Topics Covered in this article
The cryptocurrency use, regulations and the problems attached with it are very much
in limelight these days. The recent order of Hon’ble Supreme Court removing the ban
on the use of the cryptocurrency is being seen as a landmark judgement in the growth
and use of the cryptocurrency in India. However, the stand of government of not
having the decentralized cryptocurrency is still the same, though they are thinking for
having a centralized cryptocurrency for the country.
The cryptocurrency since its invention drew the attention of people towards it. If we
see one facet of it, we find that it is giving the transparent method of finding out the
chain of transactions undertaken by a person, but on the other hand, it is being used as
a platform for making illegal transactions. The use of cryptocurrency in terrorism
activities, drugs, money laundering and other illegal works are not a hidden fact. Even
the sovereign authorities of all the countries are aware about it.
In India, the anti-narcotics agencies have found many cases of use of bitcoins( it is a
form of cryptocurrency) in drugs transactions.In 2016,for the first time, the Narcotics
Control Bureau of India detected the use of darknet and Bitcoins by the drug
traffickers for carrying the illegal drug racket in India. The limited and conditional
access of the darknet is opening a new door for a hidden drug trafficking in the
Through this paper, we will try to see the multi-facets attached with the drugs and the
cryptocurrency. We will also try to find out the role of government in all these as well.
Our motive through this paper is to find every aspect of this problem by establishing a
relation between the drugs, cryptocurrency and the government and also to look out
for the disadvantages associated with it.
This paper seeks to quantify and characterize the illegal drug trade being facilitated by
the cryptocurrencies.Through this, we hope we will understand the nature and the
problems attached with this developing technology in a better way.
WHAT IS CRYPTOCURRENCY
Cryptocurrency is a type of digital currency, it all functions online. There are miners who invest their time as well as money to generate cryptocurrency through computer applications and that cryptocurrency is then brought online by the people.
Cryptocurrency works on a technology named blockchain. Blockchain is a decentralized technology where with every transaction using cryptocurrency, a block gets attached with your earlier transactions making it transparent to know the details of all your transactions carried out using cryptocurrency.The anonymity is also provided in the cryptocurrency which gives the edge to the terrorist organizations to go for illicit drug trafficking using this medium.
RELATIONSHIP BETWEEN DRUGS, CRYPTOCURRENCY AND GOVERNMENT
How cryptocurrency is used in the drugs related transactions is shown clearly by the above given example only. However, this was the story of using the darknet and bitcoin together for the drug trafficking, there are simple cases as well where massive amount of transactions take place through cryptocurrency for drugs. Cryptocurrency have grown rapidly in terms of price, popularity and its adoption in the mainstream. As per the data, the market capitalization of the bitcoin alone has exceeded $250 billion, and in case of other cryptocurrencies, it has been of $400 billion. The Central banks of many countries showed concern over the use of cryptocurrency.
On one hand cryptocurrency has benefits of being faster and more efficient, on the other hand there are regulatory concerns attached with their use in illegal trade and that trade includes drugs, thefts. Illegal pornography and murder-for-hire as well. This is also beneficial for the funding to terrorism,money laundering and avoiding of capital controls.
The FBI seized over $4 million bitcoin from darknet market place named “Silk Road”. This shows that how much regulatory issue is being faced by even technological advanced countries in dealing with the problems related to cryptocurrency. This illegal use of cryptocurrency and difficulty in its regulations making the government of the countries ot put a restrictive approach towards adopting the cryptocurrencies.
China earlier has banned the use of cryptocurrency by the residents of its country and also declared initial coin offerings(ICOs) as illegal.
HOW THE ILLEGAL ECOSYSTEM WORKS WITH THE HELP OF CRYPTOCURRENCY
Many seizures of bitcoin by the law enforcement agencies of different parts of the world make us analyze that the bitcoins are in rigorous use in the world for facilitating the illegal ecosystem. As per the research conducted in 2018 related to the use of cryptocurrency in the working of the illegal ecosystem, these data came into picture:-
- Illegal system accounts for a substantial proportion of users and trading in cryptocurrency. Approximately one-quarter of all users, i.e. 25% and almost one half of bitcoin transactions are found associated with the illegal activity.
- Transactions of approximately 1/2 of the total bitcoin holdings are associated with the illegal activity.
- There are almost 24 million bitcoin market participants that makes the use of bitcoin primarily for the illegal purposes.These users annually execute around 36 million transactions which values around $72 billion.
- The darknet is the market place for the illegal traders and this opens the possibilities of trading with unregulated money termed as cryptocurrency. A user is most likely to be involved in the illegal activity if he trades when there are many darknets in operation.
- The cash is also largely anonymous, but what brings the difference between the transactions in cryptocurrencies and the cash is cryptocurrency enables the digital transactions and this thereby leads to the e-commerce. By combining the anonymity with the digitization, cryptocurrencies enabled the anonymous online and cross-border commerce.
- Cryptocurrencies brought an important structural shift in the operation of illegal or black market.The black market has adopted the cryptocurrencies in its process in a successful way.
USE OF DARKNET IN FACILITATING DRUG TRADING VIA CRYPTOCURRENCY
Darknetis an internet network which is not accessible by everyone. It requires specific communication protocols to access the darknet which is a secret place over Internet. It provides greater anonymity to the people who use it, that’s why government is planning to make the use of it in beneficial works. But as it is said every technology comes up with some advantages and disadvantages, so same goes with the darknet as well.
The government is looking it as an advantage for the better works in favor of the country, but the sharper minds with illegal mind-set thinks it as a way of doing something illegal. Cyber crimes are already reaching its heights by the acts of the attackers and this darknet is giving an additional advantage to the people who are seeking opportunity to find out a way to carry out their illegal operations.
The darknet contains online marketplaces similar like EBay and other e-commerce sites, but the difference these marketplace have is the anonymity. On darknet, anonymous communications take place which in turn makes these marketplaces less accessible than those available on internet. These marketplaces on darknet specifically trades in illegal goods and services because the identities of both the buyer and the seller are under cover here.
The darknet requires an account at the marketplace in order to browse the products available there. The secure, anonymous and decentralized nature of cryptocurrencies work as icing on the cake for the darknet and this really helped in the sucees of darknet marketplaces. Bitcoin is the most widely used cryptocurrency on darknet in such marketplaces, but other cryptocurrencies such as Etherum etc also have their presence over these marketplaces.
A user who seeks to buy goods or services from the marketplaces on darknet must first acquire the cryptocurrency and then deposit this in an address of the darknet marketplace.
The evolution of the darknet marketplace provided the platform for the sellers of illegal goods and services to reach the global customers and which in turn facilitated the use of cryptocurrencies as well.
The strong encryption methods are used at the darknets to save it from the eyes and catch of the law enforcement agencies. Methods like professional logos, vaccum sealed bags, small quantities of products posting, fake return addresses, all these are used to save the marketplaces from being intercepted by the law enforcement agencies.
Customers are also advised to use a fake name to minimize the risks of being caught up by the law enforcement agencies. Though, the eyes of the law enforcement agencies are always on finding the illegal activities being conducted online using the technologies available, but the marketplaces as well try to do every bit possible to make their stay possible safely on these marketplaces at darknet.
Marketplaces provide a lot of options for their users, like they have the options where they deal with illegal drugs, weapons and forgery. There is another section, where they is information about the items available etc. Through these sections, they try to give the knowledge about the products available on that marketplace and also try to get the idea about the choices of the buyers.
Not to mention all these activities have just one source of transaction and that is cryptocurrency. Without which, it is not possible to deal in these marketplaces on darknet. The sole existence of earning is cryptocurrency on darknet and this earning opens the doors of many illegal activities in addition to the ones already being carried out at marketplaces.
The illegal drugs trade, weapons, all these lead to the rise in the terrorist activities and promote it by providing the terrorist underground support with the help of the darknets and use of the cryptocurrencies. And not to mention how much our country is affected with drugs. These means don’t only provide drugs to the people of a particular country, but they also try to break the base of the country by making the youths of the country indulged into drugs and spoiling their lives as well as destroying the country. And in addition to that, they are already getting the money in form of cryptocurrencies to use it for their illegal choices which include promoting terrorism as well.
GOVERNMENT RELATION WITH THESE TWO
No matter which party came into power, Government of India always has its stand clear when it comes to the cryptocurrency or drugs. The stringent attitude of government towards both of these matters declined the illegal use of cryptocurrency as well as of drugs consumption in different parts of the country.
- Government stand on cryptocurrency:- Reserve Bank of India as well as Government of India always have a similar stand on cryptocurrency. Both worry over its use and its impact over the broader economy, its possible misuse for drugs trading, terror financing and money laundering. RBI had barred the banks to deal in cryptocurrencies in 2019 and also made it illegal to trade. But in 2020, the Hon’ble Supreme Court lifted the restrictions put by the RBI. The Supreme Court also advised the government to come up with a framework to regulate the cryptocurrencies rather than banning it.
The finance ministry is working on a bill related to the cryptocurrencies and had indicated earlier that it would come up in the way of banning the use of cryptocurrency, such as Bitcoin in India. Even RBI despite the decision of the Supreme Court, kept its stand the same and conveyed the government to ban cryptocurrencies in the country. RBI also showed its concerns related to the anonymity of the transactions in the cryptocurrencies, which can raise the security risks like terror financing, money laundering and other illegal activities. RBI also have the stand that there are so many codes and so many transactions and that would make it difficult to identify the source of the transaction due to the complex nature of cryptocurrencies.
- Government stand on drugs:- India has its drug policy and has many laws dealing with drugs but the major ones are “Narcotic Drugs and Psychotropic Substances Act” (1985) and Prevention of Illicit Trafficking in Narcotics Drugs and Psychotropic Substances Act (1988). Under NDPS, 1985, it is illegal for a person to sell or purchase or consume the narcotic drug or psychotropic substance. Though this act also bans the production, manufacturing and many more activities related to the drugs.
Even Prevention of Illicit Trafficking in Narcotic Drugs and Psychotropic Substances Act was passed for effective implementation of the NDPS Act.
This shows the government stand of banning the drugs being used for consumption, selling or purchasing purposes.
Through both the stands of givernment on cryptocurrency as well as drugs, it is easy to draw a conclusion that government a victim of the use of the cryptocurrency in drugs trade is full aware of the repercussions involved with the cryptocurrencies. The recovery of use of cryptocurrencies in drugs trading on darknet by Narcotics Bureau of India as well as the other seizures of cryptocurrencies being used in the trading of drugs made the government stand clear on keeping a stringent policy which removes the problem of cryptocurrency use in illegal trading.
DISADVANTAGES ATTACHED TO IT AND GOVERNMENT STAND
- RBI pointed the dangers to macroeconomic management if the cryptocurrencies are allowed in the country as these instruments will pose serious risks to the financial system of the country.
- There are so many codes in cryptocurrencies and so many transactions as well. It would be a tough task to identify the source as the cryptocurrencies have the complexity attached with it.
- Recently in Bengaluru,the payments have been made through cryptocurrency to overseas drug dealers on dark web. In the anti-drug raids conducted under the NDPS Act in Delhi, Mumbai, Goa and Bengaluru as part of cross-country operations, there found the inter-connection between demand and supply chains of high quality drugs.This raid also exposed the use of dark web and cryptocurrency for making payments for the the drug named “Contraband”. Narcotics Control Bureau of India also found out that the contraband has reportedly smuggled from USA and Canada to India. So, this raid shows that how drugs are being smuggled from different countries to India and being used by the people of the country in huge numbers.
- Earlier the hawala route was being used for making payment for illegal drugs trading which has shifted to dark web in today’s time, opening more sources for the people to approach for the drugs and get it. This is diverting the people especially the youths towards a journey which has no destination.
- This method of using cryptocurrency is helping the terrorists who are using the money they gain in form of cryptocurrency to buy the weapons from the marketplaces on darknet and using those against our country.
- The cryptocurrency earned through this illegal trading, boosting the terrorists to gain more and more by selling the drugs through this method and using the cryptocurrencies earned to expand their illegal and terrorists activities. All these would result into a threat to our country.
The cryptocurrencies have always been a concern for different sovereign authorities of the world. Not only India, even the major economies like USA, China, Russia have been a victim of the risks attached with the cryptocurrencies. The use of cryptocurrency on dark web has opened a new problem for the countries worldwide as that is the safest method for the ones who do these illegal activities. Being secured in an encrypted world gives them the advantages to illegal trade and earn the cryptocurrencies through it, which in turn help them in other illegal activities. Expansion of cryptocurrencies creating a huge problem before the government of different countries, therefore, it is required to come up with something stringent so that these activities can be controlled and checked upon.