Instead of perpetuating outdated arguments about cryptography, policymakers should embrace the opportunities that cryptography continues to create.
One of the most common objections and complaints from those in political positions about cryptoassets is that they are the tools of scammers. Russian oligarchs, international criminals and authoritarian regimes are among the usual suspects exposed when politicians are forced to articulate these positions. To be fair, blockchain-based cryptoassets and transactions can certainly be used for illegal and illicit activities, but that can be said of any medium of exchange. With many of the world's largest financial institutions, including those that manage many public and private sector pension plans, allocating capital to crypto-assets, the validity of this argument is questionable.
According to the 2022 Crypto Crime Report released by Chainalysis, approximately $18 billion worth of cryptocurrencies are linked to illegal activities, which is no small number. Context is always important and the reference to the United Nations report on drugs and crime, which reports that approximately 2.7% of global GDP was recycled in 2022, worth $2.8 trillion, adds much-needed context to this talk. It should also be noted that according to research conducted at the University of Massachusetts Dartmouth, 90% of all US dollar bills contain traces of cocaine; problems with cryptographic assets can be avoided.
Despite the growth of Bitcoin and other crypto-assets, the entire crypto-asset market is still dwarfed by the global US dollar market. Whatever medium is used, the fact remains that crypto-crime is small in the sea of dollar activity that occurs every day.
Let's look at some other facts that policymakers should consider before choosing encryption as a tool or blaming criminals and other bad actors.
Not prepared for large-scale criminals
Despite claims that it is the preferred tool of nation states and other large-scale criminal enterprises, US officials have testified directly against this idea. In April 2022, Treasury Secretary Janet Yellen announced that it would be difficult for the economy or any large-scale operation (private sector or government) to use cryptocurrencies to avoid sanctions. In particular, his testimony is that large transactions can easily be traced back to the underlying blockchain and that the Treasury has not seen significant cryptographic evasion since that date.
It is also important to note that the 2022 National Terrorism Risk Financing Assessment shows that while cryptocurrencies are used by criminal and terrorist organizations, their use appears limited compared to traditional financial instruments. The report also notes that these traditional financial instruments, including the US dollar, continue to be the preferred medium for financing crime and terrorism.
The transparency of cryptocurrencies helps to comply with the law
Another claim often made in the cryptocurrency industry is that due to the underlying blockchain technology, transactions and information cannot be obtained for research purposes. This is the exact opposite of reality in terms of current market research. Analyzing the Chainalysis 2021 and 2022 reports, the trend is clear. The percentage of criminal crypto transactions is decreasing rather than increasing as the total transaction volume continues to increase.
Cryptocurrency exchanges have been and continue to be scrutinized regarding transparency of operations, customer locations and funding sources, but this is only part of the picture. Interestingly, in addition to the current legal issues, Binance (the world's largest cryptocurrency exchange) cooperated with almost 50,000 law enforcement data requests in 2022. The average response time is 3 days, much faster than traditional financial institutions.
It is also worth noting that the US Department of Justice was able to track and recover over $3 billion (recovery value) stolen in 2016 in the largest Bitfenex hack of all time. essential tools for this repair.
Money must grow
Despite naysayers and critics, the pace of cryptocurrency adoption, innovation and creativity grows almost unabated. As regulators around the world continue to develop and implement frameworks, central bank digital currencies (CBDCs) are gaining more interest and investment, and established financial institutions are investing heavily in the technology and people behind blockchain and crypto-assets.
Money is a complex but simple concept. it is a way to exchange agreed transactions. While almost every other industry and economic activity has been digitized and automated, currency and money have so far avoided the wholesale growth that has redefined other industries. Encrypted transactions are a valuable use case for individuals and organizations when they simultaneously ensure consumer privacy while providing transparency for law enforcement when needed.