by Seamus Donoghue, VP Sales and Business Development at METACO
If perception acts as a lens through which we view reality, then cryptocurrency has a job on its hands to convince people it’s not the hotbed for the criminal activity they think it is. Mud sticks, and all too often disparaging – and increasingly anachronistic – allegations about its use for illegal activities are difficult to brush off.
Take Janet Yellen’s comments for example. The former head of the Federal Reserve – who was recently confirmed as the first-ever female US treasury secretary – has been very vocal on the subject lately.
During a Senate hearing, she stated that cryptocurrencies “are used, at least in a transactions sense, mainly for illicit financing” – perpetuating this misguided perception. But did she mean it?
When the dust had settled, it became apparent that Mrs Yellen’s thoughts were more balanced than that quote portrayed.
A few days later she clarified her stance in a written testimony, saying:
“I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system”.
Were her words originally misconstrued because society is preconditioned to assume the sole purpose of cryptocurrency is to facilitate criminality?
Whatever the reason, it’s clear the perception persists that it is a thinly regulated landscape where criminality blossoms. However, if we scratch the surface of this seemingly murky world – one we are led to believe is entirely populated by shady characters intent on circumventing the current financial system – we quickly learn that all is not what it seems.
Shedding the stigma around criminality
Even the staunchest advocate of cryptocurrency cannot deny that there is a link between these digital assets and crime – with various precedents blotting its copybook.
Consider Silk Road, for instance: the infamous demise of this online black market – the first modern darknet market – after it was shut down by law enforcement in 2013, highlighted how blockchain technology was being exploited by criminals in hidden corners of the internet.
Fast-forward eight years and cryptocurrencies are more traceable than ever.
By definition, crypto means concealed; secret. However, this does not necessarily apply to cryptocurrency.
Unlike cash, which is completely anonymous, blockchain technology is inherently transparent and behaves like an infinite, immutable, data ledger that houses every single cryptocurrency transaction ever made – you simply need access to the relevant tools and knowledge to harness the information provided by the blockchain.
The development of blockchain data analytic AML tools that are specifically designed to focus on crypto assets has been a game-changer in the battle to reduce the attack surface – making them more traceable than electronic transactions and providing the power to share insights with law enforcement and the wider industry.
Concerted efforts from law enforcement agencies around the world are yielding results. High-profile convictions – such as Silk Road creator Ross Ulbricht who was sentenced to double life imprisonment plus forty years without the possibility of parole – have sent a most powerful message. Criminals cannot hide behind cryptocurrency and law enforcement agencies have the tools at their disposal to bring them to justice.
The figures speak for themselves – demonstrating the overall amount of cryptocurrency-related crime is declining and is a smaller part of its economy:
- Cryptocurrency criminal activity dropped to 0.34% in 2020, or $10 billion in transaction volume, compared to the previous year when criminal activity represented 2.1% of all transaction volume – over $21 billion worth of transfers.
- The amount of money harvested from cryptocurrency scams declined significantly in 2020 following the PlusToken Ponzi scheme in 2019, which resulted in the loss of over $2 billion.
The future is bright
This winning combination of technology-enabled traceability, information sharing, and law enforcement deterrents has begun to paint a positive picture, which alongside asset performance, has invited people to take a fresh look at crypto. In 2019, 18% of all Americans and 35% of American millennials purchased cryptocurrency. In addition, major retailers and financial institutions are entering the space: Amazon and Starbucks now allow customers to pay in Bitcoin; while Standard Chartered and BBVA both recently announced they are launching investor services – all bringing their cybercrime knowledge and resources to the table.
The tide is turning after cryptocurrencies were catapulted into public awareness in the early part of the previous decade and controversies surrounding them spawned a distrust that has been difficult to overcome.
Since then, perception of these digital assets being the preserve cybercriminal has been eroded to the point that some of the world’s most recognizable brands are embracing them – a U-turn that has been driven by reality.
So, with illicit transactions low, adoption rates growing, and an effective regulatory framework in the pipeline, we expect to hear Janet Yellen and her contemporaries banging the drum for cryptocurrencies in 2021 – and beyond.