The Fallacy of Crypto Criminality - Why Bitcoin Skeptics Have Got it Wrong - Bitsonline

The Fallacy of Crypto Criminality — Why Bitcoin Skeptics Have Got it Wrong

A persistent criticism leveled at bitcoin and cryptocurrencies by their detractors is that they aid and abet criminality. The argument that the primary use case for cryptocurrencies is committing crime is a complete — and increasingly irritating — fallacy. Cash has always been the conduit-of-choice for crime, and in fact, is far less traceable than most cryptos.

Also read: Goldman Sachs Pronounces Bitcoin Dead. Time to Buy?

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Sex, Drugs, and Bitcoin — an Epic Tale of Darkweb Dealings and Criminality

You would have thought nobody ever did anything wrong before the internet was blessed with the advent of non-state issued digital currencies that sat on distributed ledgers. A recent study out of the University of Sydney by Foley et al. that examined bitcoin specifically and the trading of illicit goods and services made some startling observations:

“Around $72 billion of illegal activity per year involves bitcoin, which is close to the scale of the U.S. and European markets for illegal drugs.”

The authors found that, while crypto didn’t start black markets, they were “transforming the way black markets operate by enabling black e-commerce.” Yet the assertion could just as easily apply to the internet itself as to cryptocurrencies. Whatever its hue, e-commerce pre-dated digital currencies.

And crowbars, ski masks, and duffel bags stuffed with banknotes pre-dated all of it.


Causation and Correlation — Two Very Different Beasts

By the authors’ own logic, cryptocurrency does not cause crime. It simply lubricates it… just like the internet. Do we hear Jamie Dimon suggest that crime is the internet’s primary use case?

According to Paypal’s founding CEO, Bill Harris:

“Cryptocurrency is best-suited for one use: Criminal activity. Because transactions can be anonymous — law enforcement cannot easily trace who buys and sells — its use is dominated by illegal endeavors.”

Forgiving him for mistaking pseudonymous for anonymous, and setting aside Paypal’s reputation for extraordinarily high fees and dwindling relevance, the statement is counter-factual. According to the Foley et al. study, “approximately one-quarter of all users and close to one-half of transactions are associated with illegal activity.” One-quarter of all users is not unproblematic, but it hardly constitutes dominance.

Tellingly, the paper also finds that the proportion of illegal activity performed using bitcoin falls as mainstream interest rises, the use of more private cryptocurrencies rises, and as fewer darknet marketplaces survive seizure by law enforcement.

Put another way, the prevalence of darknet marketplaces and the lack of mainstream use of cryptocurrencies have an enormous impact on how much of bitcoin’s total activity is connected to criminality. Is bitcoin’s association with crime a use case issue, then, or a early adopter phenomenon?

With a vested interest in securing the future of an online payments system that is likely to be among the first casualties of any widespread use of cryptocurrencies, Harris’ alarmist denouncement of crypto needs to be taken with a grain — if not an Everest-sized mountain — of salt.

Wait a Minute! How Do We Know All This About Bitcoin?

So cryptocurrency is useful for engaging in criminal activities because it is difficult to link to real people, which is what partially explains why its use is so prevalent in illicit e-commerce. How do we know all this?

It could be argued that cryptocurrencies democratize criminal activity. They make it easier to commit crime across borders and on the internet. But they don’t make crime easier, more prevalent, or easier to hide. If they did, we wouldn’t be able to produce studies that quantified their use in crime.

Cryptocurrencies are traceable. In fact, their transaction histories are forever transparent — trapped in blocks of data on immutable, decentralized, trustless blockchains. While conceding there are fungible coins with zero knowledge cryptography that allow for more privacy, the irony is that most crypto detractors fail to mention them in their condemnation of digital currencies. Ask Warren Buffett about Stellar Lumens and he’s not unlikely to look at the night’s sky and exclaim, “Si, si, senorita! Muy bonita!”

Blockchain analysis firm Chainalysis has software that, according to its website, can “accurately trace the history of bitcoin payments and wallets” and “map wallets into known clusters — that is, mapping addresses to known entities like Silk Road, Coinbase, and other large Bitcoin players.”


Cash Is King in a Good Crime Ring

Cash is a far more slippery ally of money laundering, drug dealing, and human trafficking than many cryptocurrencies will ever be. It also creates more violence insofar as it necessitates face-to-face interaction. Yet the focus on digital currencies’ involvement in black market activities will not relent, with economist Joseph Stiglitz telling Bloomberg Television:

“Bitcoin is successful only because of its potential for circumvention, lack of oversight, so it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.”

As countries like Sweden and South Korea head toward cashlessness, it might be wise for the bitcoin detractors to heed the warnings of economist Kenneth Rogoff, who warned in his book “The Curse of Cash,” that cash enables crime and tax evasion.

In fact, one of the obvious reasons a government might seek to welcome cashlessness is to help combat the black economy — which is fueled by state-issued banknotes. The E.U. is phasing out €500 bills because a British police investigation found that “nine out of every 10 notes in circulation were linked to crime, tax evasion, and terrorism.”

The IMF is in support of de-cashing, in part because “payments with currency are anonymous, which makes them a popular vehicle for abuse, tax avoidance, terrorism financing, and money laundering.” The evidence appears compelling that cash and criminality go hand-in-hand.


If states are worried about cash, why are bitcoin skeptics so threatened by cryptocurrency? What better way to keep track of the flow of funds in a cashless economy than the blockchain — immutable, trustless, and decentralized. The information is there forever.

Many crypto detractors use purported affection for blockchain technology to convince their listeners that anti-crypto doesn’t mean anti-tech. But to espouse the virtues of the blockchain — only to then argue that cryptocurrencies are for criminals — is to misunderstand the benefits of the former and underestimate the role it plays in the viability of the latter.

What do you think? Do bitcoin skeptics have a point about crypto’s links to criminality or are they simply sounding off against something they don’t understand, led to false impressions by mainstream media?

Images via Pixabay

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