Despite common misconceptions, cryptocurrencies like Libra allow better identification and prevention of illegal activity than traditional payment systems.

Last week, President Donald Trump spoke out about the potential misuse of cryptocurrencies to facilitate unlawful behavior. He’s right that crypto assets are sometimes used by bad actors, but every currency and payments system in the world is exploited in this way.

We need to go beyond the sensationalist headlines to understand how to solve the money-laundering problem.

Less than 0.5% of Bitcoin transactions are used for illicit purchases

According to analysis my company conducted, so far in 2019, $829 million in Bitcoin has been spent on the dark web. These payments were used to purchase everything from narcotics to stolen credit cards. Compare this with the annual value of global illicit payments, estimated to be up to $2.2 trillion.

Illicit payments represent a very small share of all Bitcoin activity — less than 0.5% of Bitcoin payments over this period. The total proceeds of crime generated in the United States were estimated to total approximately $300 billion in 2010, or about two percent of the overall U.S. economy at the time.

The share of Bitcoin transactions that can be linked to illicit activity has dropped dramatically over the past few years, for two key reasons.

First, speculation has emerged as the primary use-case for crypto assets, with both retail and institutional trading activity soaring.

Second, there is a growing awareness that crypto asset transactions are not anonymous, and that illicit payments can be identified and traced.

Blockchain can facilitate compliance

The majority of crypto assets, including Libra, are based on transparent transaction ledgers. Anyone can download the Bitcoin blockchain and see the details of every transaction. Real-world identities are not recorded, but blockchain monitoring tools can be used to associate transactions with identified parties, be they regulated wallets or ransomware operators. The complete transaction trail left on public blockchains also allows us to view the end-to-end history of funds flowing across cryptocurrency ecosystems, providing a comprehensive audit trail of all transactions ever undertaken. Compare this with cash transactions, where there is zero visibility of the transaction trail; or traditional bank transfers, where records and information about transactions remain siloed between institutions and don’t provide a complete picture of fund flows.

Law enforcement agencies have exploited this capability to aid the take-downs of dark marketplaces, the dismantling of cybercrime gangs, and the identification of money launderers. The old crime-fighting mantra of “follow the money” is proving more effective than ever, with investigators crossing their fingers that criminals continue to use cryptocurrencies.

Cryptocurrency companies are also using the blockchain to monitor for illicit transactions. In the US, crypto exchanges and other services fall within the scope of the Bank Secrecy Act, obligating them to understand where their customers’ funds are coming from and implement other anti-money laundering (AML) measures. Blockchain monitoring tools allow them to determine the ultimate source of customer deposits, and distinguish between money laundering and innocent transactions.

Delivering Libra with trust and confidence

The reality is, Libra and the businesses that build on top of it will be subject to intensive regulatory scrutiny wherever they operate. Recent guidance issued by the Financial Action Task Force (FATF), the global AML standard-setter, makes clear that crypto service providers will be held to the same standard as banks and other financial institutions.

On Monday, Treasury Secretary Steve Mnuchin spoke at length on this subject. He explained that US regulators “will not allow digital asset service providers to operate in the shadows.” Members of the Senate Banking Committee voiced concerns that Libra could be used for illicit purposes when Facebook’s David Marcus testified on Tuesday, and they questioned how Libra will ensure compliance with US AML requirements.

Ultimately, successful compliance is entirely possible within existing AML regulatory frameworks, and Libra can provide confidence that it is being used legitimately using tried-and-tested techniques.

Like Bitcoin, Libra transactions are transparent. This was no doubt a conscious decision, since it allows the same kinds of blockchain monitoring tools to be built for it that already exist for Bitcoin and other cryptocurrencies. This will allow law enforcement agencies to trace proceeds of crime in Libra, and allow Libra services such as wallets and exchanges to fulfill their AML obligations.

Regulators and policymakers are right to demand accountability and transparency around the Libra project. No one wants to see new financial innovations facilitating crime and terrorism.

Fortunately, the blockchain monitoring technology needed to provide trust and confidence in the legitimacy of Libra transactions is already here.

Tom Robinson is Chief Scientist & Co-founder at cryptocurrency compliance and blockchain analytics company Elliptic.