When individuals discuss crime, they often behave as if this category were homogeneous and that every act deemed to be illegal by authorities were morally wrong. However, given the differences among local and national statutory codes, not to mention legal traditions—Common Law, Code Napoleon, Shari’a, Chinese Law, Canon Law, etc.—what is criminal in one location often is legal in others. Likewise, what is criminal at one time often is legal at other times in the same jurisdiction. Morality should not be so mutable.
Nonetheless, many individuals conflate ‘crime’ into a single syllable and act as if its meaning were universal. One sees this particularly in discussions about Bitcoin, in which pundits—who have nothing to lose if their prophesies are inaccurate—predict that Bitcoin specifically and cryptocurrency in general will increase the likelihood and severity of crime. Below are several reasons why such prophesies could be grossly in error.
Crime comprises several very different categories, including violent crime, political corruption, property crime, financial fraud, administrative crime (e.g., tax evasion), and victimless crime. When one looks at each of these sub-categories in turn, one could argue that widespread use of Bitcoin might reduce crime in some instances and have no impact in others.
Acts of pointless violence generally are not financially motivated. Bands of disenfranchised youth out looking for trouble most commonly are looking for trouble and not Bitcoin private keys. Even if Bitcoin wallets on mobile phones became targets of thieves, this already is a problem in areas where smartphone apps enable mobile access to users’ bank accounts. It would be difficult to blame Bitcoin, per se, for mobile phone thefts. The same can be said for murder, rape, road rage, and most other violent crime. Bitcoin neither facilitates nor hinders such acts.
In many parts of Eastern Europe and Latin America, one major problem is that bank employees identify large account holders to organized criminals, who then target the wealthy. With widespread Bitcoin use, kidnapping for ransom becomes more difficult, as kidnappers cannot map an individual to his or her Bitcoin holdings easily, especially if the potential target distributes the wealth across a large number of Bitcoin accounts (a common practice among Bitcoin users that is much easier than opening multiple bank accounts). Likewise, bank robberies become less common when individuals conduct most of their transactions online.
Bitcoin wallets enable users to create accounts that require more than one signature to initiate a transaction. Such multi-signature accounts are rare among banks, and most commonly used only by some businesses, but almost never by households. Bitcoin has the potential to reduce embezzlement, if not eliminate it entirely.
By far the most common source of financial crime in commercial settings is theft from merchants in the form of credit card fraud, identity theft, and to a lesser degree shoplifting. Theft by merchants is rare, and it is dealt with relatively easily through the courts. Bitcoin turns transactional risk around 180 degrees. Bitcoin is 100% free of chargebacks, which represent a huge cost to merchants and credit card processors. Merchants can reduce their chargeback risks to 0% by switching to Bitcoin and converting it daily to dollars using a service like BitPay
With regard to fraudulent lending practices by unscrupulous consumer, mortgage, and commercial lenders, Bitcoin’s net impact should be negligible. Whether lending paper bags full of cash or sending cryptocurrency to borrowers’ smartphones, loan sharks will ply their trade, and the threat that they represent is orthogonal to their choice of medium of exchange. Likewise, sub-prime mortgages led to the Crash of 2008, before the first Bitcoin test-transaction even took place.
As for dire predictions of things like international arms merchants, those already are a problem that cannot be attributed to cryptocurrency. As discussed below, Bitcoin’s open recordkeeping should be anathema to those who populate the shadowy underworld.
With regard to administrative crime, tax evasion could be eliminated tomorrow, if authorities taxed things that are difficult to hide, like roads, cars, physical imports, and real estate, rather than things that are increasingly easy to hide in a global knowledge/service economy. The specter of income tax evasion is the reddest of herrings and a smokescreen for policy that has passed its expiration date and is ill-suited to a post-capitalist society.
Political corruption is generally large-scale or small-scale. Large-scale corruption in the form of political influence, pork-barrel projects, crony contracts, etc., already is widespread and unlikely to increase or decrease as a result of widespread Bitcoin adoption. Small-scale bribes to police officers, border guards, customs agents, low-level bureaucrats, etc. currently are paid using local government fiat. Given that very few are calling for the elimination of cash, in order to combat petty corruption, calling for restrictions on Bitcoin for this reason is inconsistent.
One area where those who are unfamiliar with Bitcoin sometimes try to claim victory is the trade of information goods, the production of which involves victims, including child pornography, snuff films, etc. However, this is where Bitcoin’s greatest strength for good reveals itself. Remember, every Bitcoin transaction is memorialized indelibly in the transaction record—known as the blockchain—at the heart of the Bitcoin protocol. For trade in this kind of product or service to flourish, it has to avoid attracting the attention of investigators (i.e., remain small in scale), and all parties to the transactions must maintain a very high level of financial hygiene, which is a lot to ask of any target market. The likelihood that some sleazy pervert would slip up somewhere is non-trivial, and investigators or vigilantes would be able to follow the chain of transactions backward and forward in time until they could connect the transaction chain to an identifiable person.
Even if the supplier maintained a separate account for each transaction, he, she, or they would want to spend the Bitcoin eventually, and the only way to get rid of it anonymously would be to dribble it out as small face-to-face transactions for cash. In other words, Bitcoin is ill-suited for large-scale organized crime rings, except those run by individuals who are very technically adept. Even if Bitcoin were eliminated somehow, such individuals should have little difficulty coming up with alternatives. Again, the problem is not with Bitcoin, per se.
This leaves the elephant in the living room: victimless crime, including recreational drugs, moonshine, gambling, prostitution, etc. While anti-Bitcoin activists point to Silk Road and other similar sites, they ignore the fact that drugs are easy to acquire even in prison, ‘escort’ agencies advertise with impunity in US cities and accept payment online via credit card, gambling is legal in many jurisdictions, and all without cryptocurrency. To allege that Bitcoin is going to enable more individuals to engage in activities that injure no one is to complain about something that is difficult to construe as a problem worthy of state action rather than public education and social activism.
While it is true that one can use Bitcoin for illegal purposes—as one can use US dollars, euros, and laundry detergent—many of those purposes are illegal only because someone in power has declared them to be. In a democratic republic, when large numbers of individuals routinely violate a victimless crime statute, this suggests that the statute is in error and not the people. With regard to activities that injure others, Bitcoin and other blockchain-based cryptocurrencies should be seen as a boon to investigators.
None of the foregoing should be misconstrued as glibly ignoring human tragedy. Quite the contrary, widespread Bitcoin adoption could facilitate investigation where the jurisdiction-based international banking system does not. Those who criticize Bitcoin as a financial medium for criminals do Bitcoin users and crime victims a grave injustice.
Invest accordingly.
Prof. Evans