The Dark Side of Bitcoin - Money Laundering and Energy Consumption - Coincierge.de

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There is no question that the cryptocurrency Bitcoin has revolutionized the financial world. However, the “mother of all crypts” is repeatedly criticized. On the one hand, the power consumption is exorbitant when verifying transactions. On the other hand, not only serious investors like the coin. Bitcoin is also popular in criminal circles, precisely because of its decentralized and anonymous character.

Bitcoin and its energy consumption

When the first bitcoin was made in 2009, probably no one doubted the hype that would develop around the BTC. In the early days the digital currency was said to be just a gimmick for computer freaks and nerds, but Bitcoin has now made its way into the mainstream financial world. However, to put it bluntly, blockchain technology is now completely out of date and has become the focus of climate and environmental defenders due to its huge energy consumption. The blockchain uses the proof-of-work consensus mechanism to validate transactions. To put it simply, the miners have to solve complex algorithmic calculations. Whoever succeeds first can confirm the transaction and add a new block to the blockchain. As a reward, there is Bitcoin. This process is called mining. Of course, the miners do not solve the tasks on paper, with pen and calculator. This requires high performance computers – with the corresponding power consumption. An entire industry has now developed around mining, primarily data centers, to put it mildly, not exactly in countries known for sustainable energy production.

In addition to the huge power consumption, the Proof-of-Work consensus mechanism has another huge drawback. The process is extremely slow. It may take some time to validate a transaction. With the energy-saving proof-of-concept consensus mechanism, on the other hand, the validation takes less than a second. Bitcoin’s major competitor Ethereum recognized the problem and changed to proof in 2022.

Bitcoin and money laundering

Due to its decentralized nature, Bitcoin is very popular with criminals, as mentioned above. The BTC is used, among other things, for money laundering. By laundering illegal money, a criminal wants to ensure that the crime remains undetected. On the other hand, the “dirty money” should become legal so that it can be circulated again. Bitcoin and other cryptocurrencies are ideal for this. Although all transactions can be tracked on the blockchain, the user remains anonymous. The “Chipmixer” platform was recently shut down and 44 million euros worth of Bitcoins were confiscated. The operators are accused of, among other things, commercial money laundering. It is also suspected that parts of the crypto assets stolen from FTX were laundered through the platform. Dark web platform Hydra Market also did its business through Chipmixer. Often, booty from scams, ransomware, cyber-attacks and theft is also laundered through crypto. There are even entire states that use their hackers on cryptocurrencies to avoid sanctions. The best example is North Korea with its hacker group Lazarus. Anyone who has invested their money in Bitcoin and Co. relax at this point. Most cryptocurrencies are used for perfectly legal purposes. Most money laundering still occurs through fiat currencies.

Bitcoin and the dark web

In 2009, when the first bitcoin was created on the blockchain, no one would have guessed exactly two years later, that a certain Ross Ulbricht would launch the Darknet platform Silk Road. That’s where you mainly got drugs, but also services like contract killing or other goods that weren’t usually available on normal trading platforms, like stealing credit card details. Silk Road can be imagined like Ebay or Amazon, only illegal, with illegal goods.

Bitcoin was the only form of payment accepted. Even if many prefer not to hear that, this was the first commercial application of the coin. It is also rumored that the Bitcoin rally in 2011 was also motivated by the fact that suddenly the utility coin was real.

The somewhat disparaging image of the cryptocurrency is no coincidence. Ulbricht was then arrested in 2013 – which the FBI managed to do, among other things, thanks to the immovable data on the Bitcoin blockchain.

Monero is now the first choice

Another cryptocurrency is now number one on the dark web: the privacy coin Monero (XMR). Thanks to the technology used, a combination of ring signatures, stealth addresses and ring transactions, between the sender and the recipient as well as the amount of the transaction is hidden. Therefore the purchase of XMR cannot be tracked, and other transactions are not made with the coin.

The XMR has now replaced the Bitcoin on most Darknet markets. Probably also because it is now almost impossible to buy Bitcoin anonymously. But the creators of Monero are also working against the criminal image of their coin. Instead, they claim that their coins can be used as cash. Several hard forks are now made for this purpose. In addition, Monero has now attracted the attention of several regulatory authorities.

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Last updated on March 22, 2023