Through their in-depth study about cryptocurrencies in general, and 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 in particular, Sean Foley, Jonathan R. Karlsen and Tālis J. Putninš dive into the vast world of digital currencies thanks to an innovative methodology designed to more effectively monitor them. The study seeks to better understand the role of illicit trade in bitcoin’s skyrocketing value.
Here are some of the key takeaways:
- The anonymity offered by cryptocurrencies has greatly contributed to the boom in online and cross-border commerce of illegal goods particularly via the darknet.
- It is estimated the 98% of darknet transactions are carried out in bitcoins.
- Bitcoins, unlike other cryptos such as Monero, are not fully anonymous as they are described to be. Indeed, thanks to the public nature of the bitcoin blockchainAn unchangeable digital record where transactions are processed and verified by a network of independent computers rather than by a single referee. This decentralised structure has been described as an open distributed ledger. It supposedly enhances security as there is no single entity to be hacked. It also protects personal identity and guarantees that governments can’t block transactions or otherwise manipulate the payments space. The blockchain is the underlying technology supporting most ... More and the fact that each individual “user” is linked to an alpha-numeric address, there are methods to study user behavior and link it to illegal activities.
- 25% percent of users and 44% of transactions are associated with illegal activity in the bitcoin blockchain. It is estimated that 24 million bitcoin market participants use the cryptocurrency for illegal activities. “These users annually conduct around 26 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin”(p.2).
- Bitcoin’s market value is mostly linked to its large core of illegality putting a big question mark on the ethics of investing in it or any other anonymous cryptocurrency.
The authors still believe that blockchain technology has the potential to boost a number of industries thanks to the system’s transparency and capacity to track every transaction forever, but the negative publicity that it has attracted because of cryptocurrency hacks, scams and raids has made regulators uneasy with the technology. Indeed, none of the cryptocurrencies currently in use – volumes today exceed $50 billion dollars exchanged – are regulated causing a growing number of governments to react and start exploring the implementation of regulatory measures or the development of regulated national e-currencies.
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