HomeCryptoChainalysis US: the link between opioid sales and crypto

Chainalysis US: the link between opioid sales and crypto

Crypto assets unfortunately are still being used as a currency on darknet markets, aiding the illicit trafficking of Fentanyl within the US, however research by Chainalysis US has shown that through on-chain monitoring this social scourge could be ended.

Cryptocurrencies are actually not all that anonymous and, unlike how they are portrayed by mainstream narratives, are highly traceable.

Let’s try to explore this in more detail in this article.

Illegal sale of fentanyl and crypto: Chainalysis US research

A few days ago, blockchain analytics firm Chainalysis US published interesting research on the role cryptocurrencies play within darknet marketplaces, particularly in what concerns the illicit trade in fentanyl, a synthetic opioid with effects 80 times greater than morphine.

In 2020, about 69,000 people died in the US from opioid exposure, 82% of them from fentanyl.

Unfortunately, it is well known, especially after recent law enforcement sanctions, that some drug-related trafficking is being financed through cryptocurrencies because of the ease with which money can be exchanged remotely and the speed at which transactions can be executed.

Another on-chain analytics company, namely Elliptic, also conducted a study on the phenomenon of worldwide distribution of fentanyl, providing us with this graph illustrating the number of related payments in cryptocurrencies.

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However, cryptocurrencies are actually not very effective in evading the identity of traffickers, the blockchain being public and controllable by anyone. 

In this regard, Chainalysis has identified crypto addresses associated with alleged sellers of the fentanyl precursor substance based in China, the main production hub from which distribution to other countries belonging to Latin America starts, where it is in turn processed and shipped as a finished product to the US.

As of 2018, Chinese supplier addresses have received crypto payments of more than $37.8 million: by studying these movements, the work of on-chain analysts mixed with law enforcement could play a crucial role in identifying the supply chain.

In fact, thanks to the study of on-chain flows, it has been discovered that many maxi seizures of fentanyl that have occurred at the US-Mexico border are related to the regional distribution patterns identified by the DEA, or “Drug Enforcement Administration.”

In this sense, although cryptocurrencies are still being used, albeit minimally, to finance these trafficking, they may prove to be a double-edged sword for the producers themselves.

Cryptocurrencies are not anonymous and do not facilitate illicit trafficking

The Chainalysis US study gives us an even better understanding of how cryptocurrencies can be a very important control tool for authorities to counter trafficking in fentanyl or narcotics in general.

The common narrative describes cryptocurrencies, particularly Bitcoin, as the preferred trading currencies of drug traffickers because of their supposed “anonymity.”

The assumption is FALSE: First, most illicit exchanges still take place through classic cash, which, in contrast to Bitcoin, is never accused of facilitating these activities.

Second, many participants in illegal activities adopt cryptocurrencies for the simple reason that they allow value to be exchanged across the board in an instantaneous and “PSEUDO-ANONYMOUS” manner.

The anonymity of cryptocurrencies, is guaranteed as long as the addresses involved in the transactions are not discovered and made public.

In fact, should law enforcement succeed in its intent to identify one or more of the poles of these criminal movements associated with exchanges of monetary value in cryptocurrencies, things could put the entire traffic.

Through the in-depth study of the transactions being made in the network, with the help of industry experts such as Chainalysis, it is possible to go backwards and unearth all the addresses with which the gangsters did business by identifying suppliers, distributors and retailers.

If only institutions would implement proper monitoring systems and control mechanisms for crypto transactions, illicit trafficking would most likely be greatly curtailed.

The US government may be more aware of the activity of Chinese suppliers of fentanyl in China, but so far it has preferred to act on a small scale, highlighting less data than the Chainlaysis and Elliptic research mentioned.

Last month, the US Treasury Department imposed sanctions against two Chinese chemical laboratories, namely WuhanShuokang Biological Technology and Suzhou Xiaoli Pharmatech,on charges of selling fentanyl precursor substances to Mexicans. 

In addition, a man has been indicted who is alleged to have accepted crypto payments from one of the two companies mentioned.

The preconditions for limiting or even eliminating these trades are there, what is lacking is goodwill in introducing monitoring systems and cooperation between different governments.

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The crypto analysis company Chainalysis US

Chainalys US is a blockchain analytics company that provides software, data and services related to on-chain transactions to government agencies, exchanges, financial institutions and cybersecurity companies in more than 70 countries.

The company’s goal is to create a more transparent and crime-free Web3 digital environment by increasing access to cryptocurrencies by institutions and retailers.

Chainalysis uses investigation, compliance and market intelligence software to solve cases of fraud, cyber theft or exploits within the blockchain world.

Typically when cases of attacks occur against decentralized protocols, exchanges or autonomous organizations that base their activities through crypto exchanges, Chainalysis is often called upon, precisely because of its ability to read digital transaction logs and identify the culprits.

The company has received numerous awards and kudos from entities such as Forbes, Fast Company, Deloitte, W3B and CB Insight. In particular, it was cited by Forbes as one of the top 50 fintech companies in the world.

New technologies underlie immense development potential for society, however, it is also necessary to monitor fraudulent activities and limit the spread of cryptocurrencies in that direction as much as possible.

As reiterated in the previous paragraph, the introduction of clearer regulations and the implementation of monitoring systems by government agencies, could make the difference in stopping illicit trafficking and activities, through the help of Chainalysis as well.

The trust factor plays a key role in the expansion of this world, about which there is still mistrust: the work of Chainalysis in this regard could be crucial in giving banks, companies, stock exchanges, and governments the trust they need to explore the true potential of the Web3.

Alessandro Adami
Alessandro Adami
Graduated in "Information, Media and Advertising", for over 4 years interested in the cryptocurrency and blockchain space. Co-Founder of Tokenparty, community active in spreading crypto-enthusiasm. Co-founder of Legal Hackers Civitanova marche. Information technology consultant. Ethereum Fan Boy and supporter of Chainlink oracles, strongly believes that smart contracts will be central in the development of society.