Binance has published a fallacious blog post claiming that money laundering in crypto is inconsequential. Using outdated arguments and statistics, Binance completely misdirects readers and points the finger at journalists for having “an agenda” when representing crypto as a legitimate tool for financial crimes.
“If you’re anti-crypto you essentially have two arguments,” the post begins. It’s riddled with innumerable logical, statistical, and rhetorical fallacies — starting with this opening paragraph itself.
“One, crypto is worthless, and two, it’s a place for people to launder money. Obviously, crypto is not worthless, but is it the haven for illicit money laundering that television pundits and opponents make it out to be? No.”
Binance has created a false dilemma fallacy here; a non-existent ‘choice’ between what the exchange claims are the only two anti-crypto arguments.
By the next paragraph, Binance has used a definist fallacy. It references a Chainalysis report, irresponsibly misrepresenting the findings. “…Of all transactions made with cryptocurrencies in 2021, 0.15% were associated with some type of illicit activity,” Binance claims. Yet, Chainalysis has in no way documented “all” transactions.
Reading the blog post in its entirety, it’s hard to find a statement that doesn’t misrepresent the role of money laundering in cryptocurrency. In fact, it bothered us so much we decided to break it all down.
Crypto money laundering is enormous and opaque
In reality, the Chainalysis report restricts its claims to “all cryptocurrencies tracked by Chainalysis.” Chainalysis is a private company that for most of its existence has only analyzed on-chain Bitcoin transactions. It now primarily bases its analysis on on-chain transactions and supports several blockchains. It has earned a few exchange integrations.
To be clear, none of these service expansions allow Chainalysis to track “all” crypto transactions. Not even close.
Bitcoin’s de-duplicated, on-chain transaction volume during a typical 24-hour period sums to just $7 billion. This figure compares to CoinMarketCap’s reported $33 billion in spot volume plus another $50 billion in derivatives volume. The delta of this activity occurs off-blockchain, within exchanges’ privately controlled servers and databases, inaccessible to the researchers except for convenience APIs that are manipulated tirelessly.
The overwhelming majority of crypto transactions occur off-chain on offshore exchanges’ opaque order books. Worse, some 95% of the data reported by crypto exchanges might be fake. An analysis from 2019 showed that of crypto exchanges’ reported $6 billion in average daily Bitcoin volume, only $273 million was legitimate.
Worse still, a sizable portion of the remaining balance occurs over-the-counter (OTC) ⏤ never reported to public data sources and is therefore impossible to analyze. For example, in 2021, a single OTC desk was responsible for $130 billion in loan originations, $116 billion in spot volume traded, and $53 billion in derivatives notional value traded. No OTC desks report data to Chainalysis nor data aggregators like CoinMarketCap.
Given these stark realities of the crypto data industry, how does Binance justify its claim that money laundering is a tiny percentage of “all” crypto transactions? It does not. Next up, another logical fallacy: false equivalence.
Binance’s fallacies continue
Using its fallacious 0.15% figure pulled out of context, Binance then compares this percentage to a United Nations (UN) estimate of fiat money laundering comprising 2-5% of global GDP.
“The UN estimates that between 2% to 5% of [global GDP], about $800 billion to $2 trillion in current US dollars, was associated with some type of illicit activity. So let’s call it a trillion dollar a year problem.”
This logical fallacy, false equivalence, compares incomparable percentages. There is no GDP in crypto. Moreover, calling money laundering merely a “$1 trillion problem” annually is a straw man fallacy — it’s not addressing the real figure.
Binance says that the highly traceable nature of digital assets’ blockchains makes successfully laundering crypto funds far more difficult than using cash and the “mainstream” banking system. Of course, on-chain transactions are traceable. However, as noted above, the overwhelming majority of transactions occur off-chain, logged on exchange-controlled databases.
Binance’s fallacies continue. Incredibly, it claims that “KYC is stringent” in the crypto industry, and that it’s “simply much easier to open a bank account with fake identification documents at a small local or regional bank” than to open a crypto exchange account. This contradicts mountains of evidence of no- and minimal-KYC operations at hundreds of crypto exchanges around the world.
For years, Binance itself wooed early customers with no-KYC accounts. A quick Google search for “no KYC crypto” returns a current listing of 67 crypto exchanges that still offer no-KYC accounts for customers.
Next, Binance claims that “you simply cannot move large sums of money into crypto without people noticing.” In fact, hundreds of billions of dollars worth of crypto assets are washed between customers of crypto exchanges every day off-blockchain ⏤ never reported to anyone save the exchanges’ executives and the two customers.
Next, it claims that all crypto transactions are “trackable.” No, they are not. They are so impossible to track, for example, that Bitcoin ETF applicants to the SEC simply discard 95% of reported crypto transactions when attempting to calculate the price of Bitcoin. Index providers staff committees and methodology reviews to assess the industry’s lies.
For its part, Binance claims that it takes rigorous measures to combat money laundering on its platform. It says it hired former law enforcement investigators for its cyber forensics team. These former investigators include former U.S. Treasury criminal investigator Greg Monahan, who joined Binance as its global money laundering reporting officer on August 18, 2021.
Binance also claims to implement strong KYC procedures. However, documents leaked on January 21, 2022, indicate that Binance likely did not implement strong anti-money laundering procedures.
Binance isn’t completely full of it, but it’s close
To its credit, Binance claims that it was the first exchange to respond to law enforcement’s request for information on the Hydra darknet marketplace. Chainalysis assisted with tracing transactions going through crypto addresses controlled by Hydra. In April, the US charged alleged owner Dmitry Olegovich Pavlov with conspiracy to commit access device fraud and computer fraud.
It can also block crypto addresses when it needs to — but seems to pick and choose when to support calls for sanctions. Binance chief Changpeng Zhao initially rejected calls to ban Russian users in the wake of Russia’s invasion of Ukraine, along with exchange Kraken. However, Binance only backtracked once European Union law demanded it.
It says that it worked with blockchain analysis firms to detect and freeze funds that North Korea’s hacking group Lazarus stole from the Ronin Bridge and Axie Infinity, and ran through a mixing service. While it did not intercept the entire $540 million in stolen funds, it captured $5.8 million that Lazarus deposited on Binance.
All in all, while Binance criticized media outlets for their presentation of digital assets as a tool for money laundering, it failed to provide any compelling criticism. It claims that anti-crypto skeptics only use two arguments, but they use millions. It claims that crypto money laundering is only a tiny fraction of “all” crypto transactions, but its percentage is probably misstated by hundreds if not thousands of basis points. It claims that transactions are highly traceable, but nearly none are truthfully reported. According to Binance, crypto money laundering conveniently isn’t a big issue. It is.