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Myth Busting: Is Bitcoin a Haven for Criminals?

Liz Louw
Liz Louw
11 February 2019
 

One of the most common themes in traditional media’s reporting on Bitcoin is that of criminal behaviour. You’ve seen the headlines I’m referring to, often laden with the insinuation that Bitcoin and crime go together like fish and chips.

Most recently, the melodrama arose from within the cryptocurrency community itself. What happened? An incident of criminal use was revealed — in this case, the upload of child abuse imagery to the BitcoinSV blockchain. Instead of coming down on the perpetrator with full force, the BSV blockchain itself came the under fire of innuendos suggesting that the crime proved some point about immutable ledgers like itself.

 

Assumptions tend to make a fool out of you and me, as they say. So instead of jumping to some sordid conclusion, let’s consider how immutable ledgers like Bitcoin operate, the implications it has for its users (criminal and otherwise), and the point it truly makes.

Bitcoin’s Public Ledger Puts the Nail in the Coffin of Shady Business

Let’s get straight to the heart of the matter: While Bitcoin’s blockchain technology is highly novel to many and its functionality beyond the comprehension of the average Joe, what it is not is anonymous or private.

Think about this:

As the Bitcoin blockchain ledger identifies transaction senders and receivers by wallet address and the record is immutable (unchangeable and permanent), the only thing standing between uncovering the identity of transaction actors is to match the wallet with an owner.

Considering that most criminals try their very best not to get caught in the act or ever after (movie portrayals of serial killers aside), the Bitcoin network’s public and immutable ledger is a significant liability for anyone with criminal intentions.

Viewing the scenario from another perspective, Anthony Pompliano concludes:

“The most important test comes down to what currency law enforcement would rather a criminal use — U.S. dollars or Bitcoin? The answer is almost always Bitcoin. Why? The immutable ledger creates a relatively easy to follow the trail of transactions that cement criminal activity forever. As law enforcement gets more sophisticated about how to read blockchain transactions, it wouldn’t surprise me to see them encouraging criminals to commit crimes with their hands on a keyboard.”

Bitcoin is a Bad Choice for Criminals

After conducting a fact check on Bitcoin in 2018, even the Quebec government concluded that there is no meaningful connection between Bitcoin and criminal activities, primarily because Bitcoin transactions are not anonymous and can often be quite easily tracked by law enforcement agencies. In the article tabling the study and findings, Chief Scientist Rémi Quirion’s office stated that:

“Bitcoin is not above the law, nor is it a magnet for illicit transactions: it forms only a tiny part of the criminal money circulating around the planet. The reason: it is less attractive for anyone who wants to make transactions without leaving a trace.”

In response to the criminal incident that occurred via the BitcoinSV chain, Jimmy Nguyen, CEO of nChain, the software firm behind the BSV protocol warned that Bitcoin is a bad idea for criminal use:

“Those digital signatures are admissible in courts of law to prove possession of illicit material and intent to distribute.”

Nguyen also declared that legally-compliant business action is the BitcoinSV community’s ethos. He also implored people to “think twice” before trying to add illegal content to the BSV blockchain, as the digital signature of the transaction would serve to expose their identity.

Criminal Use of Mainstream Financial Technology

How did fraudsters, paedophiles and drug dealers do business before Bitcoin?

No, it’s not a trick question, the answer is obvious: Criminals, from white collar to street gangs, have been using cash, banks, and even offshore companies for as long as these instruments have been around.

Just recently, the illustrious banking firms of Goldman Sachs and Deutsche bank were found out for criminal collaboration and enablement. In November, the Frankfurt headquarters of Deutsche Bank was raided by prosecutors in a money laundering investigation. Germany's public prosecutor believed that two staff members helped clients set up offshore accounts to "transfer money from criminal activities". Also late in 2018, US prosecutors charged two former Goldman Sachs bankers with the theft of billions of dollars from Malaysia’s development bank.

These two incidents, as we all know, are some of many where people employ traditional financial tools to commit criminal activity. And yet, would any of us think to brand the financial tools and technology as a criminal element itself?

Bitcoin is Transparent, by Design and on Purpose

Explaining the incentive of Bitcoin’s transparent design, Dr. Craig Wright, Chief Scientist of Bitcoin developer nChain declares that:

“Bitcoin is pseudonymous as it is about sound, honest money. Private has to be traceable. It is not drug money, it is not money for bucket shops and it is not money for crime.”

To conclude our evaluation of today’s myth: If you’re trying to cover or erase your tracks, using Bitcoin is probably the worst choice you can make.

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