Why bitcoin needs illegal activity
Tuesday 12 January 2016
Illegal activity with bitcoin isn’t desirable, but it’s unavoidable - and it’s a helpful barometer of how successful crypto is.
My mother-in-law recently told me that she had heard bitcoin had been implicated in some kind of illegal activity. I was shocked.
Shocked, I tell you.
The American drug market is at least $60 billion in US dollars, cash, and it's very hard to snort coke with a bitcoin
I contemplated giving her a comprehensive education in how cash is widely used around the world for illegal transactions of all kinds (particularly the US dollar), and how the traditional custodians of our money, the banks, are hardly a paragon of virtue, but there are times for opening those cans of worms and this wasn’t one of them. I don’t write these things lightly, because they are absolutely true. For example:
- There are around 13 million casual drug users in the US alone, plus 5-6 million with more serious habits. They spend at least $60 billion a year on drugs - in US dollars, cash.
- PPI mis-selling and other deliberate fraud - which took place as a matter of organisational policy - stretches to billions of dollars.
- Banks colluded to rig Libor rates with the knowledge and approval of managers.
- JP Morgan sold mortgages to investors who thought they were safe when it knew were bad.
- The fact that ‘Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.’
That’s just for starters, but it made me think some more about bitcoin’s role in fraud, ponzis, ransomware and dark markets.
All told, bitcoin represents a pretty small slice of the black economy. But I’m happy for it to grow - not because I condone fraud or other illegal activity, but because bitcoin’s success as the currency of choice in this economy is a barometer of how well it is doing its job.
Bitcoin is separate from the traditional finance system - which, as we’ve seen, is more than capable of hosting illegal activity, both formally and informally. It has a degree of anonymity (a good degree, if used carefully). Just like cash, then, these properties lend it to shady activities; in fact, some estimates suggest that actually the majority of transactions in cash are illegal activity of one form or another.
So long as bitcoin remains outside that system, it will naturally be used for illegal activity. Those activities are therefore a symptom of its status as an alternative currency. The more it is co-opted by the powers that be, the more it is traced and controlled and shoehorned into the existing paradigm, the less it serves its original purpose.
A form of money that allows genuine freedom, in all its forms - some undesirable. Or a form that comes with control, surveillance, the erosion of civil liberties, and the unjust redistribution of wealth built in. We can’t have it both ways.
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