Darknet and cryptocurrency – the dark side of Bitcoin

Agora

The darknet marketplace was launched on the Tor network in 2013. After the closure of the first shady marketplaces like Silk Road and Atlantis, the Agora project quickly took the lead in the distribution of drugs, weapons and stolen goods.

In 2020, Meiji University professor Yoichi Tsuchiya estimated that the total dollar volume of sales on Agora exceeded $220 million. Over 630,000 transactions were concluded on the marketplace during its operation.

Despite the leading position in the shadow market, the resource existed for about 2 years. In August 2015, the developers reported a vulnerability found in the Tor protocol and the threat of deanonymization of clients. Therefore, the administrators closed the site.

RAMP

It is believed that the first use of the Internet and cryptocurrency for illegal transactions began in the West. But Russian fraudsters quickly adopted these methods from their foreign “colleagues”. In 2012, a resource called RAMP – Russian Anonymous Marketplace appeared on the darknet.

The founder of the site, known under the pseudonym Darkside, set rather strict restrictions on the marketplace. Administrators and moderators prohibited not only trading in openly “dirty” goods, but also any political discussions. As Darkside itself claimed in an interview, this allowed to reduce the attention of law enforcers to the existence of the site.

Trade in drugs, medical products and other goods was conducted on RAMP from 2012 to 2017. After that, visitors’ access to the site suddenly disappeared, and Russian law enforcers announced the closure of the platform.

Hydra

Initially, shady stores, forums and platforms worked as regular sites. But the owners of illegal resources faced the problem of blocking and deleting databases at the request of law enforcers. After the introduction of the Tor protocol, servers registered in the .onion domain zone began to appear. Access to such sites through a regular browser is impossible. But it becomes much more difficult to block the Internet platform, as the Tor network is based on complete anonymization and decentralization.

The Hydra marketplace has become an example of the gradual movement of criminal activity from the regular Internet to the darknet. In 2015, the owners of 2 forums specializing in the sale of drugs created a joint project on the Tor network. In the first months, the new platform worked as a mirror of these sites on the darknet. But as the popularity of the project grew, offers not related to the drug trade began to appear on it. In particular, on “Hydra” are available:

• Illegal financial services (cashing and laundering dirty money, selling bank cards opened on front persons).
• Tools for anonymizing users (VPN services, SIM cards, proxy servers).
• Hacked pages and accounts.

According to the calculations of experts from Flashpoint and Chainalysis, Hydra’s turnover exceeded $1.37 billion in 2020. Every month, visitors to the site made purchases worth more than $100 million.

In 2019, the administrators of Hydra took the initiative to hold an ICO. During the crowdsale it was planned to sell 1.47 million (49%) tokens of the site.

The ICO did not take place, but even its announcement caused a discussion in the cryptocommunity. For the first time, investors were shown the possibility of investing in a blatantly criminal startup.

How actively do criminals use cryptocurrency?

Opponents of digital money often argue a negative attitude towards Bitcoin and altcoins by the “criminal” orientation of many transactions. Skeptics believe that anonymous payment systems are needed only for fraud and laundering of criminally derived funds. There is a certain amount of truth in this statement.

In particular, Andrey Alexandrov, the commercial director of the AMLBot project, noted in an interview for CryptoProGuide.com that 29% of the crypto wallets checked by the company contain suspicious assets.

But that doesn’t mean that every third holder of digital money is a fraudster or a drug trafficker. If you compare the approximate turnover of darknet platforms with the volume of transactions on crypto exchanges and P2P services, you can see a huge difference between the amount of regular and illegal transactions:

• For the year 2020, the largest shadow marketplace Hydra had a turnover of about $1.3 billion.
• At the same time, on the leading crypto exchange Binance, the average daily transaction volume exceeded $3.8 billion.

Thus, traders use bitcoin and altcoins more than 1000 times more intensively than drug dealers and other criminals. Experts of the Chainalysis project came to a similar conclusion. According to their calculations, in 2020, the illegal sector accounted for only 0.34% of the volume of crypto transactions.

Darknet and Bitcoin: myths and reality

Due to the use of cryptocurrency in the shadow market, newcomers often have misconceptions about the essence of tokens and coins. Some users believe that Bitcoin and altcoins should be banned in the interest of fighting crime. Others, on the contrary, mistakenly believe that cryptocurrencies are absolutely safe, as even the criminal world is not afraid to use them in their activities.

Myth #1: Bitcoin provides complete anonymity

The owner of a cryptocurrency wallet does not have to undergo registration and verification. But this does not mean that transactions in the Bitcoin network are anonymous. Even the creator of Bitcoin, known under the pseudonym Satoshi Nakamoto, did not indicate in the technical documentation of the project information about the security of personal information. He only emphasized the strong protection of private keys from hacking. But all transactions in the blockchain are transparent: anyone can see the addresses of the sender and receiver, the amount and time of the transfer. Knowing the private or public keys, it will be possible to compare the financial transactions of their owner.

In addition, there are ways to determine the IP address of the BTC sender. If he does not use anonymizers, law enforcers can get information about his location.

Myth #2: Cryptocurrencies are only for criminals

The creators of the first decentralized networks indeed often emphasized the need to protect privacy. Around the idea of anonymous networks even formed a philosophical and political movement of cryptoanarchists, who fought against state control over money transfers. But today, blockchain technology is much more widely used. With the help of decentralized networks it is possible to:

• Create investment projects.
• Conduct polling.
• Store images, documents and music.
• Provide insurance and credit services.

As the demand for cryptocurrencies grows, the share of the illegal market in the circulation of tokens and coins will only decrease. Therefore, today digital money is an ordinary financial instrument, for the use of which it is not necessary to engage in illegal activities.

Myth #3: Cryptocurrencies are easy to launder money with

Most governments have noticed the interest of users in Bitcoin and altcoins. As the cryptocurrency market developed, so did its regulation. Central banks and other government agencies put into effect regulations that set rules for the circulation of tokens and coins.

In particular, the Anti-Money Laundering Act was adopted in the United States, aimed against dirty money laundering and terrorist financing. Its provisions apply to crypto exchanges and exchange services. Regulated financial companies are obliged to verify clients and check the legality of the origin of funds on their accounts. Therefore, it is becoming increasingly difficult to launder money through Bitcoin.

How intelligence agencies fight against dirty bitcoins

The key vulnerability of all criminal schemes is the human factor. Silk Road founder Ross Ulbricht carefully concealed his identity and financial information. But at some point, he was careless and specified a regular email on one of the forums. Such mistakes often help law enforcement officials identify cybercriminals and illegal transactions. An attacker only needs to use the same nickname, wallet address or e-mail address on a darknet platform and a regular web resource to reveal his identity.

There are also special algorithms that analyze all transactions in the blockchain for their connection to darknet wallets. For example, through the AMLBot service, not only law enforcers, but also ordinary users can assess the purity of bitcoins.

Some attackers use special services (mixers) to confuse the traces. But even in this case, special services have the ability to calculate illegal transactions. Clustering technology allows to compare all inputs and outputs of payments made at approximately the same time. This requires significant computing resources. When it comes to catching serious criminals, intelligence services can use many tools, so there is no single scheme for absolute anonymization of illegal transfers.