The bitcoin drugs trade is highly centralised

All millennials know that the smart way to buy drugs is with bitcoin. You can do it from the comfort of your own home, you might get a boatload of unearned capital appreciation along the way, and you’re less likely to leave a paper trail that leaves you in jail.

But that final notion has always been questionable. For one, it’s a bit of a pain to transact bitcoin without dealing with some sort of centralised, record-keeping institution. And secondly, the whole idea of the cryptocurrency is there is a vast, unchangeable and public record of exactly how bitcoins have moved through the system.

To see those dynamics in practice, look no further than this report from the Center on Sanctions & Illicit Finance and Elliptic, a cryptocurrency forensics firm.

The authors, Yaya Fanusi and Tom Robinson, looked at illicit bitcoin flows from 2013-16 by tracking transactions from known dodgy sources to potential money laundering locations. In their report, the known dodgy sources are mostly things like darknet drugs marketplaces and the potential money laundering locations are largely exchanges, gambling sites and “mixers”, sites that exchange dirty bitcoin for new, clean coins.

The report doesn’t claim to capture all illicit bitcoin transactions, but two findings stand out nonetheless.

The first is the breakdown of traffic:

Mixers have consistently processed about a quarter of incoming illicit bitcoins per year. The proportion laundered through exchanges and gambling combined has been roughly constant (66 to 72 percent). Of note, Bitcoin exchanges processed 45 percent of laundered bitcoins, but, as they received much higher volumes, a much lower proportion of their activity is illicit

The second is that just three mixers and gambling sites account for 97 per cent of the volume in their categories and 50 per cent of the volume overall.

In short, the illicit bitcoin ecosystem is centered around a small number of services that could be subject to scrutiny, regulation and co-option by law enforcement.

It’s a wild west, but luckily for the police all the bad guys are hanging out at a single saloon.

Copyright The Financial Times Limited 2019. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Read next:

Read next:

Lookout, there’s a dollar crunch!

FT Alpha Tweets