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Cryptocurrency and Money Laundering Risks

The cryptocurrency was introduced in the market with an aim to dodge the centralized regulation that every nation follows. With the introduction of Bitcoin, Blockchain Technology came to the forefront. This technology has been immensely useful in ensuring the smooth flow of transactions. It uses peer-to-peer technology. It does not involve any other financial institution to authorize Cryptocurrency transactions.

As convenient as it seems, the very feature that promotes the independent functioning of cryptocurrencies becomes the very cause of its downfall. The rate of money laundering that happened using cryptocurrencies was 35% in 2012. Precautionary measures have been taken from time to time. This has ensured that the rate of fraudulence has reached less than 1% in recent times.

However, this is no reason to not invest in cryptocurrencies. Investing in Cryptocurrency using proper crypto lending by creating your own account is a very safe bet. At the same time, let us try to be more cautious about the various ways that money can be laundered on these platforms.

What are the money laundering risks?

The various loopholes in the Cryptocurrency market were difficult to identify. However, ever since the cases of money laundering started coming up, the regulators have been more vigilant. They have come to an understanding of why these loopholes exist, and solve them accordingly.

Some of the reasons for risks are as follows:

  • Source of Cryptocurrency: When a trading platform with no regulation is used, it can be a possible threat. Platforms which have no regard for Know Your Customer (KYC)

Sometimes, it has been observed that a crypto wallet has been linked to various bank accounts and credit cards. It can be indicative of the fact that it is being used by a group of people to trade Cryptocurrency. It will be wise to keep one’s guards up in that case.

  • Trading Patterns: There are some transaction patterns that raise the alarm. When illicit activities are taking place, some unusual transactions are quite often noticed.
  1. When the customer profile does not match the account. Identity theft is a very common criminal offense. The regulators have to be vigil against these activities.
  2. Cryptocurrency is being transferred to a particular account from various sources in huge amounts.
  3. When for various unaccounted reasons, a large inflow of Cryptocurrency is spotted in a particular account; it is supposed to be a sure sign.
  • Geographical Areas: There are specific areas which show very little interest in following protocols. The platforms used are usually devoid of KYC. There are no background checks of the users done. Accounts in these areas are known to be involved in illicit transactions of money. Regulators have been trying to come up with ways to curb these activities.
  • Transaction size and frequency: The regulation of size and frequency of the transactions help in identifying possible illicit activities. When the threshold of transactional value crosses, the regulators tend to investigate the details of the transaction.

Blockchain and Risk Reduction

The unique advantage of using Blockchain Technology is that the blocks have transactions encrypted on them. The encryptions are unalterable. Any tamper with the encryption will be immediately reported to the regulators, and it is very easily traceable.

Each block in the technology stands for each transaction. All relevant details of the transactions are recorded in the blocks. Many blocks together form the blockchain, which is part of the public ledger. The public ledger is accessible to the Cryptocurrency owners. The owners have a certain degree of autonomy, but none of them have the privilege of taking any decision alone.

Conclusion Blockchain technology is the answer to the problem of money laundering involved in Cryptomarket. Ever since 2019, where an amount of $2.8 billion was laundered through cryptocurrencies, the rate of money laundering has considerably decreased. It has only been possible through the optimization of Blockchain Technology.

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