One of the most commonly cited arguments against cryptocurrency is that it is being used by criminals to carry out illegal transactions. This was the narrative for some years, and the default stance taken by politicians and notable figures who were against the technology. This has led to an unwarranted fear of the space.
However, there is mounting evidence that this is not the case, and that fiat is far more commonly used by criminals than cryptocurrency. An early paper published by economics professor Edgar L Feige indicated that the majority of illegal transactions were carried out with cash. The paper further suggests that there is a ”currency enigma” in that up to 85% of US dollars are not kept by US households (this number excludes money held in banks).
More recently, a judicial panel of the US Senate has concluded that the use of cryptocurrency for illicit activities was small compared to the use of fiat. According to the US Department of the Treasury, Jennifer Fowler: “Although virtual currencies are used for illicit transactions, the volume is small compared to the volume of illicit activity through traditional financial services.”
This news is especially relevant in light of the recent AML scandal at one of Australia’s largest banks. CommonWealth Bank of Australia (CBA) has settled for $530 million for breaching AML laws over a period of three years, during which time nearly 800,000 accounts were improperly monitored. CBA denies knowledge of the breach of policy, saying a single coding error caused the problem. To make matters worse, CBA has spent an estimated $400 million on AML policies, which evidently do not work. Former CBA executive Ian Narev acknowledged the potential for blockchain two years ago as “transformational”. The $700,000 AUD figure is the biggest fine in Australian Corporate history, and millions are reported to have gone to the drug trade.
Additionally, an April 2018 study carried out by Qatar University demonstrated how easy it is to track Bitcoin transactions. No sophisticated techniques or technologies were used to break the veil of anonymity on the Bitcoin blockchain. Criminals are traceable on the blockchain, and there are many ways to do it. In contrast with cash, which is often traceless, it is harder to move money around without leaving a trace on the blockchain. However, this will depend on the particular blockchain used.
For almost a decade now, the concept of cryptocurrency has been associated with the dark web, terrorism, and illegal transactions. However, this has always been no more than a myth, because a far larger percentage of illegal transactions are carried out with fiat. The argument that criminals used cryptocurrency was often used yet never valid.
Further, the FBI and other US organizations have been very active and successful in catching and incarcerating individuals who do use cryptocurrencies illegally as opposed to cracking down on multi-million dollar scandals such as the above, where once again nobody will go to jail. While cryptocurrency might represent an easy means of facilitating criminal transactions, it is no more than a drop in the ocean compared to hard fiat – the criminals’ coin of choice.