While Bitcoin and other cryptocurrencies have legitimate use cases, they have also been associated with certain criminal activities due to the pseudonymous and decentralized nature of Bitcoin. It is noteworthy that although Bitcoin has been linked to illicit activity, the great majority of Bitcoin transactions are lawful and serve valid objectives.

The security features and anonymity of Bitcoin encourage criminal activity. Bitcoin can be used to finance illicit activity, buy unlawful products and services, and launder money. The total value of criminal cryptocurrency rose to an all-time high of $20.6 billion in 2022 (mostly as a result of sanctioned businesses); just 0.24% of all cryptocurrency activity was associated with unlawful activity.

Tax evasion

Cryptocurrencies like Bitcoin and others provide various privacy features. Transactions using Bitcoin are anonymous, which means that no real-world identity is associated with them. Taxpayers can now conceal their Bitcoin income from tax authorities. Because of its anonymity, tax authorities find it challenging to find those who use cryptocurrencies to conceal their assets or income.

Bitcoin can be used to buy products and services from online stores as well as from other Bitcoin-accepting shops. The taxpayer may avoid paying taxes on the purchase amount if they fail to declare the acquisition. Taxpayers can underreport their Bitcoin income by manipulating the timing of their transactions or by using multiple wallets to spread out their holdings.

Ponzi scheme

A Ponzi scheme is a fraudulent investment program that uses the money of its original investors or that of new ones to pay returns to its participants. Bitcoin can be used in Ponzi schemes by promising investors high returns with little or no risk. This can be done by claiming that the scheme is investing in Bitcoin due to the volatile nature of Bitcoin.

Giving investors the option to participate in a brand-new cryptocurrency project is one approach to employing Bitcoin in a Ponzi scheme. Investors may be promised by the scammer that the project will succeed and that the cryptocurrency's value will rise sharply. On the other hand, the project can be a fraud, and the con artist might utilize the investors' money to fund their own expenses or to give the impression that the initiative is profitable.

Terrorism financing

Without a doubt, cryptocurrencies like Bitcoin have contributed to the expansion of "darknet" online marketplaces, where illicit products and services are traded, by offering a digital and anonymous payment method.

Money laundering

Through a number of techniques, criminals employ crypto money laundering to conceal the cash's illegal source. The anonymity of cryptocurrency transactions is a key component of the most basic type of Bitcoin money laundering.

Transactions involving cryptocurrencies may typically be tracked using the blockchain. Once a filthy cryptocurrency is in circulation, though, thieves can break the connections between Bitcoin transactions by using an anonymizing service to conceal the source of the payments. Frequently, the primary justification for unlawful concealment practices is the claim that employing anonymizing service providers safeguards individual privacy.

Bitfinex Hacker and Wife Admit Liability for Conspiracy to Launder Billions of Cryptocurrency Proceeds Ilya Lichtenstein and Heather Morgan were arrested in February 2022 for money laundering in cryptocurrency, where 95,000 bitcoins were stolen.