The more obscure the market, the more obscure the currency used is not true for the darknet. The underbelly of the underbelly of the internet, the darknet is that part of the deep-web which is beyond the reach of traditional browsers and search engines. Within this darknet lies a slew of digital markets where all sorts of illegal goods are exchanged, and paid for using cryptocurrency.
In the State of Crypto Crimes report released at the start of the year, Chainalysis, the blockchain analytics firm studied the major crimes committed using crypto, among them darknet transactions were the most consistent. In 2019, the darknet market revenue reached a new high of $790 million, after 2018 saw a year-on-year decline in revenue for the first time since 2013.
Bitcoin Darknet revenue by year | Source: Chainalsysis Report
While metrics on all financial fronts for these markets are increasing, one aspect that remains far more consistent is the choice of cryptocurrency. “The most popular cryptocurrency used by darknet markets remains Bitcoin,” said Kim Grauer, head of research and Carles Lopez-Penalver, senior Cybercrime Analyst, Chainlysis speaking to AMBCrypto.
Among the altcoins used are Litecoin, Bitcoin Cash, and Monero. Despite only one of the aforementioned three having privacy features, there is a widespread use of popular altcoins. However, some markets have seen exclusive use of Monero, stated the Chainalysis executives because of its encrypted network features. The report read,
“Monero uses an obfuscated public ledger to make it more difficult to see the senders, receivers, or amounts of cryptocurrency exchanged on transactions. “
The aforementioned report highlighted the ‘Empire Market’ which is “the money major darknet market accepting Monero‘ but stated that it “could change in 2020.” However, the norm still remains with Bitcoin the currency of choice.
Altcoins are even more distanced when the size and scale of the operations expand. In Q1 2020, according to a report by Bitfury’s Crystal Blockchain, over $384 million in Bitcoin was received by darknet entities and over $411 million was sent, the corollary participants to these transactions are exchanges divided between those which have verification requirements and those that do not, coin mixing pools, and other darknet transacting entities.
In constrast to Bitcoin’s high-value transactions, Grauer and Lopez-Penalver added that altcoins are only used for smaller transactions within the darknet,
“The only darknet entities that appear to offer payments in altcoins tend to be smaller fraud shops that are likely using third party payment processors.”
Much like the case for other criminal activities in cryptocurrency, the coin of choice remains Bitcoin owing to its numerous on and off-ramps, and the lack of the same on the altcoin front. Despite altcoins having higher privacy features, the convenience of using Bitcoin cannot go amiss. Graues stated,
“Bad actors often have to choose between using a cryptocurrency like Monero for its enhanced privacy and Bitcoin for its convenience, availability, and liquidity. Bitcoin usually wins, especially as exchanges increasingly delist privacy coins in light of regulations.”
In fact, the privacy feature of privacy coins aren’t used for the sake of privacy. “People don’t take advantage of privacy features of many cryptocurrencies,” said Grauer giving the example of Zcash. The “partly shielded transactions” on ZEC, where either the sender, receiver and transaction amount are encrypted, account for only 14 percent percent of all Zcash transactions, and only 6 percent of those transactions are “completely shielded” where all three aspects are encrypted.