BTC is used for Illegal Activity!
Bitcoin Series #6
Bitcoin Series #6: BTC is used for Illegal Activity !
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In our Friday series, we take a deep dive into different asset investments. The first asset we’re covering - which we will stick with over the next several weeks - is Bitcoin (BTC). Our goal with this weekly series is to familiarize readers with BTC and to address common anti-BTC arguments. For full disclosure, Brandon and Daniel are strong believers in Bitcoin and both have allocated portions of their portfolios to BTC (HODL baby).
State of the Coin
Going forward, we will dedicate a brief portion of this newsletter to current events in the Bitcoin space. On June 8, the country of El Salvador became the first to adopt Bitcoin as legal tender. President Nayib Bukele sent the bill to El Salvador’s Congress and the bill was passed with “supermajority” in favor of the Bitcoin Law, receiving 62 of 84 possible legislative votes. While the vote was taking place, Bukele himself joined Nic Carter’s Twitter Space to discuss the exciting future of El Salvador. Bukele discussed his intention to leverage a massive renewable energy resource for in-country BTC mining: volcanic geothermal energy. While El Salvador is the first country to accept BTC as legal tender, they are unlikely to be the last. Politicians from Paraguay, Argentina, Panama, Brazil, and Nicaragua have added laser eyes to their Twitter profiles - the dominoes are beginning to fall.
The argument: BTC is Used for Illegal Activities
A common argument against Bitcoin is that it is used for illegal activities such as purchasing illicit drugs, financing terrorist activity, extortion, and money laundering. This FUD comes not only from BTC-bearish investors, but also from major political figures.
Indeed, Berkshire Hathaway VP Charlie Munger has claimed that BTC is a tool of “kidnappers and extortionists” and Janet Yellen, the United States Secretary of Treasury said that she “[doesn’t] think that bitcoin … is widely used as a transaction mechanism. To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
You may be asking yourself: “what does Janet Yellen actually do?” Not only does Yellen serve as the chief economic advisor to the President, but nearly all major financial and monetary matters relating to the federal government pass through her desk. Thus, Yellen plays a critical role in deciding fiscal policy and her words carry heavy weight for investors. Her comments on BTC as a tool of criminals has been trumpeted by mainstream media outlets, stirring doubt amongst crypto skeptics.
Although government officials, news outlets, and bears in general continue to denounce Bitcoin as a tool for illicit transactions, major blockchain forensic companies have found evidence to the contrary. While political figures happily get away with narrative-based arguments, we prefer to look at the data. Here are several key pieces of data to refute the “illicit activity” FUD:
Chainalysis reported that the illicit share of all cryptocurrency activity fell to just 0.34% in 2020.
The same report found that the vast majority of illicit activity is related to general scams - not terrorist financing, kidnapping, or money laundering.
Similarly, CipherTrace reported that less than 0.5% of crypto transactions were related to illicit activity
Bitcoin is backed by an open source blockchain that stores the entire transaction history of the BTC network. This can serve as a powerful financial forensic tool - even according to the U.S. Department of Justice (see p. 170).
But wait...
All of this is not to say that BTC is never used for illicit activity - it is, but not nearly to the extent that the BTC bears make it out to be. Bitcoin’s anonymous nature makes it an obvious choice for those looking to move money “under the radar.” However, despite its anonymity, Bitcoin is backed by an open source blockchain. All activity, legal or otherwise, is stored on that open source blockchain, providing the community with a powerful and hard coded forensic tool. You know what’s harder to track…? Cold, hard cash.
Professor Edgar Feige believes that the most common currency used for facilitation of various illicit and untaxed profit transactions is the US Dollar. But USD is not the only fiat currency used to commit crimes. Indeed, a 2020 report (see p. 20) by the Society for Worldwide Interbank Financial Telecommunication stated that “identified cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.”
So, the next time you hear the “illicit activity” FUD, remember two things: 1) data show that only a tiny portion of crypto transactions are for illicit activity, and 2) all Bitcoin transactions are public, traceable, and permanently stored on the open source BTC blockchain. Try to find a complete dataset of all USD transactions. We’ll wait.
Going forward
As we said in our introduction, we plan to address several arguments against BTC, one at a time, over the next several weeks. We hope that our weekly posts will encourage readers to learn more about this emerging technology.
Common arguments against BTC:
Be sure to check out our previous articles explaining Bitcoin and subscribe to get the new topics straight to your inbox!
BTC is used for illegal activity
BTC is not a transactional currency (cannot be used to buy everyday items)
Governments will not allow it or will heavily regulate it
It’s easy to lose access to BTC wallet
Happy Friday everyone - get after it this weekend!
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Brandon and Dan
Disclosure: The authors of this writing hold positions in cryptocurrency mentioned in this article. That cryptocurrency is Bitcoin. The article was written by Daniel Kuhman and Brandon Keys, and it expresses the author's own opinions. They are not receiving compensation for it. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock or cryptocurrency. Brandon and Daniel are not financial advisors. We encourage all readers to do further research and do your own due diligence before making any investments.