A recent report funded by the European Union analyzed the use of digital assets in darknet markets in the EU. The report has called for tougher identity checks on crypto exchange users. This has been recommended to control the increased usage of darknet marketplaces to buy illegal substances.
The report noted that the DNM ecosystem has “grown significantly” since its inception in 2011. In fact, the “euro-to-transaction” ratio has also been increasing over time. The same brings to light the shift towards “larger volume or higher priced purchases on DNMs.”
Another key finding pointed out that 19 EU countries, three countries in the EU’s Eastern neighborhood, Russia, and Montenegro from the Western Balkans could be considered “sizable players” in the DNM ecosystem.
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Role of Crypto
Chalking out the role of crypto exchanges in fostering the same, the report highlighted, that exchanges are a common way of initially obtaining cryptocurrency to fund on-chain wallets. Additionally, it pointed out that not all countries in its sample had KYC and AML rules set for exchanges. In fact, some national rules are “inconsistent in design or application.” That creates the possibility of a “patchwork regulatory regime,” according to the authors of the paper who also noted,
“Eight of the 54 countries (~15 %) in the sample have outright bans on cryptocurrencies, yet engagement with DNM continues in these locations, particularly among those in the EU’s Southern Neighbourhood.”
Leaving aside the EU, it is worth recalling here that other nation clusters have also been working towards standardization. As reported earlier today, Japan’s top currency diplomat, Masato Kanda, recently revealed that the G7 nations will be helping developing countries to introduce central bank digital currencies [CBDCs] in tandem with international standards. With respect to crypto, he said that there were “diverging views” among countries. Nevertheless, the general agreement is that the space needs more regulation.
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The latest report has been commissioned by the European Monitoring Centre for Drugs and Drug Addiction. Notably, it is an agency of the European Union. However, it should be noted that the views, interpretations, and conclusions are of the authors of the paper. They are not necessarily those of the EMCDDA, its partners, or any EU member state. The call for action comes at a time when EU lawmakers are pushing for tougher AML checks on transactions made using crypto. Additionally, the authors wrote,
“It is critical that countries around the world implement the recommendations from the Financial Action Task Force’s Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.”
The recommendations include requiring virtual asset service providers to be registered or licensed. The providers include crypto exchanges, crypto ATMs, OTC brokers, and peer-to-peer exchanges. It also called for them to maintain effective AML programs, including customer due diligence [KYC].
The report goes on to warn that better police training could end up being more effective than outright bans. According to the authors, police should have access to and training in blockchain analysis tools. That will help them to identify the illicit use of crypto. The report additionally elaborated,
“They require training on the technologies that are being employed and the new investigative techniques necessary for conducting these sorts of investigations.”
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