Money laundering and blockchain: Can blockchain be used for money laundering?

Since the emergence of crypto assets money laundering and blockchain technology have been viewed as accomplices.

Money laundering and blockchain

While noting the incredible features of blockchain it cannot be ignored that crypto assets based on blockchain technology have been viewed as criminal tools that support terror finance, money laundering, and other illegal activities. 

On the other hand, there is some truth to it as Bitcoin initially emerged as the method of payment on the dark web marketplace Silk Road where people could anonymously buy illegal items such as drugs and weapons. However, with the passage of time blockchain technology became more advanced and trades could be tracked through block explorers. This advancement resulted in arrests of numerous people including those working at the dark web marketplace.

While blockchain technology supports user privacy it is not that difficult to track the origin of a trade. Most public blockchains are transparent ledgers that allow every user to view every trade that is conducted on the network. Every trade is recorded and can be tracked to learn about the financial activity of an individual or entity.

The blockchain also records the transaction data for coins and tokens which can be used to know where the tokens came from. Similarly, if a person hacks an exchange he would have access to a large sum of money, however, he would not be able to convert it to fiat as it would reveal that he was the one who hacked the exchange.

To use these assets one would need to ‘clean’ the tokens by mixing them with other people’s assets to confuse their origin. However, the method is not perfect as the tokens can still be traced and identified. Another method is to use off-chain services. Since off-chain services have removed the option of payment in cash the coins would still remain traceable.