Cryptocurrency, a new technology, has entered the mainstream discourse. It is setting the stage for a major overhaul of long-established financial systems. Some skepticism, however, is normal.
This shared skepticism is exacerbated by crypto's association to criminality. It is undisputed that cryptocurrency has been used in illicit activities around the world. With the widespread use of cryptocurrency, it is important to address the myth that its creation has enabled mass criminality.
First impressions count
Bitcoin (BTC) was introduced as a bartering tool on Silk Road, a notorious online black market. Reputational damage was caused by criminals-for-hire, who were among the first Bitcoin users. Due to the fact that no one knows the origin of Bitcoin or who invented it it, there were unfavorable public perceptions about this new currency. Fast forward to 2021, and El Salvador's citizens are encouraged to use Bitcoin specifically to buy groceries and pay utilities.
Crypto has moved abruptly away from its deep ties to the darkest web parts to create a better future for citizens in developing countries. This was possible thanks to a lot of experimentation, flourishing use cases, and continued investment. For many outside observers, El Salvador's adoption is a small positive use of a potentially dangerous technology. The industry continues to block positive uses of crypto, despite failing to repair the damage done by Bitcoin's origins.
The industry would benefit in the short-term if the public was educated about the real benefits of cryptocurrency. This would also allow for continued systemic innovation as well as growth of blockchain technology. BTC is the most prominent example of blockchain technology, so addressing misconceptions about it is an important step regulators and the wider sector have yet to take.
The headlines that focus on the negative aspects of crypto and crime give rise to sensational headlines. They tell a story about criminals using BTC as a currency, instead of the positive developments in blockchain technology. It is essential to have a common understanding of the cryptographic technology that allows cross-border peer-to-peer payments. This will help dismantle the myth surrounding Bitcoin and end the link between crime and crypto.
The story is being dismantled
Bitcoin is not an anonymous, untraceable, malicious tech that hackers and other criminal syndicates use. It is a peer-to-peer, decentralized, traceable and secure peer-to–peer payment system built upon the blockchain. The digital currency is able to be created, moved, and stored without the supervision of any financial institution. However, every payment is recorded in a fixed, permanent ledger.
This means that all cryptocurrency transactions, including Bitcoin are openly available. This means that crypto-related crime and anonymity are unfounded. Earlier this summer, United States investigators were able to trace Bitcoin worth more than $4 million that the Colonial Pipeline had paid to the hackers during an attack. This proves that anonymity is not a common assumption.
The problem is illustrated by the Silk Road and other illegal activities that are facilitated by Bitcoin. It's the inability of the law to catch criminals using cryptocurrency. This is changing and the playing field has become more level. In the United Kingdom, British police seized around $155 million worth of Bitcoin from a criminal gang, highlighting the expansion of policing capabilities. Real-world examples of police tracking BTC transactions show that it is not an untraceable "crime currency."
Although ransomware attacks linked with crypto seem staggering, they are dwarfed when compared to similar criminal acts involving fiat currencies. The criminal share of cryptocurrency-related activity dropped to 0.34% in 2020. Comparatively, money laundering and other illicit activities account for between 2% and 5% annually of global gross domestic products ($1.6 million to $4 Trillion). It is evident that crypto-criminals are not being praised enough, given the anonymity and untraceability of physical cash and the ongoing improvement in policing capabilities.
This vilification of cryptocurrency is partly due to a natural reaction of the public to technological innovation. In the early days of the internet, many criticized the idea of an interconnected World Wide Web, detailing a myriad of societal impacts that resulted from the global expansion of the information superhighway. The internet facilitates some new forms of criminal activity. However, its reputation is not yet tarnished to the point that society would have difficulty functioning without it. Its association with criminality was completely dissolved by the internet. Cryptocurrency is expected to do the same.
Crypto's benefits are being drowned in
As decentralized technology becomes more mainstream, these links to criminality are a concern for financial institutions. Some institutions, like the Central Bank of Turkey, that cited criminality concerns over crypto have outright banned cryptocurrency transactions, illustrating how the false criminality narrative is harming the overall expansion and adoption of an extremely beneficial technology.
Digital assets provide relief for citizens in El Salvador, which is a country torn apart from criminality. Many Salvadorans may see a change in their daily lives due to the elimination of bank costs and the accessibility and low transaction fees that Bitcoin offers.
BTC and other cryptocurrency are being used in Venezuela to help the country recover from its crippling hyperinflation. These are just a few of the many benefits of crypto adoption. However, the constant barriers to crypto crime prevention and acceptance clearly limit the potential for mass cryptocurrency adoption.
Crypto can be seen as the larger blockchain industry. This highlights another issue related to the denigration of digital assets. Blockchain can enable peers to lend to each other, which will prevent financial intermediaries from controlling financial transactions. This makes finance more accessible for all and can be used to create new systems that allow peers to borrow to one another. The many technological innovations that the blockchain ecosystem has to offer society are crucial in fighting the false notion that blockchain-based digital assets create crime.
This battle is not over, but early adopters of cryptocurrency are paving the way for digital assets and inspiring advocacy. AXA Insurance allows customers to pay their bills with Bitcoin, Visa will soon accept cryptocurrency for transactions on its payment network. Amatil, Asia-Pacific distributor of Coca-Cola has made it possible to make cryptocurrency payments to its suppliers. Luxury brands have also committed to using blockchain in supply chain management. This is in addition to Bitcoin investments from large financial institutions such as JPMorgan Chase and Goldman Sachs, Citigroup and BlackRock.