The Digital “Wild Wild West” Regulating Cryptocurrency and the Dark Web

By Melissa Maranville, Ph.D.-c, Forensic Consulting and Training for Criminal Justice Professionals, DeVille and Associates LLC

Cryptocurrency and dark web regulations are two-fold problems similar to corralling criminals during the “wild wild west.” Cryptocurrency has been a challenge for regulators due to the widespread different types of cryptocurrency exchanges. The dark web, or the decentralized internet network, has also been challenging to regulate. Coupling cryptocurrency and the dark web in concert makes for a strange world where anything goes. As a result, some form of regulation is imperative, both for cryptocurrency and the dark web.

Cryptocurrencies are usually decentralized, meaning there is no central authority governing them. Crypto runs on a distributed public ledger, or the blockchain, which records all transactions with a time date stamp on each transaction. Units of cryptocurrency are created through a procedure known as mining, in which a miner verifies crypto transactions. The mining process involves computer-generated technology that solves complex mathematical problems that generate digital transactions. Although these digital transactions are stored on a public ledger, they are written in code that cannot be duplicated and require public and private keys to transact, protecting the user’s identity. The beauty of the pseudo-anonymous blockchain is the ability to protect one’s assets and identity. However, this is also appealing to bad actors. Depending on which cryptocurrency is used to transact can also determine which blockchain the transactions are recorded. Currently, there are over 2000 types of cryptocurrencies. However, not every cryptocurrency is made the same. For example, the original cryptocurrency, Bitcoin, is transacted on a public blockchain, making all transactions a valuable source of open intelligence. However, crypto, such as Monero, has different techniques that can cause layers of transacting confusion, making them more anonymous. These pseudo-anonymous activities protect users’ identities, which is a regulatory challenge.

Like cryptocurrency, the deep and dark web is pseudo-anonymous and housed on the decentralized web. The decentralized web is a system of interconnected, independent, and privately owned computers that work in concert to provide secure and private access to the internet. This connection is complicated, if at all, impossible to trace. The decentralized platforms were also developed to protect one’s identity, so it is also appealing to criminal actors. The dark web is a sub-section to the deep web but is a small portion where it requires a particular browser to enter, such as The Onion Router called TOR. Criminal activity of all kinds can be found on the dark web. Most criminal activity on the dark web occurs in marketplaces. Any illegal activity can be viewed and purchased in these marketplaces, ranging from hackers for hire, credit card cloning, drug sales, sex trafficking, and money laundering. There are 12 – 15 dark web marketplaces on average at any given time. These marketplaces accept cryptocurrency as a form of payment, with the two most common being Bitcoin and Monero.

Cryptocurrency and dark web activity are at the top of all illegal transactions regarding the desire to remain anonymous. Regulations have been a challenge for government agencies to gain control of unlawful activity, whether via cryptocurrency or the dark web marketplaces. Regulating what cannot be identified is a challenge within itself. It is nonviable to hold cryptocurrency on the dark web exchanges accountable due to the decentralized anonymizing platform. It is also impractical to regulate the dark web in isolation. Any regulations would need to be similar to the surface web and indexed and monitored by the government. However, every user in the dark web network would have to agree to regulations, which will not happen.

The most significant hurdle policymakers and law enforcement face with regulation are cryptocurrency and the dark web’s encryption technique and anonymity. Possibly, one way to regulate cryptocurrency and dark web marketplaces is to hold exchanges and software developers accountable for illicit activity. For example, legitimate cryptocurrency exchanges collect legal identifiers of all their users. In addition to holding crypto exchanges accountable, possibly cracking down on software applications used to launder cryptocurrency on the dark web, such as decentralized cryptocurrency mixers, could be helpful. Crypto mixers or tumblers automatically shuffle cryptocurrency back and forth amongst other transactions resulting in layers of confusion. These mixers enable criminals to avoid detection when laundering money. People who wish to avoid paying taxes on cryptocurrency are also drawn to crypto mixers or tumblers. Cryptocurrency on the blockchain can be easily traceable when published on a public digital ledger, especially with cryptocurrency tracking software. However, tracing crypto when using a mixer is not impossible but more challenging.

When it comes to exchanges, they must also be held accountable for collecting personally identifying information, and possibly requiring an update or confirmation every six months to one year could help. Perhaps, if the user refuses to provide updated and current information, their account could be frozen. However, the issue with exchanges is that not every exchange collects legal identifiers. Perhaps if they do not, the government could sanction the exchange. An essential key with cryptocurrency is that exchanges are used to purchase or sell (use) cryptocurrency. It must come on and off the blockchain in fiat currency, either in a bank account or crypto ATM. On and off again, financial behavior provides investigators with tracking options.

Lastly, when it comes to collecting cryptocurrency and dark web marketplace data, such as the use of cryptocurrency mixers on the dark web marketplaces, this data should be shared amongst agencies of a trans-border nature. Sharing intelligence across different sectors, agencies, and organizations are imperative to hone in on cryptocurrency and illegal dark web activity. International cooperation is necessary forex changing information through seminars, forums, conferences, and platforms in a joint effort to combat cryptocurrency and dark web criminal activity. After all, regulation issues with cryptocurrency and the dark web are global issues. To regulate the digital “wild wild west,” we must build bridges and close gaps amongst agencies, universities, and businesses in data sharing, educating, and training.

Melissa Maranville, Ph.D.-c
Founder and Owner
DeVille and Associates, LLC
Forensic Consulting and Training for Criminal Justice Professionals


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