Cryptocurrency – The biggest crypto exchange globally, Binance has been in the limelight in recent years with its involvement with the most controversial crypto-related activities.

Being at the forefront of mass adoption of cryptocurrency worldwide, Binance enjoys its status of holding a dominant influence in the industry and the power to shape the future of cryptocurrency. However, one of its major selling points, the anonymity privilege it provides to its clients, has also become its biggest vulnerability to exploitation.

How Binance Became a Hub for Illegal Activities

In a controversial expose by Reuters, the primary report highlighted, “For five years, the world’s largest cryptocurrency exchange Binance served as a conduit for laundering at least $2.35 billion in illicit funds.”

Earlier this year, the most prominent cryptocurrency Play-To-Earn (P2E) gaming chain, Axie Infinity, reported the biggest cryptocurrency hacking incident where more than $600 million was stolen by the infamous North Korea’s Sponsored Lazarus Hacking Group. The incident is one of the many hacking incidents that involve Binance in the convoluted entanglement as at least one Binance account is involved in the activity wherein the account was transferred an unspecified stolen amount.

In a separate hacking incident, a Slovakian Cryptocurrency Exchange, Eterbase lost significant funds in a “torrent of illicit funds that flowed through Binance from 2017 to 2021,” the Reuters investigation revealed.

Eterbase Co-founder, Robert Auxt, said in a statement, “Binance had no idea who was moving money through their exchange because of the anonymous nature of the accounts.” He added that his firm suffered huge losses and was unsuccessful in locating and recovering the stolen funds.

Daringly, the Reuters investigation has concluded that during the last five years, “Binance processed transactions totaling at least $2.35 billion stemming from hacks, investment frauds, and illegal drug sales.” Reuters added that based on its research, it “calculated from an examination of court records, statements by law enforcement and blockchain data, compiled for the news agency by two blockchain analysis firms. Two industry experts reviewed the calculation and agreed with the estimate.”

What the US Government is Doing

Multiple US government agencies reportedly hired Chainalysis, one of the most prominent crypto researchers, to track illegal flows of funds through cryptocurrency. It concluded in its 2020 public report that Binance received a total of $770 million in its exchange in the year 2019 alone. The exorbitant amount was more than all the total illegal deposits made in the remaining crypto exchanges. Following the public release of the exposé, Binance CEO Changpeng Zhao accused Chainalysis of “bad business etiquette” as they insisted that the data was overestimated. However, another audit from an independent crypto researcher supported Chainalysis figures.

In the grand scheme of things, percentage-wise, the total flow of illegal funds through Binance represents only a tiny portion of the exchange’s overall trading volume. Yet multiple US and global policymakers and regulators have already voiced their concerns and have proposed ways for more regulation in the industry. Among these are a handful of US senators, the US Treasury Secretary Janet Yellen, and the European Central Bank President Christine Lagarde. 

At the end of the day, as technology continues to advance, criminals adapt to exploit the system through sophisticated means. Cryptocurrency provides a haven for this purpose as anonymity remains the industry’s hallmark. Furthermore, the allure of complete privacy gives a sense of “control” and “freedom” to Institutions and Individuals from the prying eyes of the Government.