Most fentanyl trades are facilitated via centralized exchanges

The blockchain analytics firm has exposed transactions on centralized exchanges, amounting to $32 million traced back to the purchase of fentanyl precursors.

An image showing pills and bitcoin coins mixed together on the floor

A recent report by Elliptic, a blockchain analytics company, has unveiled a troubling link between centralized crypto exchanges and the global fentanyl trade. The report, titled "Crypto and the Global Fentanyl Trade", is based on a comprehensive analysis of crypto transactions. It found that transactions worth $32 million were used to purchase precursors to fentanyl, a potent and often lethal opioid.

The investigation spanned the period between 2017 and 2021. During this time, Elliptic identified over 4,000 transactions linked to the purchase of fentanyl precursors used in drug production. These transactions were traced back to 120 different countries, underscoring the global magnitude of the issue.

The report also disclosed that a staggering 65% of the transactions were facilitated by merely four centralized crypto exchanges. These exchanges, which remain unnamed in the report, are based in countries with lax regulatory oversight over cryptocurrency transactions. This regulatory void enables the anonymous purchases, making it challenging for authorities to trace and halt these transactions.

The use of cryptocurrencies in illicit activities is not a new phenomenon. However, their use in the fentanyl trade on such a scale is alarming. Fentanyl, a synthetic opioid, is 50 times more potent than heroin and 100 times more potent than morphine. Its potency and ease of production have made it a popular choice for drug traffickers. It has been linked to a surge in overdose deaths worldwide, with the United Nations Office on Drugs and Crime estimating that fentanyl and its analogs were responsible for over 36,000 deaths in the United States alone in 2019.

Previously conducted research by Elliptic and Chainalysis has revealed that Chinese chemical producers are accepting crypto as payment for fentanyl ingredients they're selling to drug operations that mass-produce the narcotic in countries around the world. This trade is not happening in the shadows of the dark web, but in full public view.

The researchers estimate that these companies received just over $27 million in transactions in the recent five years, most since 2021, given the 450 percent surge in the past year. Chainalysis, using its own methodology, put the number higher, at $37.8 million over the last five years. Both Elliptic and Chainalysis warn that these estimates are likely just a fraction of a larger crypto-fueled fentanyl supply chain—and the retail value of fentanyl produced with those precursors is probably thousands of times greater, in the tens of billions of dollars.

The Chinese chemical firms’ decision to accept cryptocurrency for their fentanyl ingredient sales may seem counterintuitive, given the ability of cryptocurrency-tracing firms to track sales of dangerous and potentially illegal products across blockchains. Tom Robinson, who cofounded Elliptic and leads its research team, explains that the Chinese firms are likely using crypto because it’s hard to seize or block—and they may not particularly care that the money can be traced by Western companies and law enforcement as long as they can still find a cryptocurrency exchange willing to cash it out.

The findings of the report have significant implications for the crypto industry. They underscore the need for greater transparency and accountability in crypto transactions. Centralized exchanges, in particular, need to adopt more robust measures to prevent their platforms from being used for illegal activities.

Elliptic also calls for a global response to the issue. Given the international nature of the crypto market and the fentanyl trade, a coordinated international effort is needed to address this problem. This includes stronger regulatory frameworks for crypto transactions, enhanced cooperation between countries, and the development of advanced tools to trace and stop illegal crypto transactions.