{"id":2272,"date":"2024-04-17T15:02:03","date_gmt":"2024-04-17T12:02:03","guid":{"rendered":"http:\/\/localhost\/blog\/dirty-cryptocurrencies-how-to-avoid-problems-with-digital-money\/"},"modified":"2024-11-03T16:06:36","modified_gmt":"2024-11-03T13:06:36","slug":"dirty-cryptocurrencies-how-to-avoid-problems-with-digital-money","status":"publish","type":"post","link":"https:\/\/quppy.com\/de\/blog\/dirty-cryptocurrencies-how-to-avoid-problems-with-digital-money\/","title":{"rendered":"How to Avoid Problems with „Dirty“ Cryptocurrencies"},"content":{"rendered":"

A Quppy Step-by-Step Guide on securing your Digital Funds and Digital\u00a0Wallets<\/p>\n

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Cryptocurrency wallets of users can be compromised with bitcoins and other coins tainted by criminal activities. In such cases, all assets in the wallet end up on the blacklist on regulated platforms. Here\u2019s how to mitigate such\u00a0risks.<\/p>\n

\u201cDirty\u201d coins refer to digital assets stolen from exchanges or used for illicit purposes. Practically any type of coin can become \u201cdirty\u201d: Bitcoin, Ethereum, Bitcoin Cash, Litecoin, stablecoins, or ERC-20 tokens. While crypto platforms primarily focus on monitoring the \u201ccleanliness\u201d of BTC and ETH, the tightening of AML (Anti-Money Laundering) requirements means they will increasingly scrutinize other cryptocurrencies as\u00a0well.<\/p>\n

In 2023, the landscape of cryptocurrency crime experienced some notable changes. According to the 2024 Crypto Crime Report from Chainalysis, the total amount of cryptocurrency laundered dropped significantly to approximately $22.2 billion, marking a near 30% decrease from the previous year\u2019s $31.5 billion. This reduction is attributed to a decline in the use of traditional laundering methods such as mixers, with funds sent to mixers from illicit addresses halving from $1 billion in 2022 to $504.3 million in\u00a02023.<\/p>\n

Moreover, there has been a shift in the patterns of money laundering, with increased funds being channeled through cross-chain bridges and gambling platforms, especially by ransomware groups. These tactics demonstrate the evolving sophistication of crypto criminals in response to regulatory pressures and the changing digital asset landscape.<\/p>\n

Despite the overall reduction in illicit transaction volumes, certain types of crypto crime like ransomware and transactions involving sanctioned entities have seen increases. Sanctioned entities alone accounted for $14.9 billion or 61.5% of all illicit transaction volume in 2023. This indicates that while the absolute volume of crypto crime may be decreasing, its nature is diversifying with significant impacts still felt in specific\u00a0areas.<\/p>\n

These findings highlight the ongoing challenges and adaptations within the sphere of cryptocurrency crimes, underlining the importance of enhanced regulatory and monitoring efforts to keep pace with the advanced techniques used by criminals.<\/p>\n

It\u2019s difficult to determine the exact volume of these funds that exchanges have marked. However, billions of dollars could potentially end up in the wallets of unsuspecting users far removed from criminal activities.<\/p>\n

How \u201cDirty\u201d Coins Can End Up in Your\u00a0Wallet<\/strong><\/p>\n

Regulated trading platforms and exchanges meticulously track the circulation of \u201cdirty\u201d coins. They flag assets involved in unlawful activities.<\/p>\n

To obscure their trails and \u201cclean\u201d the coins, criminals put \u201cdirty\u201d assets through several rounds. They use crypto mixers, split transactions into smaller amounts, utilize unregulated platforms, gambling platforms, prepaid cards, and cryptocurrency ATMs. Often, compromised assets are sold at a significant discount.<\/p>\n

As a result, \u201cdirty\u201d crypto assets might end up in the wallet of a law-abiding user. It\u2019s impossible to buy \u201ctainted\u201d assets on regulated exchanges and exchanges adhering to KYC\/AML policies\u200a\u2014\u200asuch coins simply don\u2019t make it to their wallets, as platforms block them. However, a user can easily purchase \u201cdirty\u201d coins through an unregulated exchange, on a dubious exchange, or receive them as\u00a0payment.<\/p>\n

The Problems \u201cDirty\u201d Coins\u00a0Bring<\/strong><\/p>\n

If a user\u2019s wallet receives \u201cdirty\u201d coins or tokens, all assets in it become compromised, and the wallet itself ends up on a blacklist. Trading platforms will not investigate which specific coins were used by criminals and will automatically consider all coins in the wallet as involved in unlawful activities.<\/p>\n

If it\u2019s an exchange wallet, it will be blocked until the investigation is completed, and the user will be required to undergo verification (if not done previously) and explain the origin of the funds. In some jurisdictions, such as the USA, users may face fines for \u201cdirty\u201d coins\u200a\u2014\u200ait\u2019s considered participation in money laundering.<\/p>\n

If it\u2019s a user\u2019s wallet, no regulated platform will accept the coins from it. Exchanges share data on stolen coins, compile a blacklist of stolen assets and compromised wallets. Selling \u201cdirty\u201d cryptocurrencies on unregulated platforms or to private individuals can also be challenging. If a buyer notices the coins are \u201cdirty,\u201d they may refuse the deal or ask for a significant discount.<\/p>\n

How Platforms Track \u201cDirty\u201d\u00a0Coins<\/strong><\/p>\n

Regulated exchanges and exchanges closely monitor the use of compromised coins. This is a requirement from regulators: the Fifth Anti-Money Laundering Directive (AMLD5) took effect in January 2020, mandating platforms to track users\u2019 crypto transactions, maintain their records, exchange data with each other, and report suspicious activities to authorities. National laws are often no less stringent, and FATF members also follow the organization\u2019s recommendations on cryptocurrency regulation formulated last\u00a0June.<\/p>\n

Large platforms have a dedicated department for tracking suspicious transactions. \u201cDirty\u201d coins are detected using bots, automatic alert systems, and manual\u00a0checks.<\/p>\n

The use of mixers\u200a\u2014\u200aprograms and services for transaction anonymization\u200a\u2014\u200ais also perceived by regulated platforms as an attempt to launder funds and is a reason for account blocking. The exchange doesn\u2019t care why the user used the mixer. According to Chainalysis statistics, 90% of mixer users utilize them for privacy, not illegal activities. Mixers aren\u2019t prohibited by international AML directives, but exchanges err on the side of caution. They may not necessarily block an account noticed using coins that have gone through a mixer, but such a wallet will definitely be monitored.<\/p>\n

To track suspicious transactions, exchanges primarily use third-party solutions to optimize AML processes. Solutions from Chainalysis, CipherTrace, and Elliptic are most popular. They are used by regulated exchanges and exchanges, as well as law enforcement agencies.<\/p>\n

What to Do If Your Wallet Is\u00a0Blocked<\/strong><\/p>\n

If a platform blocks a wallet for compromised coins, it\u2019s crucial to cooperate fully with support. First and foremost, complete full verification (if not done previously): provide photos or scans of documents verifying identity and the source of the funds in the\u00a0account.<\/p>\n

Proving innocence can be done in several ways. For example, provide screenshots showing the transfer or purchase of \u201cdirty\u201d coins. It\u2019s easier for the exchange to check if \u201cdirty\u201d coins were bought with a bank card or through an electronic wallet. Cash purchases are impossible to\u00a0track.<\/p>\n

Arguing is ineffective\u200a\u2014\u200athreats won\u2019t convince the security service of innocence. But a transaction screenshot might.<\/p>\n

Each case is individually reviewed by the platform\u2019s AML officer. If the user\u2019s innocence is proven, compromised assets will be returned to the original wallet or another address of the\u00a0user.<\/p>\n

How Not to Become an Owner of \u201cDirty\u201d\u00a0Coins<\/strong><\/p>\n

There are several ways to reduce the likelihood of accidentally receiving \u201cdirty\u201d coins in your\u00a0wallet:<\/p>\n