Can Cryptocurrency be criminal?

When discussing cryptocurrencies with old-school investors the criminal potential of various tokens will inevitably be of concern. The same aspects of cryptocurrencies that make them strong are what give people pause when considering how these protocols could be implemented. Although these are legitimate concerns that should be thoroughly explored, we must also explore our alternative options in a parallel fashion.

Criminal activities with fiat currencies

Currently, fiat currencies are the most dominant form of currency by a massive factor while cryptocurrencies hold only a small fraction of the cash market. According to the United Nations Office of Drug and Crime, 2-5% of global GDP is laundered annually - around 800 billion to 2 trillion USD. A vast majority of these funds are laundered using techniques like bulk cash smuggling, structuring, gambling, etc, all of which rely upon the untraceable, liquid nature of physical cash. According to Forbes, in 2016, criminal activity contributed an estimated 1.5% to the global GDP (870 billion USD), which is a figure well within the UN's estimate on the amount of money that could be laundered each year. It is clear to see that the regulations in place to prevent money laundering are not been successful in making it sufficiently difficult for criminal profits to be legitimatized.

If criminals have no issue with working with fiat currencies, so long as cryptocurrencies provide significant advantage to the average user and do not enhance the criminal capability of illegitimate users, then it is arguable that cryptocurrencies are capable of serving as a superior alternative to fiat currencies.

Criminal potential of various tokens

In a general sense, most of the cryptocurrencies with significant market capitalization use a distributed ledger which actually implies additional security relative to fiat currencies since they rely upon an immutable record of all past transactions (ie. the Blockchain). This enables "Blockchain Analysis" which law enforcement uses to back-trace any illicit transactions as all of the information about the transaction and the transactors would be stored within the ledger. In February, 2017 the Danish Police released a statement informing the public that they are now able to track any criminal activities conducted on the Bitcoin protocol. There is no question that similar tools are being created by law enforcement agencies worldwide.

Now, there are several tokens that do enable private transactions which is a cause of concern, Monero and Dash being the most notable of all. Monero actually had an incident where the protocol was used for the transfer of funds in organized crime. These platforms allow users to send untraceable transactions which most definitely could be used for nefarious purposes, however that is not something that alone could spell the end of these tokens from a regulatory standpoint. Cryptocurrencies are in the early stages of development and implementation overall and there is little to no proper regulation from a dedicated entity when concerning the use of various tokens. However as the Digital Asset space develops, continuous efforts will be made to limit criminal activity on the various tokens that enable more anonymity.

Exchanges' role in limiting criminality

Simply having a token that enables untraceable transactions is not enough to declare open season for criminals. The various exchanges where tokens are exchanged are necessary for criminals to receive and liquidate their funds. Currently there are a multitude of exchanges, some very large and others insignificant, where a multitude of precautions could be made to limit the potentially criminal aspects of various tokens. Many exchanges implement anti-money laundering measures like KYC ("Know Your Customer") and also hold a record of their users' transactions on their own databases, both of which could assist law enforcement in detecting and acting upon criminal transactions.

If there are regulations put in place that enforce a certain level of diligence and compliance for exchanges that wish to facilitate cryptocurrency trading, there is no question that criminal transactions could be tracked if not prevented all together. So long as both token creators and exchange operators work together to offer enough resistance to money-laundering and criminal transactions, the opportunity cost of conducting criminal activities through crypto should be substantial enough to discourage illegitimate users altogether.

Divide and conquer: many small steps towards a solution

Today, there are not enough regulations or entities put in place to counter criminal activity and there is much room for improvement. The crypto-community as a whole needs to work together with regulatory entities to help accelerate the process of widely-implementing the protocols that we feel so bullish about. Many small steps can and will be made to secure the crypto space as a whole, all of which will contribute to the general goal of seeing everyday, worldwide use of cryptocurrency.

Sources:
https://www.unodc.org/unodc/en/money-laundering/globalization.html
https://www.forbes.com/sites/niallmccarthy/2016/02/29/global-profit-from-crime-could-account-for-1-5-of-global-gdp-each-year-infographic/#af78d4f4182d
https://www.b.dk/nationalt/dansk-gennembrud-narkohandlere-kan-ikke-laengere-gemme-sig-bag-bitcoins