The bitcoin scam worked — almost too well. In 2012, back when almost no one had heard of the digital coin, he’d started modestly, asking people he found on the dark web for $200 or $300 worth of bitcoin as a way to test out his investment scheme. He told them he could exploit the then huge price differences between various bitcoin exchanges and promised huge rewards. But once they sent the funds, he vanished into the ether to find his next stooge.

There was a certain genius criminal irony to it: He would hype an untraceable anonymous digital currency, then get paid in it.

But something happened in the cryptocurrency world, slowly at first, then all at once. The public and investors started pushing their money in, inflating bitcoin’s value. The Winkelvi became bitcoin billionaires. ICOs became hotter than IPOs. Even Jim Cramer started talking about bitcoin. After its price peaked at $20,000 late last year, the guy’s cache should have been worth $20 million.

But he had a problem. It was getting harder to turn the most overhyped currency since the tulip into actual cash.

The guy found himself among a growing number of dark web vendors — people who use anonymous networks to sell drugs, counterfeit currency, and malware — who are struggling to convert their bitcoins into real money. (VICE News heard his account from a Swiss private banker who said he’s received several messages from scammers and criminals looking for help with cryptocurrency.) These dark web vendors were among the early investors in bitcoin, and, arguably, the drivers of its initial value when no one else was interested. Now, those holding virtual millions are stuck in limbo.

Such is the insanity of the bitcoin market over the last 12 months, with law enforcement and regulators attempting to bring order to a world where the price of a single coin can fluctuate by hundreds of dollars in the space of minutes. Earlier this month, for example, the price of bitcoin dropped $1,000 after rumors surfaced that an exchange had been hacked and the SEC was planning a clampdown. Increasingly, companies are getting spooked about potential losses or lawsuits. Facebook and Google both banned ads for cryptocurrencies from their platforms in recent weeks, citing fears of users being tricked out of their money.

It’s always been difficult for anyone to trade in bitcoin for a fiat currency like dollars or euros. Until recently, financial institutions wanted little to do with cryptocurrency because of its volatile price and perceived (and real) links to criminal activity.

Exchanges such as Coinbase, founded in 2011, offer the easiest way for the general public to buy and sell mainstream cryptocurrencies like bitcoin, litecoin, and ethereum. But users have to register with their real identities and prove their cryptocurrency was acquired legally. That makes them less appealing for criminals. Cashing out small amounts of bitcoin is still possible, but it’s becoming more difficult to do so without attracting law enforcement attention.

Dark web vendors were among the early investors in bitcoin. Now, those holding virtual millions are stuck in limbo.

And because of the explosion in demand for cryptocurrency, anyone using bitcoin today faces rising transaction fees and lengthy wait times for payments to be processed.

All of this means that people like our guy who are very rich on paper (or, more accurately, on the blockchain) must devise highly complex methods to convert their ill-gotten gains, or risk losing quite a bit of value, said Tom Robinson, co-founder of the blockchain analytics company Elliptic. “Funds from illicit activities are just lying dormant, and they are waiting to find effective means of cashing out,” he said.

Yet if we know anything about criminals, it’s that they’re resourceful. As financial institutions and regulators the world over grapple with bitcoin’s adaptation to mainstream use, some of these criminals have devised ingenious hacks for converting their money; still others are turning to alternative coins as they seek greater privacy for their transactions and to stay ahead of the law.

BITCOIN LAUNCHED in 2008 with the grand vision of replacing the traditional banking system. Its immunity from regulation and the relative anonymity of transactions on the network — at least at first — made it appealing to dark web vendors, as well as arms dealers, hitmen, and pedophiles. Six years ago, up to 30 percent of all bitcoin transactions were sent to the dark web. Today, that figure has plummeted to 1 percent as more and more people use bitcoin for legitimate trading and investment.

Starting in 2013, law enforcement caught on to bitcoin’s use on dark web marketplaces. That year, the FBI shut down the Silk Road — described by an agent at the time as “the most sophisticated and extensive criminal marketplace on the internet today.” Silk Road’s takedown came after it gained widespread attention in the mainstream media for making it easy to buy everything from Class A drugs to guns. The FBI seized 144,000 bitcoin in the raid — worth $1.2 billion at today’s valuation — drawing more attention to the cryptocurrency, though it was still years away from mass appeal.

Last July, a joint law enforcement operation between the FBI, DEA, and officials from Canada and Thailand brought down two of the biggest hidden drug markets, AlphaBay and Hansa, instantly wiping out a huge portion of the illicit activity conducted on the dark web.

By pooling intelligence across agencies, undercover law enforcement agents were able to infiltrate these markets, targeting administrators and ultimately taking them offline. Dutch police went further and operated Hansa in secret for a month before taking it down, hoovering up huge amounts of data on the people using the site — as well as millions in bitcoin, ethereum, and other cryptocurrencies.

All this has led to a sense of paranoia among vendors and buyers. One dark web vendor of malware in Eastern Europe who goes by the handle LeagueMode told VICE News that he rigged his computers and smartphones so that he could erase everything with the push of a single button.

Growing concerns about bitcoin’s security also happened to coincide with a rapid rise in the currency’s price (it’s since dropped to about $11,000). Investor speculation drove up the value, and the currency gained broader acceptance among Wall Street and financial institutions. It was the perfect time to sell.

“They are ready to pay big time.”

LIKE MANY aspiring international criminals before him, our guy eventually turned to a Swiss private banker. In January, he approached Olivier Cohen, an experienced broker based in Geneva who recently established a company called Altcoinomy to help high-net-worth individuals invest in cryptocurrencies. At first, the guy claimed to have built up his bitcoin cache running a trading service. Cohen was skeptical of bitcoin and its origins, as bankers tend to be, so he traced the payments. The journey ultimately took him back to the dark web.

“After digging and digging, I found that he was not legit. The bitcoins have been tainted,” Cohen said. He told the scammer: “Look, this is black-market; I can’t on-board you.”

The guy was up front about how much he was willing to pay to convert his bitcoin into fiat currency. Cohen said he’s fielded three or four similar requests following a message he posted on Reddit on Christmas Eve about the difficulties in cashing out bitcoin.

“They are ready to pay big time,” he said. “They tell you very straightforwardly, ‘If you get me out of the situation, you will get 10 percent.’”

That would have meant a windfall of $2 million for Cohen at the going bitcoin rate. But even if Cohen had wanted to do it, it was unlikely he could complete the task. Despite Wall Street and financial institutions investing heavily in blockchain technology, banks are still ultra-wary of bitcoin — particularly large amounts with no history attached. As a result, banks will delay such transactions and request a lot of documentation, and they may ultimately reject anyone looking to cash out bitcoin in bulk simply because of its links to the dark web.

“I don't think there is any way to process eight- or nine- or 10-figure transactions in bitcoin,” said John Bambenek, a cyber-security researcher who tracks bitcoin payments. “Coinbase allows you cash out up to $15,000 per week. That's not bad, but if I'm sitting on nine figures, I want to cash out more than that, faster.”

It’s possible to slowly cash out little chunks here and there, but doing so brings the risk of attracting unwanted attention, since it looks like structuring, a practice of transferring many small amounts in order to avoid federal regulations.

Bitcoin hoarders who are willing to get a little creative — and be a little patient — can still reap the currency’s rewards, however. VICE News spoke dark web vendors who use bitcoin on a daily basis about their ways of cashing out. (None of them wanted to use their real names, for obvious reasons.)

How criminals are cashing out bitcoin before it’s too late:

The drop and run: LeagueMode operates on the Wall Street Market, one of the most popular dark web markets, and has traded in malware and stolen banking credentials since 2010. He said most vendors use multiple bitcoin wallets — he has more than a dozen himself — combined with automated, personalized scripts to “mix” the bitcoin through micro-transactions to avoid detection. He found a person living locally who wants to regularly buy bitcoin. So once or twice a week, he transfers bitcoin into this person’s account, “and a few hours later he brings a bag of cash to my porch,” he explained. “One-to-one exchange, no fees, and we both stay happy.”

An oldie but a goodie: A vendor using the handle Med3l1n sells stolen credit cards and IDs on the Wall Street Market. The 24-year-old, who is also a moderator of the WSM forum, said there are a number of ways of cashing out, if you know what you’re doing. One way is to send your bitcoin to a company that charges a prepaid debit card that can be used in the real world. “The card emitter doesn't even know that it was recharged with bitcoins because there's a company that does this service for you,” he said. You can get around demands for ID simply by buying fake documentation on the dark web — using bitcoin or another cryptocurrency, of course.

Go to Western Union: Alpha_xxx, a 24-year-old U.S.-based drug dealer on the Point dark web marketplace, said he goes through Western Union to help cash out bitcoin. First he uses one of a number of services that automatically transfer bitcoin to Western Union accounts, then has a third-party — called a picker — collect the cash as a further layer of protection.

It’s easy, if you know how: Dr Lysergic, who sells cocaine, LSD, and MDMA, dismissed claims that you can’t cash out bitcoin anymore. “If anything, it’s becoming easier to cash out for me than when I first began,” he said. He wouldn’t reveal what method he uses to offload his bitcoin, but he said he typically cashes out $3,000 at a time, losing around 2 percent in the process. “If some of these novice vendors were smart and sit and think about it, there are so many ways to do it,” he said. “Sometimes it may be tedious and a long process, but that’s what we signed up for.”

Still, most criminals with large stashes of bitcoin who want to cash out quickly have no easy way of doing so, and few of them really know the ropes, Cohen said.

“Some people have thought about innovative ways of cashing out,” he said. “But this is at most 20 percent of those people — 80 percent have no idea how to do it.”

THERE’S ALWAYS the option of playing it straight and declaring illicit bitcoin to a government authority with the hope they simply won’t do any checking. Cohen said he knew of cases where this worked, but he also knew of incidents where it didn’t.

Another less risky option is to seek out a bank in Eastern Europe, where regulations are much more lax.

Back in 2013, the U.S. led the way in regulating the burgeoning use and trading of bitcoin and other cryptocurrencies. That year, the Senate held the first hearings on bitcoin, the Department of the Treasury released guidance on virtual currencies, the IRS became the world’s first tax authority to clarify the tax treatment of bitcoin, and New York state established BitLicense, a set of regulations for companies that deal in digital currencies.

Robinson’s company Elliptic, along with others like Chainalysis, works closely with U.S. law enforcement, providing tools for agents to track bitcoin payments through the blockchain. “We can distinguish the average bitcoin user from a dark marketplace vendor, for example,” Robinson said.

All of this made it much harder for any criminals to launder money through exchanges based in the U.S. But just like anything, criminals will find the weakest link in the chain. At the moment, that weak link is Europe.

A recent report by Elliptic, in partnership with the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance, found that Europe was the “wild west” of cryptocurrency regulation.

A disproportionate amount of illicit bitcoin transactions are funnelled through Europe, with criminals taking advantage of cryptocurrency gambling and mixing sites to launder their money. With a complete lack of regulation in this area, these services don’t need to perform due diligence on their customers or report suspicious activity.

“European exchanges have a serious issue with policing illicit activity on their platforms,” said Yaya Fanusie, an ex-CIA counterterrorism analyst who currently works as CSIF’s director of analysis.

In December, the 28 EU member states agreed on stricter rules to prevent money laundering and terrorism financing on exchange platforms for bitcoin and other virtual currencies. The new rules will mean exchanges and companies providing wallet services will be required to identify their customers, just as U.S. companies are. But they have another 18 months to implement the new directives, meaning gaps remain for criminals to exploit. The European Central Bank just last month said that cryptocurrency regulation is “not exactly very high on its to-do list.”

Rob Wainwright, who heads Europol, the EU’s law enforcement arm, predicts that a coming shift away from bitcoin and toward alternative cryptocurrencies will make it even tougher for agencies to track these transactions.

The leader of the Europol team tracking illicit cryptocurrency transactions said the agency has found more and more people are using alternatives to bitcoin on the dark web. “We have seen in 2017 and 2018 a move of some criminals and criminal groups over from bitcoin to currencies that guarantee higher levels of anonymity," said the expert, who himself requested anonymity out of concern the criminals he pursues would target him.

DESPITE ITS HEADACHES, bitcoin remains the gold standard on dark web marketplaces largely because it’s the easiest digital currency for customers to get hold of. But it’s clear from speaking to more than a dozen experts, researchers, academics, and dark web vendors that the Europol agents are right: Criminals are starting to favor newer cryptocurrencies.

The takedown of AlphaBay spurred more people to move away from bitcoin. The speed of that shift depends on who you ask, but there are three clear frontrunners to take bitcoin’s crown as the digital currency of choice for the underworld. These all essentially operate in the same way as bitcoin, with payments transferred on a public blockchain, but they each have built-in privacy functions that make it harder for law enforcement to track transactions.

Monero, for example, has gained a major following on the dark web due to its privacy attributes, with one darknet vendor based in eastern Europe telling VICE News that up to 45 percent of his transactions are now in monero. Zcash, created by cryptographers at Johns Hopkins University, is also gaining traction; last year, Shadow Brokers, the Russian hacking group selling stolen NSA hacking tools, said they are now only accepting Zcash from customers. Litecoin and Dash are among the other alternatives being embraced on the dark web.

Neither the FBI nor Europol would discuss how difficult it is to track the movement of privacy-focused cryptocurrencies like monero. Doing so “would give people a step-by-step guide to avoiding detection,” the Europol expert said.

The FBI and DEA also declined to comment on how they are dealing with the current use of cryptocurrencies by criminals.

Even in the U.S., where there are stricter regulations, law enforcement is struggling. Jason Kichen, an ex-CIA intelligence expert, said he thinks that agencies will find it hard to win the battle against criminals using cryptocurrencies.

“I don't necessarily believe it’s because they are technically unable, I suspect it’s just the scale of the problem,” he said. “As large and well-resourced as they are, illicit use of cryptocurrencies is such a large issue that I don't think the organizations can scale to meet the problem.”

Just like many others in the nascent cryptocurrency world, law enforcement is often fumbling around in the dark. But they do have powerful tools to quickly and easily track bitcoin transactions, specifically, across the blockchain.

It’s these tools that make life so difficult for those who want to quickly convert bitcoin into hard cash. For now, potential ways out are limited to finding a buyer via an Eastern European bank that won’t ask too many questions or coming clean and hoping the tax authorities don’t really understand how bitcoin works.

These are among the options now being explored by the dark web scammer, who continues to search for ways to turn his virtual fortune into a real one.

David Gilbert is a reporter for VICE News.