# 12 – The Case Against Bitcoin Part I: Bitcoin is Only Used for Illegal Activity

What attracted me to Bitcoin almost ten years ago was the concept of disrupting the current banking system to bring financial liberty back to individuals. Since then, I’ve immersed myself in white papers, podcasts, books, youtube videos, MIT courses, and anything else I can find to help me understand this exciting new technology; yet, I still discover something new each week. I have a long way to go.

One thing I’ve struggled with is a credible answer to the question, “why won’t it work?”. I believe that Bitcoin is anti-fragile, a term coined by Nassim Taleb, author of several financial market related must-reads, to describe the phenomenon of something that actually gets stronger when you’d expect it to get weaker. An easy example in the context of bitcoin would be a an instance where the price of Bitcoin appreciates as it is targeted by government regulation (TBD!). This post and its updates will serve as an iterating attempt to summarize the best arguments against bitcoin that I have seen. Please share more if you find them!

“Bitcoin is only used for illegal purchases and aids criminal businesses“. European Central Bank President Christine Lagarde published a report recently noting Bitcoin should be regulated and blasted its role in aiding money laundering. I must be getting old because I remember when Christine Lagarde was the chief of the International Monetary Fund. In 2016, she was convicted for dirty money stuff around her role in a payout, but to focus on that would be a diversion. Let’s forget that the U.S. dollar is the favorite currency of criminals, and that the banks themselves have been the largest supporters of money laundering since… forever. Just this week it was confirmed that Australian banks “washed” $500 million for South American cocaine cartels.

“I think many cryptocurrencies are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”

U.S. Treasury Secretary, Janet Yellen, January 19, 2021

Of course the Honorable Janet Yellen, owner of the quote above, has a personal vindiction against BTC. In 2017, during her congressional testimony, somebody did a thing:

The company Chainanalysis focuses on using high powered analytics to track and trace transactions on the blockchain. This may seem strange for those of you who misperceive bitcoin transactions as being “anonymous” (via Bitcoin.org). Bitcoin’s ledger, the blockchain, is a permanent public record of all transactions that is accessible by anyone at any time. The transactions are encrypted (hence, “cryptocurrency”), so they are psuedyonymous, but not anonymous. In short, tying an encrypted transaction to an individual is possible.

As early as 2015, the FBI published an article noting that, “While considerable challenges exist, many traditional tools and investigative methods remain effective… investigators can follow the money through decentralized virtual currency systems… Decentralized systems offer public transation ledgers, which record every transaction that crosses the network.”

-investigative challenges and opportunities, by Brett Nigh and C. Alden Pelker (FBI.gov)

The Chainanalysis’ 2021 Crypto Crime Report noted that, “The use of Bitcoin and cryptocurrencies for criminal activities has been halved in 2020 compared to 2019”. Criminal activity represented a miniscule 0.34% of all Bitcoin transactions for 2020.

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The report breaks down the illegal activities detected, and it’s clear that scams and the darknet market account for the bulk of transactions related to those crimes. There was also a notably sharp increase in ransomware attacks in 2020.

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Let’s compare this to the U.S. Dollar. An estimated $10 Billion was transferred by criminals via the bitcoin network in 2020. By contrast, our banking system is so fragmented and secret by design that we don’t really know what that figure is. The most recent report by the United Nations Office on Drugs and Crime noted “suspicous transactions” amounting to $2 trillion in 2019. Hey – its an improvement. What disappoints me though, is the way I see banks and public companies simply absorb “punishment” for their laundering or otherwise ethics-related crimes by paying slap-on-the-wrist fines and going back to business the next day.

  • For every $1 used for illegal activities through the bitcoin network, more than $200 is laundered in U.S. Dollars
  • Roughly 2% of the global money supply is used for money laundering evey year
  • For every roughly $1 used to launder money, less than $0.005 is used for illicity activities through the bitcoin network

So, what is the favorite instrument of criminals? How does this case against bitcoin hold up?


Published by J. King

Growth through transparency

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