Tag Archive for Illegal

Bitcoin : Currency of the Future or Drug Dealer’s Token?

 
Bitcoin … a dilemma

While the world is hyped with Bitcoin and cryptocurrencies in general, we are overlooking the dangers of the cryptocurrencies and how they are contributing to illegal markets and trade. Bitcoin was the first decentralized cryptocurrency that started in 2009, however it only gained the attention of the public in 2017 when the currency saw an increase in it price to 19000$ in December of 2017. This sudden increase in the price of Bitcoin led to a split in the audience’s opinion. Some thought that this would be the currency of the future, while others thought it to be only a bubble that would last for a limited amount of time. Since this event, there has been an increasing number of websites, places, and even countries that accept bitcoin as a method of payment, and one of the places where you can trade with bitcoins is the dark web.

 

Before we start

Before we go on with our topic, we need to define an essential term that will be repeated frequently in our paper: The dark market or dark web. The dark market is where trade between two people or two entities happens. Rather than meeting physically, the buyer and the seller can meet virtually and exchange the goods for money. A dark market is not necessarily illegal by itself, however it is the items that are being transferred through this website that make it illegal. But how is this related to Bitcoin and cryptocurrencies? These dark markets use the same technology that underpins bitcoin, and have recently been accepting payments in the cryptocurrency. Bitcoin is the making the money exchange process on the dark web easier and contributing to illegal actions.

 

Silk road:  The first dark web

The dark web started with Silk Road. Silk road is a website that was created by Ross Ulbricht. This website was the place where illegal drugs were traded and exchanged. Vendors advertised their drugs through Silk Road, and potential buyers saw these advertisements and bought these drugs from the website. When you are buying these drugs from a dark website you usually do not trust the seller, so they wouldn’t send the money directly to the seller. To solve this problem, Silk Road acted as an intermediary between the buyer and the seller. When the buyer confirms the transaction, he sends the money the silk road, and when he confirms that he has received the products, silk road sends the money to the seller giving the seller a form of “letter of guarantee”.

 

Bitcoin is playing an important role in making these transactions harder to trace, it is being used as a tumbler on TOR and other platforms. But what is TOR? TOR is a software that allows anonymous communication, we will not go into the details of how the software works, but what we need to know is that many dark markets use TOR to hide the communication that is happening in illegal online markets. As we said bitcoin is being used as a tumbler, it is using a cryptocurrency mixing service to hide the trace of the original source, since bitcoin offers a public ledger of all the transactions.

How Bitcoin is involved ?

Bitcoin is also being used for money laundering services. This is because Bitcoin is not linked to a person’s account, however it is only linked to a key of the bitcoin account. Money laundering is the process of moving money around, however with the new regulations since 2008, the process has been getting more complicated. Now, tax evaders are looking for new ways to move their money around and Bitcoin has become the solution. Buying moving their money to Bitcoin, the person can have their own bank by holding their private key. To solve this problem, there has been many startups who attempt to track Bitcoin transaction to individual like Chainalysis, since Bitcoin only offers a public ledger.

Bitcoin is not the subject of specific regulations like other cryptocurrencies. There is still a division of opinion when it comes to regulating bitcoins. Some say that bitcoin should be subject to regulations while others say that banks should not be focusing on regulating these cryptocurrencies, but on how to incorporate them in their systems and to increase their transparency.

Trying to regulate bitcoin

One way to regulate bitcoins is for banks to monitor when the bitcoins are converted back to fiat money (local currency). When bitcoins are converted to fiat money they can track the history of the bitcoin transactions and how bitcoins have been used. But the real solution does not come until technologies such as Chainalysis are fully developed and are able to track the transactions of Bitcoins and increase transparency of these transactions.

Others say that before regulating bitcoins, we should first define the cryptocurrency consistently everywhere.

Is bitcoin a currency? Is it a commodity? Or is it a security? 

When it is classified, we can then regulate it according to the rules of the classification. The classification of Bitcoin and its regulation varies from country to country: in 2013, The U.S. Treasury classified bitcoin as a convertible decentralized virtual currency, while in 2015 The Commodity Futures Trading Commission, CFTC, classified bitcoin as a commodity. Bitcoin is completely banned in other countries for example Algeria, Bolivia and Ecuador have completely banned Bitcoin transactions.

Conclusion

Revolution and Evolution are often two sides of the same coin.

This is the case regarding bitcoin. It is a very promising technology that has the possibility to replace fiat money, in a world where people would not have to carry cash anymore. However, we also need to be careful where bitcoin is being used and not let it fall in the wrong hands, and open a new window for illegal trade. This can be done by imposing transparency regulations on bitcoin users, and the use of new technologies to trace transactions.