Why a Biden Administration Attack on Cryptocurrencies Would Be a Mistake
Growing evidence suggests that cryptocurrencies like Bitcoin are gaining increased popularity—especially in emerging-market countries such as Nigeria and Turkey—because many consumers and savers perceive cryptocurrencies as a more stable alternative to the national government currency, which carries high inflation rates.
The new Treasury Secretary Janet Yellen wants to restrict the use of cryptocurrencies, citing concerns with “illicit financing”—notably money laundering and terrorism financing. However, law enforcement and national security agencies are rapidly developing tools to track cryptocurrency transactions suspected of laundering money and financing terrorism. Therefore, instead of restricting cryptocurrencies altogether, the Biden administration should fix specific security concerns associated with virtual currencies.
Yellen’s concerns are misplaced for several reasons. First, contrary to Yellen’s claims, most cryptocurrency transactions are used for legal transactions. Illicit purchases accounted for less than 0.5 percent of all transactions associated with Bitcoin, the most popular virtual currency, according to data from Elliptic, a blockchain analysis company. In 2019, an estimated $829 million in Bitcoin transactions were spent on illegal transactions, comprising less than 0.05 percent of global illicit payments (approximately $2.2 trillion) that year. Growing evidence suggests that cryptocurrencies like Bitcoin are gaining increased popularity—especially in emerging-market countries such as Nigeria and Turkey—because many consumers and savers perceive cryptocurrencies as a more stable alternative to national fiat (government) currency that carries high inflation rates.
Second, although cryptocurrencies are thought to be untraceable, that is not the case because most cryptocurrencies use a public ledger system known as blockchain that contains a history of all transactions. As a result, law enforcement officials and private investigators can use publicly available information to investigate illegal financing, which could then serve as the basis for subpoena and warrants. In U.S. v. Gratowski, the Fifth Circuit ruled in July 2020 that public ledger records from blockchain do not enjoy constitutional protections under the Fourth Amendment. Therefore, public cryptocurrencies—which include the most common virtual currencies such as Bitcoin and Ether—do not provide the anonymity that transnational terrorists and money launderers seek.
Already, the public nature of blockchain ledgers—along with analysis tools—led to the successful prosecution of several high-profile cases last year. In August 2020, the U.S. Justice Department “used third-party blockchain analysis and personally identifying information from virtual exchanges” to track and file charges against “al-Qassam Brigades (Hamas’s military wing) and donors linked with the jihadist group Hayat Tahrir al Sham in Syria.” Improved tracing technology also helped the Justice Department prosecute two Chinese nationals who laundered over $100 million in stolen cryptocurrencies from North Korea to China to support Pyongyang’s cyber operations. Due to the development of such tools, the most widely traded virtual currencies are increasingly ill-suited to illegal transactions.
That is not to say that law enforcement and national security agencies do not face challenges associated with virtual currency transactions. First, “mixers”—which divides a bitcoin into “many smaller transactions, and ‘mixes’ that in with other transactions from other people”—pose a challenge. However, as mixers fall under the federal Bank Secrecy Act’s jurisdiction, they are increasingly subject to investigation by the Financial Crimes Enforcement Network for alleged violations.
Read the full article at National Interest.