Welcome back to our new blog series: 11 Myths of Bitcoin. Starting with Myth…
#1: Because Bitcoin is anonymous it is a tool for criminals to purchase drugs, launder money, and finance terrorism.
Since the first days of Bitcoin the press and other commentators (who should know better) have continually tied Bitcoin to criminal activities ranging from money laundering, to drug transactions to even terrorism. Yet for some reason buried deep in the criminal mind, criminals pounce of new technologies as tools for their nefarious activities faster than the general population. Consequently it should come as no surprise that criminals have been the first the exploit this novel technology. It has always been so.
Consider the Internet. In the early 1990’s the Internet was considered a hot bed for pornographers, privateers of copyrighted material (especially music), con artists and criminals. It is not so long ago that many parents refused to allow the Internet in their homes for fear of exposing their children to what was “on-line” (at the time a bad word). It was not until the full potential of the Internet was understood and embraced by the general population that the Internet ceased to be viewed as a den of iniquity and seen for what it truly is, a transformational technology. Today there is nary a home in America, or anywhere in the world for that matter, that is not connected to the Internet. What was once seen as tool for criminals is now used by school children every day.
Bitcoin is often criticized because it can be used to purchase goods and services anonymously, as if the anonymous feature of Bitcoin somehow makes Bitcoin nefarious or mysterious or a tool for evil people. Yet every minute of every day every American citizen uses an anonymous currency to purchase goods and services and has been doing so since the founding of the Republic. This anonymous currency has a name. It is called the dollar bill. What Bitcoin has done is take anonymous currency into the digital age. That Bitcoin can used as a method of payment for drugs and other illicit goods and services is true. So can the $100 bill. So can any paper currency. Why is the anonymity of Bitcoin a problem when the anonymity of paper currency is recognized, embraced and accepted? When it comes to anonymity there is absolutely no difference between the two, other than one is printed on paper and the other is digital.
In fact, although anonymous, the use of Bitcoin is more susceptible to tracing than paper money. Paper money, by its very nature, leaves no traceable footprint. An early attempt to trace paper dollars was the introduction of the serial number concept, but this has proven to be woefully inadequate over the years. Paper money is only discoverable or traceable by physical inspection. It is also susceptible to counterfeiting, which, by the way, Bitcoin is not.
At its core Bitcoin is no more than a vast ledger system. This ledger system records every transaction that is occurring across the network and which accounts (“wallets”) are completing those transactions. While the ownership of the wallets is anonymous, the ledger is public. Anyone, including law enforcement, taxing authorities or anyone else, has the same access to the master ledger as any other person anyone else in the world. This ledger has a full and easily viewable history of all transactions that have ever occurred and will ever occur on the Bitcoin network. Consequently, unlike paper currency, which can disappear and reappear with no record of transfer or trace of exchange, every single Bitcoin transaction is available for all the world to see and cannot be hidden, or obscured or changed. Mention that the next time someone tells you Bitcoin is anonymous!
The use of paper money permits a transaction to be completed unrecorded, with and with no way of identifying the parties engaging in completing a transaction. While Bitcoin does not instantly reveal who owns the accounts on either end (the wallets), the transactions are recorded, and recorded on a very public ledger. Also, Bitcoin can be tracked at the point where it is converted into government issued currency (such as dollars or Euros, so-called “fiat” currencies). In order to have the Bitcoin convert to fiat currency, one must interact with an exchange or similar service. Those exchanges can, and will, be regulated, giving law enforcement a valuable avenue to pursue criminals. Paper currency can circulate indefinitely without any necessity of conversion into anything. Consequently, contrary to what many people believe law enforcement is in a better position when criminals use Bitcoin than they are when criminals use paper currency., Criminals, for their part would most likely prefer truly anonymous paper currency over Bitcoin which records every transaction that takes place across the network and is maintained forever.
Stay tuned for next week where we will publish myth #2 – Bitcoin does not solve any real world problems.