Cryptocurrencies: Guilty as charged?
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Digital innovation can bring positive changeThis is the action by which certain banknotes and/or coins are exchanged for the same amount in banknotes/coins of a different face value, or unit value. See Exchange. More but, as anything, it comes with a dark side – and this is particularly visible in the payments landscape where certain technological advancements can become allies for transnational crime. Cryptocurrencies were created to offer an alternative to transacting moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More that, along with their claimed benefits, were particularly praised for their potential to reduce the risks of corruption and fraud. Alas, as more and more became enchanted by these tokens, their traditional counterpart – cashMoney in physical form such as banknotes and coins. More – faced a backlash from governments and law enforcement authorities, having been labelled as every criminal’s trusted partner-in-crime.
While many are quick to point a finger at cash, it should come to one’s attention that digital currencies, although innovative, may not be as innocent as their supporters would like us to believe. In an article written by Forbes contributor, Jason Bloomberg, we discover that the eight most popular cryptocurrency transactions are mostly linked illegal activities such as darknet transactions, money launderingThe operation of attempting to disguise a set of fraudulently or criminally obtained funds as legal, in operations undeclared to tax authorities, and therefore not subjected to taxation. Money laundering activities are strongly pursued by authorities and in most countries, there are strict rules for credit institutions to cooperate in the fight against money laundering operations, to declare and report any transactions that could be considered suspicious. More, ransomware, theft and hacking to name a few.
In September 2017, JP Morgan CEO Jamie Dimon claimed that BitcoinBitcoin is commonly said to be a cryptocurrency, a digital means of exchange developed by a set of anonymous authors under the pseudonym of Satoshi Nakamoto, which began operating in 2009 as a community project (Wikipedia type), without the relationship or dependency of any government, state, company or body, and whose value (formed by a complicated system of mathematical algorithms and cryptography) is not supported by any central bank or authority. Bitcoins are essentially accounting entries i... More is only fit for use by drug dealers, murderers and people living in North Korea. Perhaps a slightly harsh statement for many, but the reality is that the lack of transparency in these digital monies was quickly identified as an asset for those feeding off the illicit flow of goods and services. Yet, in the absence of regulation, it’s not surprising that these virtual currencies have attracted the likes of human traffickers and drug dealers. Findings in a 2017 study conducted by the University of Sydney showed that almost half of all bitcoin transactions (44%) — an estimated 36M transactions per year, summing up to a total value of around US$72B to be exact — were associated with illegal activities.
If one danger with cash is that, when robbed, all your belongings are lost, at least the damage is contained to how much you carry around in your wallet. In fact, contrary to popular belief, theft of cryptocurrencies is a reality and has soared to US$927M in the first 9 months of 2018 while countries with weak anti-money laundering regulations laundered US$2.5B worth of bitcoins since 2009, writes CipherTrace Cryptocurrency Intelligence in its Cryptocurrency Anti-Money Laundering Report. Moreover, cryptocurrency transactions are “slow and costly, prone to congestion, and fails to scale with demand”, says the Bank for International Settlements.
The bottom line is that the payments picture is more of a Pollock painting than a Monet: it’s too simplistic to blame cash for all evils. Cash is a tool and as such, it behaves in the way the end user behaves. Accordingly, this applies to all tools, including Bitcoin or cryptocurrencies. The question that should be asked today is not “Who’s guilty?” but rather “How can we best minimize criminal activities?” The scope of the potential damage between cash vs crypto should be at the heart of the debate because, at the end of the day, one tool is tangible and the other, well, not so much. It’s only with a good blend of regulation and adoption of paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More diversity policies that the risk can be contained.
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