Dangers of Peer-to-Peer cryptocurrency exchanges
Buyers and sellers can exchange cash in person, transfer bank funds online or can exchange funds for prepaid cards, gift cards or other cryptocurrencies and the ever present need to launder money in the criminal world have created the perfect storm. These Peer to Peer cryptocurrency exchanges offer one on one relationships and transactions. Buyers and sellers of virtual currency sign-up with their location information, IP address and other data to verify their identity, link to their wallets, and from there, can exchange and cash out currencies with other people who decide to trust them. Parties sometimes take the relationship offline too, meeting face-to-face to close out deals. After makng a deal, a buyer can exchange cash in person, transfer bank funds online or can exchange funds for prepaid cards, gift cards or other cryptocurrencies. These platforms offer an alternative to the marketplace methods represented by big Bitcoin exchanges such as Coinbase, and many users feel they can get better deals and a better service experience by using them. There's another difference though, Peer-to-peer exchanges are decentralized and often lack the accountability, security and transparency measures used by the larger players.
Coinbase monitors for dark web activity and recently implemented the Know Your Customer identity verification service, which in theory makes it harder for criminals to launder money or use the funds to buy items from the underground. Because of this, Peer-to-peer alternatives have started to become an ideal choice for criminals looking to take advantage of the anonymity of cryptocurrency. Although some peer-to-peer cryptocurrency exchanges might willingly cooperate with law enforcement, there are readily available methods that criminals use while laundering funds to maintain anonymity. These include tried and true methods like using forged documents to sign-up for the services. It's easy to look for a technical solution to prevent this, but there's pressure on services to try and make their service usable, they don't want their users having to struggle for days to have their identity verified. At the same time, they have to make sure that this isn't getting in the way of things being safe and accountable.
Since Peer to Peer cryptocurrency exchanges are relatively new, there's alot of work in progress. Itss law enforcement having to crack down on those buying and selling identities and fake documents to combat this. Law enforcement has seen some successes despite the hurdles that the exchanges present. OxyMonster, a dark web drug dealer as well as other illegal goods, was arrested in May after detectives made a connection between a Facebook page and his dark web site on the Dream marketplace. Even though he was using a peer-to-peer Bitcoin tip jar for transactions, they tracked him down , arresting him as he entered the country from France, on his way to a beard contest in Miami. Analysts have observed a growing number of underground discussions around using these exchanges for criminals, including recommendations around certain peer-to-peer services that criminals consider valuable or the safest. Some discussions include listings of established local exchange accounts for sale, which are less likely to be flagged for fraud because they have the appearance of long-term use.
Discussions among criminals in these forums primarily are concerned with recruiting others to cash out for them. They list out the prerequisites for others to join and the terms necessary to convert stolen funds to Bitcoin or Monero, even in large amounts. Some discussions around peer-to-peer exchanges date back at least four years, but the interest is growing and likely to continue as larger exchanges stiffen their security controls. There are plenty of criminals on a daily or weekly basis looking for ways to clean Bitcoin or Monero. It's easy to commit tax fraud and money laundering in general, or to purchase drugs with these methods, so the government needs to crack down. While we can appreciate blockchain technology, there has to be a better understanding of what's happening out there, and that people doing illegal things with cryptocurrency.