A forensic analysis conducted by the University of Technology Sydney has found bitcoin to be the “PayPal of the dark web”.
Research from UTS Business School found that nearly half (around 43–49 per cent) of bitcoin transactions are related to buying and selling illegal goods such as drugs, weapons and pirated software.
UTS finance professor and research study co-author Talis Putnins, PhD student Jonathan Karlsen and Sydney University senior lecturer Sean Foley tracked illegal bitcoin use across the globe from 2009 to 2017, a statement from UTS read.
“The aim of our research is to help regulators understand the size of the task they face in attempting to monitor and regulate bitcoin, particularly as it becomes mainstream — for example, listing on futures exchanges,” Mr Putnins said.
“The blockchain technology that underpins bitcoin holds significant promise for revolutionising many industries, but this sort of illegal activity risks stunting the adoption of this technology and limiting the potential benefits to society.”
Results from the team’s research paper titled Sex, Drugs and Bitcoin revealed that one-third (32–34 per cent) of bitcoin users were using the cryptocurrency for illegal activities, with half of all bitcoin transactions used for trading illegal goods.
“The paper describes how bitcoin has become the PayPal of the dark web, which is estimated to contain approximately 30,000 domains,” the statement said.
Approximately a quarter (20–28 per cent) of the total dollar value of bitcoin transactions was of an illegal nature.
“Users involved in illegal activity are very active in terms of buying, selling and trading, whereas legal users are largely buying and holding the cryptocurrency,” Mr Putnins said, pointing to the FBI’s seizure of over $4 million bitcoin from online drug marketplace Silk Road in 2013.
The research team uncovered illegal bitcoin transactions by tracing the activity of bitcoin users who had been caught for engaging in online criminal activity through two methods: information from the dark web and identifying common characteristics of illegal bitcoin user activity.
The researchers looked at the extent to which bitcoin users concealed their identity and trading records, and Mr Putnins added that these techniques were also applicable to other blockchains.
“In the hands of regulators or federal police, our methods potentially provide a lot of value in understanding what is going on — and cracking down on it,” the co-author said.
“Most people don’t know what is going on in the dark web. Now we have hard facts to put to the picture, to inform policymaking, regulation and surveillance.”