Earlier this week (23 October), Reuters published an article about the role of cryptocurrencies in funding terrorist organisations following Hamas’ attack on Israel.
The article breaks down the reasons for crypto’s use in illicit activity: it is hard to trace, can be set up without traditional Know Your Customer (KYC) checks that banks and other financial services providers have to go through, and can travel across borders instantly.
Another article, this time from Bloomberg, features an excerpt from journalist Zeke Faux’s new book, Number Go Up. In the excerpt, Faux is messaged by a fraudster aiming to seduce him into sending crypto to a fake brokerage, a type of scam known as pig butchering. After stringing along his would-be scammer for a while, he reveals his true identity.
Further investigation into the scam leads him to uncover a human trafficking ring based in Cambodia, in which young Southeast Asians are lured to a compound with promises of high wages and then forced to send out fraudulent messages with the aim of securing cryptocurrency, particularly Tether, a stablecoin pegged to the US dollar.
These kinds of attacks are particularly troubling to those affected because of low levels of knowledge around crypto and limited legal protection once funds are transferred. UK consumer survey site Which? suggests that 20% of fraud victims in the UK sent their money via cryptocurrency. This is still significantly below the 46% of customers who transferred money to a UK bank account, but high enough to be concerning.
Is crypto to blame?
There is no doubt that these cases are horrific, and the harm done by scammers and illicit users of crypto is very real. However, written evidence submitted to the UK parliament by blockchain analytics firm Chainalysis in 2022 suggests that only 0.15% of cryptoasset activity in 2021 was for illicit purposes.
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The firm also argues that despite its reputation as an untraceable asset, the public nature of transactions – all transactions are stored on a public ledger that can be read by anyone with an internet connection – means that it is in fact more transparent than other forms of finance.
This may be overstating the case: the leger data, made up of strings of letters and numbers, can be linked to real people and organisations, but only by experts and often through acquiring vast quantities of other data outside of the blockchain.
Crypto is hardly the only financial institution used for criminal activity, though. A leak of data from Swiss bank Credit Suisse in 2022 exposed accounts holding billions of dollars used for tax avoidance, fraudulent investment and human trafficking.
X user Perianne, a cryptocurrency expert identified by GlobalData’s proprietary social media analytics and founder of the Chamber for Digital Commerce, argued exactly this in a letter to the Wall Street Journal’s editor.
Another X crypto influencer, PrestonPysh, published an article in Bitcoin Magazine that made a similar argument, albeit rather more hysterically: he argues that Bitcoin is vital in protecting America’s ‘cherished freedoms’, suggesting that the state is no longer a place of ‘capitalism and free and open markets’.
It is also worth noting that whilst cryptocurrency has become a preferred payment method for many criminals, including the human traffickers written about by Faux, their physical bases are still allowed to operate by governments, including that of Cambodia. Getting hard evidence on the criminals is more difficult now that there are no banks to hand over transaction details, but the issues run deeper than simply the currency.
Crypto hurts its fans the most
Crypto’s darkest side may not be the scammers or illicit users – both of which have certainly been helped by blockchain’s rise, but have existed long before and will continue to exist long after – but the impact it’s had on its regular users. The wild days of crypto speculation may be over, brought to an end by the collapse of Sam Bankman-Fried’s FTX empire, but its impacts are still being felt.
Bankman-Fried is currently standing trial, accused of defrauding users of his crypto trading platform out of $10bn. Shitcoins, as they are known in the industry, attract as much investment as possible before disappearing into the ether, often taking millions of dollars with them. Even when crypto is not fraudulent, crashes of coins like the aforementioned Tether can lead to people losing their life savings in a matter of hours.
Rabid defenders like Pysh fear that the industry won’t survive regulation but at the same time, it is precisely people like him – those invested both literally and figuratively into the crypto community – who have the most to gain from a tightening of the rules. If nothing else, it may help to dispel the arguments currently floating around that crypto is dangerous in its very essence.
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