforms to safeguard their privacy or security, either as part of a movement toward self-sovereignty or as a way to keep their identity secret. Likewise, many people appreciate Bitcoin because pseudonymity is built into its protocol. When opening a bank account, you must supply proof that is neither anonymous nor pseudonymous. When you create a Bitcoin wallet, you generate an alphanumeric address that's available on the blockchain. This address provides pseudonymity rather than anonymity since financial forensics can link it to your real identity.
Cryptocurrencies are Mostly Pseudonymous
Most cryptocurrencies are pseudonymous rather than anonymous. A wallet address doesn't prove ownership; a private key does. This makes blockchain transactions incredibly traceable; evidence from the Bitcoin network has already been referenced in US courts. As far as blockchain is concerned, the old adage that "possession is law" holds true. Blockchain becomes a pseudonymous system rather than a completely anonymous one when the public address and private key are combined. This is one of the main reasons why Satoshi Nakamoto, the creator of bitcoin, has never been officially identified, as he has never moved or sold his coins.
Some blockchain implementations, on the other hand, go to great lengths to guarantee that their pseudonymity is as close to anonymity as practical. "Obfuscated ledgers" can make auditing a lot harder. These coins have a functional utility and please privacy zealots, but they're also utilized for money laundering and criminality. However, these are only a limited few.
Aiding Anti-Money laundering Efforts
Regulators have criticized the crypto industry, saying anonymity aids illegal activity like money laundering. However, is that truly the case? Not at all. Since blockchain analytics tools make it simple for authorities to track down the whereabouts of target funds, utilizing cryptocurrencies to launder money is probably a bad idea. It's not just a hypothesis; it's been done. Binance, a leading cryptocurrency exchange, has aided law enforcement in their investigation of the Fancycat criminal ring.
If an address can be connected to a real-world identity, it isn't anonymous. Addresses can be linked to real-world identities via KYC & AML procedures at exchanges and blockchain analysis platforms. Past headlines, such as the recovery of a significant portion of the $4.4 million ransom paid by Colonial Pipeline to a hacking group with ties to Russia, have raised doubts as to whether bitcoin is immune to government control and manipulation. What isn't widely recognized is that appropriate law enforcement authorities can trace down bitcoin transactions if they put in the right effort. One of the worst things someone can do is try to launder money with bitcoin and other pseudo-anonymous cryptocurrencies. Governments, according to experts, may trace cryptocurrency transactions and help mitigate crime with the aid of blockchain specialists and by serving seizure orders issued by district courts.
Final Thoughts
Bitcoin and public ledger-based cryptocurrencies aren't completely anonymous and are rather a risky option for criminals and money launderers. Cryptocurrency platforms are developing rapidly. If bad actors want to send and receive cryptocurrencies anonymously and keep their money in a non-public account, their choices are really limited. Moreover, some blockchain firms are already developing means for tracing even privacy-enhanced cryptocurrencies. To conclude, the allegations about cryptocurrencies fueling illicit activities are somewhat exaggerated.