By: Cassidy Crockett
By now, we’ve all heard of Bitcoin, the digital money (cryptocurrency) that can be traded anonymously (the only identifiable information is your chosen username) and securely, despite having no physical presence.[1] This is done via “blockchain,” a way of keeping publicly accessible, decentralized records.[2] Bitcoin is no longer the only cryptocurrency, joined by a multitude of digital currencies, but they all use the same technology and base idea — a currency that is tracked by all users and almost completely anonymous. Many people believed that cryptocurrency would be the money of the future, and many still believe this currency could change the way the world works.[3] However, it continues to fall out of favor, and many people believe that its only use is on the dark web or by criminals.[4] It continues to baffle people around the world who see it as a new way for criminal activity to spread.
Many see cryptocurrency as a never before seen technology. It allows people to buy illegal items with untraceable money. It allows criminals to be paid for their acts without a way to track them down. But is this really new? Physical currency has been used in many forms throughout history, including our current paper money. Physical money is also untraceable. When a person takes their change from the cashier and gives it to another cashier or puts it into a friend’s birthday card, there is no ledger writing the serial number of that bill and tracing it to the person spending it. The only new action here is buying an item remotely. Rather than buying drugs in a physical alleyway, it is now possible to buy them on the internet. Criminals can launder money via a virtual blockchain transaction instead of having to go through the effort of setting up a business. Corporations can use blockchain to move money in secret rather than offshore it.[5] These bad actions are happening now and have been happening for a long time. Cryptocurrency didn’t invent these actions, it just made them easier. It seems that bitcoin functions almost exactly like cash, but with the added element of remote activity.
As is often the case, people look to analogies to explain life around them and cryptocurrencies are not any different. Even I have already analogized them to cash. This is also the case in the crafting of new laws or stretching of old law to fit a new concept.[6] Economists have argued over how to regulate bitcoin, as a currency, security, or as a new entity entirely.[7] However, it seems that bitcoin is not the thing in need of regulation here. If bitcoin is just as anonymous as cash, it seems that the action or those allowing the actions should be regulated. Of course, criminal actions such as drug trafficking and piracy are already heavily regulated and penalized. If one were to separate the actors and technology you would have the people transacting with the cryptocurrency, the blockchain technology itself and cryptocurrency/blockchain operators.
In order to properly regulate the criminal activity that the anonymity of cryptocurrency brings, it is essential to regulate thing. Here, it would likely make the most sense to regulate blockchain. As the ledger is publicly available, operators can monitor the transactions in real time.[8] This would allow investigators and law enforcement to follow the money. Responsibility placed on these actors would be more likely to be administrable due to the fact that they are not anonymous, and they are able to be held accountable.
If cryptocurrency is to become the money of the future, it is imperative that it is regulated properly. As of now, most people who are not involved in the tech world or economics see cryptocurrency as criminal cash or an abstract concept. The reality is that cryptocurrency isn’t a scary new concept but just a remote version of paper cash. As such, it should be subject to at least some form of regulation and as it is decentralized and unbacked by any government, responsibility must lie with either the cryptocurrency or blockchain administrators. As long as this money is coming in through these anonymous channels with no oversight, it is too easy to launder and evade taxes.[9] The best option we have is to place this in the hands of the administrators who know this best and hold them responsible rather than trying to force this technology into a box it doesn’t quite fit into.
[1] Jake Frankenfield, What is Bitcoin?, Investopedia (Oct. 26, 2019), https://www.investopedia.com/terms/b/bitcoin.asp
[2] Nathan Rieff, Blockchain Explained, Investopedia (Feb. 1, 2020), https://www.investopedia.com/terms/b/blockchain.asp
[3] Ameer Rosic, What is Cryptocurrency? [Everything You Need to Know], BlockGeeks (2017), https://blockgeeks.com/guides/what-is-cryptocurrency/
[4]See, e.g., Nathaniel Popper, Bitcoin Has Lost Steam. But Criminals Still Love It., N.Y. Times (Jan. 28, 2020), https://www.nytimes.com/2020/01/28/technology/bitcoin-black-market.html
[5] See, e.g., Alma Angotti and Anne Marie Minogue, Risks and rewards: Blockchain, Cryptocurrency and Vulnerability to Money Laundering, Terrorist Financing and Tax Evasion, 2018 PRINDBRF 0250 (Nov. 19, 2018) (Westlaw Practitioner Insight Commentary).
[6] See generally, Cass R. Sunstein, On Analogical Reasoning Commentary, 106 Harvard L. Rev. 741, 743 (1992)(outlining how the law is shaped by the use of analogies).
[7] Brian Edmonson, Can Bitcoin Regulations Make Cryptocurrency Safer?, The Balance (Mar. 11, 2019), https://www.thebalance.com/can-bitcoin-regulation-make-cryptocurrency-safer-4173836
[8] See Angotti & Minogue supra note 5.
[9] See id.