Debunking the Myth of Crypto and Illicit Activity
No, crypto is not “a particular concern” regarding criminal activity. Quit yer yellen.
By C. Edward Kelso and Naomi Brockwell.
Featuring work from Forbes contributor Hailey Lennon.
The Bitcoin Smear Campaign
This week, Janet Yellen, who was just unanimously approved by The U.S. Senate Finance Committee for Treasury secretary, (and is a former Fed Chair), said that cryptocurrencies are “a particular concern” when it comes to criminal activity and terrorist financing.
“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 (sic) doesn't occur through those channels.”
Forbes contributor Hailey Lennon noted in a recent article that the data just doesn’t back up this claim.
She says:
“According to an excerpt from Chainalysis’ 2021 report, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume (roughly $21.4 billion worth of transfers). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% ($10.0 billion in transaction volume).”
The UN estimates that 2-5% of global GDP is connected to money laundering each year.
Hailey says:
“Criminal activity using cryptocurrency transactions is much smaller than fiat currency and its use is going down year by year.”
Even privacy coins, despite the war being waged against them by government regulators, don’t seem too attractive for money laundering. According to a study by the Rand Corporation last year, despite the “perceived attractiveness of cryptocurrencies for money laundering purposes”:
“An estimated 99 per cent of cryptocurrency transactions are performed through centralised exchanges, which can be subject to AML/CFT regulation similar to traditional banks or exchanges. … Zcash is a cryptocurrency that uses zero-knowledge proofs to provide enhanced privacy for its users, however, there is little evidence that this is exploited by malicious actors.”
This smear campaign is not new, and has been around as long as bitcoin has. In 2014 on the Stossel Show (archival footage in this week’s video) someone tried to make this point about crypto being a popular vehicle for illicit activity. I mentioned that the biggest laundromat of all time for money launderers is the USD, and that going after the tiny “mom and pop” laundromat down the street is a misdirect. It was true then, and things haven’t changed.
According to a 2020 SWIFT report:
“Cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.”
Million of dollars connected to illicit activity are laundered through major banks in USD every year. Bitcoin is a drop in the bucket.
As speculative markets shine and bubble, mainstream press will seek to undermine crypto by continuing to tie it to criminal activity. But criminals clearly already have a currency of choice, and it’s not bitcoin or any privacy coin.
Crypto Lawyer is Optimistic
Now that Yellen has officially been approved as the new Treasury Secretary, will she be any different to Mnuchin? He was vocally opposed to cryptocurrency through his entire term, and Yellen isn’t off to a great start in this regard.
Asked just why Yellen might be preferable, lawyer and cryptocurrency enthusiast Jake Chervinsky explained:
“First, anyone is better than Secretary Mnuchin, who decided long ago that he hated everything about crypto. Second, although Dr. Yellen may not be a fan now, I expect she'll be open to learning & listening, & will follow regular order in deciding on new regulations. That's good.”
He also cheered the Biden administration’s freezing of “all agency rulemaking pending further review”:
“This includes former Secretary Mnuchin's proposal on ‘unhosted wallets.’ We fought hard & earned the right to take a breath & reset. Janet Yellen isn't Steve Mnuchin. I'm optimistic.”
The optimism is refreshing, at least.
Biden Will Nominate Gary Gensler to Head SEC
Rakesh Sharma has a nice overview of the potential incoming head of the Securities and Exchange Commission (SEC) under the Biden administration, Gary Gensler. Gensler was previously Chair of the Commodities Futures Trading Commission (CFTC), where he earned quite the reputation as an eager and tough regulator.
“Gensler,” Sharma notes, “has alternated between censure and praise in his commentary on cryptocurrencies and blockchain,” referring to crypto as an “innovative irritant" and "catalyst for change." He’s waxed on the Fed and its potential need for a digital currency, and “has come down hard on initial coin offerings (ICOs) and talked about bringing unregulated cryptocurrency exchanges under government agencies.”
Interestingly, the future SEC head once “posited that Ripple's XRP and Ethereum's ether (ETHUSD) should be deemed securities,” predicting “courts would ultimately decide XRP's fate as a security. That event is already in motion, and his agency will have a big hand in deciding its outcome.” Sharma continues:
“Gensler will have to marshal his experience and understanding of crypto and blockchain to bring order to the ecosystem while preserving its potential to reshape modern finance's plumbing. In the process, his name may well become an expletive again for actors clamoring for less regulation of crypto markets.”
Twitter Jack Mentions Bitcoin in Rationale for Scrubbing Trump
Much of the world gasped at Twitter’s suspension of Trump’s account. Arguments about “whether the company had the right” aside, even those not particularly fond of the politician openly questioned whether his complete removal from a social network sets a new, ominous precedent.
CEO Jack Dorsey meditated on the problem, and seemed to be at once against the power to ban someone like Trump while insisting his company with such power made ultimately the correct decision. He backed up the decision and then confusedly appealed to Bitcoin’s properties as a kind of hope for the future of a freer internet.
“The reason I have so much passion for #Bitcoin is largely because of the model it demonstrates: a foundational internet technology that is not controlled or influenced by any single individual or entity. This is what the internet wants to be, and over time, more of it will be.”
IPFS in Brave - Native Access to the Distributed Web
The InterPlanetary File System (IPFS) is billed as “A peer-to-peer hypermedia protocol designed to make the web faster, safer, and more open.” Recently, cryptocurrency-friendly browser Brave announced its native support for IPFS.
“This is the first time a major browser has implemented native support for IPFS, and is a major step towards a more resilient, user-first internet,” the company said.
“While the IPFS protocol is still in development, making it more easily available is important for users who have real problems in their daily online lives - internet outages and shutdowns, censorship of critical information such as COVID-19 news, high cost of internet access, and the ability to share and collaborate in offline or disconnected environments. These aren’t problems everyone has, and people who don’t have these problems at all may not understand why IPFS is so important. But for those who desperately need a resilient internet that puts them in control of their online experiences, IPFS is now just one-click to install in the Brave browser.”
Binance CEO Purchases Pornhub Premium Subscription
CZ, founder and CEO of Binance — one of the largest crypto exchanges in the world — revealed his purchase of an online porn subscription from PornHub. He of course used the BNB (Binance coin) cryptocurrency to pay for this subscription.
PornHub is increasingly embracing cryptocurrency because of pushback from payment processors. In 2019 PayPal blacklisted PornHub, and Visa and Mastercard pulled out of supporting the platform in December last year. PornHub had already added Bitcoin and Litecoin payment options for premium services.
This week they added XRP, BNB, USDC, and DOGE to their payment methods.
“Fk it,” Binance’s charismatic leader half joked in celebration, “I am buying a year of premium porn subscription just for the cause, nothing personal, of course. YOLO.”
For more of Kelso’s work, visit: @coinfugazi / coinfugazi.com
For more of Hailey’s work, visit: @HaileyLennonBTC