According to research, up to 40% of all Bitcoin transactions are related to crime - this is the cost of the increased anonymity of cryptocurrency compared to fiat. At the same time, we must not forget that all transactions in the blockchain are transparent and traceable, so it is not difficult to trace the path of each coin or its part.
Let’s imagine that you received “dirty” bitcoins that were previously involved in criminal transactions, and you yourself don’t know about it. There is a risk that law enforcement agencies will ask you questions. The situation is not pleasant. Let's figure out where dirty Bitcoin comes from and how to check coins for purity.
What is AML verification of cryptocurrency
AML (Anti Money-Laundering) is a set of measures, laws and policies to prevent criminals from cashing out illegally obtained cryptocurrency.
In 2014, the FATF (Financial Action Task Force, an intergovernmental body that sets international standards) published guidance on combating money laundering in cryptocurrencies. The US Financial Crimes Enforcement Network (FinCEN), the European Commission and other regulators have legally adopted most of these recommendations.
This affected cryptocurrency exchanges and issuers of stablecoins, some DeFi and NFT platforms. They must conduct KYC checks and monitor suspicious activity to stop illegal transactions that may be linked to money laundering and terrorist financing. And also – report suspicious activity to the appropriate regulatory authorities.
Where does dirty Bitcoin come from?
There are several reasons why cryptocurrencies are used in criminal transactions:
Anonymity. While there are methods to link cryptocurrency to a specific identity, they can be circumvented.
Cross-border transfers. Unlimited coverage wherever there is internet.
Impossibility of full-fledged centralized supervision. Law enforcement cannot seize assets in relation to one central location or organization, but at most can cooperate with exchanges to obtain information from them.
A coin is considered dirty if it has been involved in any illegal activity, such as exchange and wallet hacks, money laundering, fraudulent schemes and projects, darknet drug markets, stolen card data, etc.
You can identify dirty bitcoins using AML checks. Blockchain analysis software is a rapidly growing industry.
How to protect your wallet
Advice that experts give to users who want to protect themselves from dirty BTC:
Do not use Bitcoin mixers that hide the origin of the coins. Funds received from mixers are a red flag for many crypto exchanges. If you try to place such a cryptocurrency on an exchange, you may encounter problems - account blocking, investigation.
Use at least two wallets for incoming transactions: one for 100% pure ones, the other for potentially risky ones. The first one will contain coins from reliable partners, regulated exchanges, mining pools, and various services with integrated KYC verification.
Use special software to check. More about it below.
Important! The Binance exchange, like most other top crypto exchanges, has a department to combat dirty cryptocurrency, so it is guaranteed to protect users from such troubles.
Useful services for checking transactions
Once you receive a potentially risky transaction, check to see if it contains dirty bitcoins before sending money anywhere else. For this purpose you can use the following services:
Website and telegram bot AML Bot.
Blockchain browser GetBlock (Etherscan is also suitable for Ethereum).
AMLNode
As a rule, services require a small payment, but there are also free test checks. It is enough to enter the transaction hash to send it for analysis and find out all the possible risks. The result is based on data supplied by law enforcement agencies or analytics companies about the cryptocurrency involved in criminal acts.
What to do if Bitcoin is dirty
If you have checked the received cryptocurrency and found that it is really dirty, the only way to wash it is through mixers - but, as we have already said, there is a risk of getting other dirty coins. Transferring to decentralized exchanges, scattering them among different wallets and subsequent cashing out is not a solution to the problem; this can be tracked without any problems.
This is why we recommended above to have two wallets. Most of your funds should only travel through regulated platforms so they are not at risk. And you’ll most likely have to say goodbye to dirty coins if you don’t want to take risks.
Conclusion
If you were under the impression that Bitcoin is purely a tool for criminals, then in fact this is no longer the case. The percentage of BTC involved in illegal transactions is falling every year, and the volume of regulated transactions is growing at a rapid pace - just take the billions of dollars invested in cryptocurrency by institutions. However, due to its technical features, Bitcoin is, of course, convenient for criminals, and AML measures at least partially prevent this.
