Researchers from blockchain analysis firm Chainalysis calculated that roughly 64 percent of 2018's dodgy cryptocurrency, which amounted to over $1 billion, was laundered by depositing them into digital asset exchanges and trading it.
Money launderers have used other peer-to-peer (P2P) exchange services to clean a further 12 percent of their illegal earnings, totaling to 76 percent.
What this means, more than three-quarters of 2018's illegal cryptocurrencies were traded on online exchanges, at least at some point that year.
"A majority of illicit funds actually flow through either exchanges, or peer-to-peer exchanges, with the rest flowing through other conversion services such as mixing services, [Bitcoin] ATM’s and gambling sites," stated Chainalysis.
Most of those illegal digital funds were said to be acquired by hackers in hacking cryptocurrency exchanges. The researchers noted that $36 million worth of Ethereum had also been stolen in 2018 through various means, including phishing, exit scams and Ponzi schemes.
Traditional currencies can be tracked but more difficult, as the researchers said, "analysts can only estimate money laundering activity by working backward from successful prosecutions and making assumptions about how much of the total activity has been detected."
But cryptocurrencies that work inside the blockchain technology, things are different.
Cryptocurrencies generally features transparent and complete data transaction, allowing better ways for tracking and estimation.
"As in traditional currencies, money laundering in cryptocurrencies has three distinct phases: placement, layering, and integration,” explained Chainalysis.
"Thus, a successful laundering scheme involves ‘placing’ criminal funds into the financial system, moving them around or ‘layering’ to avoid detection, and then ‘integrating’ those funds into the real economy, usually through a business, to make them look like legitimate profit."
The researchers used special dedicated software to estimate the funds being sent from "illicit entities" to conversion services like mixers.
This helps the researchers in quantifying the estimated number of cryptocurrency money laundering, although not necessarily a 100 percent valid.
In another report, Chainalysis suggested that a majority of hacks against the cryptocurrency market over the past few years have been orchestrated by two professional groups or entities.
Dubbing the two groups as ‘Alpha’ and ‘Beta’, the report stated that together, these "professional and prominent" groups have stolen a total of $1 billion worth of cryptocurrency, 60 percent of which was part of publicly reported hacks.
While Alpha and Beta have different motives and modus operandi, these groups have used an endless network of digital wallets to mask the movement of cryptocurrencies, hiding their tracks.
Alpha and Beta have also turned their cryptocurrencies into physical cash through online cryptocurrency exchanges and user transactions.
