Analyzing Money Laundering risks through Cryptocurrencies


Cryptocurrencies are digital currencies that have the potential to make transactions more efficient and secure than the existing financial infrastructure. These currencies are peer-to-peer digital currencies that do not require any intermediate regulatory body such as banks to monitor and manage transactions.

Since their inception, cryptocurrencies have witnessed an inrush of investments across the globe. From big multinational corporations, financial institutions to small traders, a great number of people have invested in crypto either as a store of value, or to make transactions faster as well as anonymous. This new currency also attracted a significant amount of illicit activities.

In this article, we will analyze the risk factor of money laundering through crypto investments, and the possible ways to avoid it.

Crypto and money laundering: Causes

 Money laundering is the act of making money earned in an illicit manner appear legal. This is made possible by channeling the money through legal institutions and legal investments so that they are transformed into legal assets.

Now you must be wondering if cryptocurrency is a better alternative to fiat money, then how can it still accommodate such an illicit activity? It is due to the infrastructure of cryptocurrency, money laundering becomes possible:

  • Anonymous transaction– Cryptocurrencies do not require you to provide your personal data, in order to make transactions (some applications and trading platforms more info here may require you to register with your name and email). All you need is a crypto wallet and an analogous private passkey in order to sign transactions. These wallets can be acquired from crypto brokers and can be used to make private and anonymous transactions. This has created a scope for money laundering. By investing black money in cryptos like Bitcoin one is able to transform illicit money into cryptocurrencies which can then be used to make legal purchases from vendors who accept cryptocurrency.
  • No decisive regulating body– unlike banks and other institutions, cryptocurrency is not regulated by an authoritative body. It is maintained and validated by computer programs. Due to the lack of a regulatory body, there is no accountability on the investments made. One can invest as much legal as well illegal money in cryptos without having to answer a single question.
  • Dubious source of money- Since the users’ identities can remain anonymous, more than one user can use the same crypto wallet. Multiple bank accounts and credit cards can be simultaneously used for the same wallet. This makes it difficult to locate the source of a fraudulent or illicit investment made in crypto assets.

Ways in which money laundering can be prevented on the blockchain network

 Blockchain is a secure ledger technology that is immutable. This means any transaction that is registered as data in blocks is permanent and cannot be altered. The blockchain ledger can be accessed and regulated in order to detect fraudulent activities.

  • The blockchain stores transactional data as well as the address of the crypto wallet within the blockchain. With proper regulation, these records can be accessed in order to locate the user(s) of a crypto wallet.
  • Impose KYC regulations on crypto wallets. While in certain areas registration is mandatory to make crypto transactions, this is not a universal requirement. KYC will not only prevent money laundering, but also dark web activities such as drug trafficking, and other illicit businesses through the silk route.

 Money laundering has been a huge problem since the inception of the cryptosystem. It can be seen from existing data, that there was almost as much as 35% of money laundering activities registered in the year 2012 through cryptocurrencies. In the year 2019, almost 2.8 billion worth of assets were laundered by transforming them into equivalent crypto assets.


However, with the strict application of anti-money laundering laws, it was possible to bring down the level of money laundering activities. Compliance with these laws has brought down the total money laundering activities to 1% of the total crypto transactions made this year.

Jennifer Thomas
Jennifer Thomas is the Co-founder and Chief Business Development Officer at Cybers Guards. Prior to that, She was responsible for leading its Cyber Security Practice and Cyber Security Operations Center, which provided managed security services.