As a relative newcomer to cryptocurrency I’ve got much to learn.

I’m taking steps to build my knowledge and am committed to understanding the fundamentals as well as the hot-topics of the day. In the short time I’ve been studying it, I’ve learned that those who aren’t involved are quick to challenge motives and eager to share their cynicism.

I made a small and somewhat impetuous first investment in Bitcoin around the turn of the new year. I’ve since been doing what I should have done up front — the research that should back any investment.

There are many facets of Bitcoin that get singled out — its decentralised ownership, the finite nature of its supply and whether or not it’s truly a currency or store of value, or merely a scam or confidence trick. Perhaps the most juicy of these in attracting the critics and naysayers is the anonymity it enables in transactions — a feature that might appeal to those seeking to disguise their role in illegal transactions.

In her recent opening remarks as incoming Secretary of the US Treasury, Janet Yellen recently took the opportunity to set out her stall regarding cryptocurrency and the case for its regulation:

“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 money laundering doesn’t occur through those channels.”

It’s amusing to me as a wet-behind-the-ears newcomer to crypto that I’ve committed to gaining a basic understanding of the inner workings of it. Yet a person of influence in the US Government whose job is to oversee all things financial could have fallen for one of the biggest misconceptions about cryptocurrencies and furthermore, stated it publicly in her early days in office.

It’s no secret that governments are keen to regulate crypto but I thought they’d have built a better case by now than simply falling back on tired rhetoric? The same arguments that are stated year-after-year.

Coming down to earth with a FUD

The world of cryptocurrency is, as you’d expect riddled with technical jargon, confusing concepts and a liberal scattering of acronyms — my favourite so far is a FUD.

Standing for Fear, Uncertainty and Doubt, a FUD is the catch-all term for any of the typical objections used by those who wish to cast doubt upon crypto as anything more than an elaborate scam or Ponzi scheme.

The ‘Bitcoin is for criminals’ FUD is rooted in the idea that the anonymity that’s enabled by cryptocurrency is what governments fear and criminals love.

There’s no central body that tracks, monitors or governs either ownership of the currency or the transactions carried out using it. Governments can’t tax transactions, much less keep tabs on who owns it or is using it for what purpose.

These are all deliberate features of cryptocurrencies like Bitcoin and a fundamental part of their design. There is obvious notional appeal for those who might want to use it for illicit purposes but that’s really not the point behind its creation nor, as it turns out truly representative of how it’s used right now.

The majority of those who own Bitcoin right now are individual investors (minnows like me and hedge-fund luminaries like Paul Tudor-Jones), investment firms selling Exchange Traded Funds linked to crypto to their clients, and corporations like MicroStrategy who are investing their corporate reserves in it.

They’ve bought Bitcoin and other crypto using conventional money like US Dollars and are speculating that the value of their holding will increase over time.

For the most part, they’re not using Bitcoin as a means of paying for goods and services for a few good reasons.

The $420 million pizzas

The first known Bitcoin transaction took place in May 2010 when Laszlo Hanyecz paid 10,000 Bitcoin to have two pizzas delivered.

That may have been a good use of his Bitcoin at the time. But at its record-high price (reached in January 2021) those two pizzas would have cost $420 million.

The volatility of the price of Bitcoin is well known and widely accepted as a feature of it right now. In 2017 it reached a price of nearly $20,000 before plunging to just over $3,000 per Bitcoin. Such fluctuations are what make traditional investors sceptical of it as a store of value or an asset class in which to invest. The same fluctuations are the draw for those with the stomach to buy and sell it over the short-term in search of life-changing profits.

The radical movement in its price over time is the main reason why Bitcoin is not more widely used as a currency right now.

As a holder of a sum of Bitcoin would you be willing to exchange some of it for a book, a coffee or a pizza, knowing that the same sum could in a couple of years be worth enough to buy a car?

Nor would I.

As many are keen to point out, the value could also plummet to zero (or near to zero) as it has many times — but as the technology becomes more widely accepted, and embraced by payment processing companies like PayPal and Square, such dips are perhaps less likely.

For governments to focus upon the use of Bitcoin and crypto and the transactions carried out using it, is to ignore that its exchange as a currency is not its main use-case today.

Even criminals wishing to launder conventional money through Bitcoin would presumably struggle to contemplate the potential loss of future value in using it for a one-time transaction?

A dark history

Putting aside the suitability of Bitcoin for financial transactions right now, I understand where Janet Yellen’s perceptions stem from.

Aside from the notional criminal opportunities that could be facilitated by Bitcoin, it’s widely accepted that many transactions that use it occur on the dark web — as the payment method for guns, drugs or whatever else the tech-savvy buyer wants to procure anonymously.

The movement of units of Bitcoin from one owner to the next is written into the blockchain code for all-time.

With anonymity assured, I can send a portion of my Bitcoin holding from my crypto wallet to yours using its encrypted address, without needing to know who you are.

In this way Bitcoins transit around the network, their movements recorded in multiple ledgers that cannot be disputed, in a form that cannot be deciphered. Even if there were a governing authority that wanted to figure out who was paying who for what, they wouldn’t be able to do so.

Now can you see why there’s a criminality FUD?

If there’s a case for regulation and control, it’s for governments to get a better hold of the dark web and seek to control that. Closures of dark net operations like Silk Road, one of the early markets that was shut down by the FBI in 2014, illustrate that control can be regained by government.

That said, and having witnessed the degree to which governments are struggling to regulate the corporate giants of technology who operate in plain sight — Facebook, Amazon, Google and others — it seems unlikely that such regulation of covert operators will happen imminently.

It may be argued that regulation of cryptocurrency would be similarly hard to enact.

Send your ransom payment in Bitcoin

You may have at some point received spam email trying to extort money from us as part of a focused piece of social engineering and manipulation — an ultra-modern confidence trick.

The sender will claim to have installed malware on our home computers. They may claim to have captured our passwords or recorded compromising images from our webcam. They may threaten the ability to email sensitive information or images to all those in our address book. The only preventative measure, to send a ransom in Bitcoin to their crypto-wallet address provided in the email.

Such scams and attempts at extortion are sadly commonplace — I’ve received a few myself.

They are of course opportunistic and morally-devoid, but many recipients are caught off guard and genuinely scared they’re genuine. I’m sure a few have even made a payment, only then to realise they’ve been fooled. More painful perhaps than the humiliation is the realisation that there is no way of getting their money back.

The existence and ubiquity of such scams and the fact that many incorporate Bitcoin in their method further explains why many have built a mental link between criminality and Bitcoin.

Perception versus reality

It’s possible to se why there’s a perceived link between criminality and crypto, but is the cynicism warranted?

Earlier this year, blockchain analysis firm Chainalysis published highlights from their 2021 Crypto Crime review. While Yellen claimed that cryptocurrency is mainly used for illicit and illegal transactions, the Chainalysis review revealed otherwise, stating:

“In 2019, criminal activity represented 2.1 percent of all cryptocurrency transaction volume, or roughly $21.4 billion worth of transfers”

The report continues:

“In 2020, the criminal share of all cryptocurrency activity fell to just 0.34 percent, or $10.0 billion in transaction volume.”

To be clear, not only is the share of transactions that are criminal in nature a tiny proportion, but overall volume is diminishing too.

Not all crime is equal

The Chainalysis report considered a variety of criminal transactions including those associated with domestic extremism, terrorist financing and child abuse materials. It was notable that these categories accounted for imperceptible amounts of money.

Clearly even one dollar of value associated with any of these categories is a dollar too much given what it represents for real human beings. Nonetheless, the value of these was trivially small (so small as to be invisible on graphs of the results).

The vast majority of transactions were instead associated with scams, darknet material and the largest — ransomware. Most interesting was that the volume of ransomware transactions had risen by a factor of around four between 2018 and 2019, but dropped by two thirds in 2020.

If conclusions can be drawn from such data it indicates that people are getting wise to ransomware, are perhaps through better education more likely to spot a scam and becoming less likely to fall for it?

Specific to ransomware, it’s also worth noting that while US Law doesn’t technically prevent the paying of a ransom, it is illegal to pay ransoms to nations and individuals on sanctions lists. Those committing cybercrime (including distributing ransomware) are liable to be added to sanctions lists.

By definition it may effectively be illegal to pay ransoms in response to ransomware in the US.

A broadened awareness and implementation of this law may in time deter cyber criminals from carrying out ransomware attacks, thus reducing the volume of ransoms paid using cryptocurrency. It’s one thing to convince their victim to part with money to preserve their dignity, but quite another to persuade them to commit a crime themselves.

Criminality and money go hand in glove

As long as money has existed, criminals have sought to use it for their own purposes and gains. People are kidnapped for ransoms, blackmailed and money extorted by threats of violence. Goods are stolen and sold. Cash itself is stolen and laundered so that individual units of it can be lost in the system and used without risk.

None of this is new.

Consider that a United Nations Office on Drugs and Crime Estimate that global money laundering alone accounts for between 2 and 5% of global GDP, or $800 billion — $2 trillion in current US dollars — that represents just one of the criminal use-cases for money. The estimated $10 billion of Bitcoin transactions for ALL criminal uses starts to look very insignificant, and is diminishing annually too.

It’s accepted that governments have a duty to enact controlling measures that they reduce crime and to make it harder for the criminal classes to conduct their business.

It’s blinkered though to think that zooming in on the role of cryptocurrency in enabling such transactions is to strike at the heart of the problem.

As a new technology one might expect the volumes to be increasing as more and more illegal activity migrates onto crypto as a means of exploiting it — but as we’ve seen, volumes are decreasing year-on-year.

The ‘Bitcoin is for criminals’ FUD will continue to rage, cited by those looking to undermine public faith in crypto. The same concerns feature in the media regularly, and I don’t see that changing. Government regulation and control of some things may be desirable, but when applied in the wrong place won’t have the desired effect and will reduce government credibility too.

Regulation of the right things — the dark net for example, may well be a better focus of attention — that along with better educating the public about the realities of cryptocurrency, and about how they might conduct their online lives without falling foul of criminal scams.

Note: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.