Crypto 101

Using Blockchain to curb money laundering




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Blockchain combatting money laundering Crypto Heroes

Blockchain is no longer synonymous with Bitcoin – it is an independent technology capable of doing much more than facilitating Bitcoin transactions. Financial institutions and governments around the world are already adopting Blockchain technology for its many benefits and conveniences. One of these benefits is its anti-money laundering capabilities.

Money laundering gone wild

It is estimated that about USD 2 trillion is laundered each year, and this figure is on a steady rise. Emerging technologies have made it incredibly easy for money-launderers to move their dirty cash around with minimal risk of getting caught. This has created a big problem for financial institutions and governments all over the world. It is also bad for the global economy.

Ironically, the newest way to launder money is using cryptocurrencies such as Bitcoin. Many people attribute this to Blockchain technology, but they are wrong – it is these cryptocurrencies’ shortcomings that make them vulnerable for use in money laundering.

Harnessing the qualities of Blockchain technology for anti-money laundering

The emergence of Blockchain technology promises to revolutionize anti-money laundering systems in a big way. True: Bitcoin is not immune to money laundering and criminal activities. However, Bitcoin is an entirely independent concept from Blockchain technology.

What is Blockchain?

Blockchain is essentially a public ledger than runs on a network of nodes. In the case of Bitcoin, Blockchain technology is used to record all transactions in a private and secure manner. The record is chronological by date and time. It is also immutable. Its best feature, however, is that it is decentralized based on a peer-to-peer approach. Identical copies of the record are stored in a network of nodes which, in most cases, for now, are computers. Each change made to the record has to be authorized and updated on each record.

These and other features make Blockchain technology ideal for combating money laundering in several ways:


As mentioned earlier, each transaction on a blockchain has to be authorized and recorded on each and every copy. Authorization requires a minimal of 51% of the nodes in the block chain’s network to achieve. To this end, any change to a single copy of the record is ineffective and would be easily notable in an audit. The only downside to this feature is that anything running on a Blockchain platform will require a considerable number of decentralized, distributed nodes to be fully secure.

In the case of Bitcoin, the crypto-coin runs on a Blockchain network comprising millions of computers distributed all over the world. It would take a super-computer with incredible power to hack into this network – the network has not been hacked to-date.

Constant monitoring

One of the reasons why it is so difficult to crack down on money laundering using the current system is that there is not nearly enough manpower to monitor each and every transaction. Money is laundered in small sums – considering the staggering amount laundered every year, these transactions are just too many to keep track of.

The issue of traceability has already been tackled. However, it is useless without the identity of the individuals behind the transaction. While Bitcoin provides privacy, Blockchain technology itself does not require this. It is possible to require users to provide their identities on any Blockchain network by integrating smart contracts.

A smart contract is a computerized protocol that requires users to meet certain criteria if they want to use the platform. Anti-money laundering platforms based on Blockchain can integrate smart contracts requiring users to provide their identities if they wish to transact. This would ensure that all transactions are transparent (to the authorities, at least) and act as a deterrent to criminals wishing to launder money using any aspect of the main financial systems – they would have to return to holding money in cash as many drug dealers do, and this would not be very convenient for them.

Smart contracts are also capable of monitoring transactions in real-time. Since each transaction is recorded on the blockchain, and since each user is required to meet certain requirements to make a transaction, smart contracts can keep a record of individuals’ activities on the network. Suspicious accounts can also be flagged and banned from transacting, hence giving the fight against money laundering a pro-active stance and saving the global economy trillions.

Blockchain combatting money laundering Crypto Heroes

How would this work, institutionally and internationally?

Some banks including J.P. Morgan and Goldman Sachs are already implementing Blockchain technology into their networks. For these banks, nodes could comprise of servers located all over the world as well as individual branches. Implementing Blockchain technology would be quite simple going by the current architecture.

Adopting Blockchain technology for anti-money laundering purposes internationally would be much more complicated. It would take the cooperation of all governments and international as well as national financial institutions to achieve. Each institution involved in processing related transaction would be required to function as a node on a massive Blockchain network. This, in turn, would call for unquestionable cooperation among all financial institutions. The only way to enforce this would be by formulating policies and regulations requiring all financial institutions to adopt and implement these changes.

There are a lot of concerns that have to be addressed before such an ambitious plan can be implemented. The question of transparency is especially pressing considering that any institution on the Blockchain network (and essentially anyone with access to these institutions) can monitor users’ transactions. There are also some security concerns. Finally, this plan would rob Blockchain technology of its key pillar: decentralization – it would, nevertheless, save governments trillions lost through money laundering.

A long way to go

This may be an ambitious plan to fathom, but it could take shape with time and reach some of its potentials. However, it is already starting to take shape at institutional levels, and this will soon be adopted at national levels. The ongoing globalization efforts could also make this plan viable in the distant future when international monetary systems finally consolidate.

It should be noted, however, that Blockchain technology is most effective against money-laundering efforts using the financial systems. To this end, some traditional money laundering strategies will still work, albeit with greater risks.