Hello, Bitcoin: It’s Time to Permit Cryptocurrencies
Despite what popular headlines might suggest, only 0.34% of bitcoin transaction volume in 2020 was involved with criminal activities.
In The Hill this week, Robert Manning wrote an op-ed titled “Bye-bye, Bitcoin: It’s Time to Ban Cryptocurrencies.” If that title was not a red flag for readers, the first sentence certainly should have been when Manning wrote, “I’ve never quite understood why cryptocurrencies are worth anything.” He then goes on to justify a ban on cryptocurrencies because they are “only valuable for criminals.” In this post, I’ll explain why such a ban is not justified.
Untraceable Payments: For Me and For You
The op-ed's second sentence sets the foundation for the rest of the piece. Manning suggests that it’s obvious that “untraceable payments are worth a lot to ransomware hackers, cyber criminals, and money launderers.” There are a few problems here.
First, the statement leaves out that cryptocurrencies are valuable to more than just criminals. For example, there are 4.2 billion people across 93 countries who are living under authoritarian regimes. Cryptocurrencies offer them a very real escape. As Alex Gladstein recently wrote,
There are no accountability mechanisms like independent media or an independent Supreme Court in countries like China, Saudi Arabia, Russia, and Turkey. Such regimes often abuse their money printing abilities to satisfy short‐term aims with no public accountability, they conspire with the heads of commercial banks to commit massive fraud, and they trespass on the financial transactions of their citizens with no fear of penalty.
Cryptocurrencies offer a financial escape from such tyranny. Jill Carlson describes the opportunities offered as “tunnels, bunkers, and escape hatches” that are accessible to everyone. Where tunnels can be thought of as alternative financial pathways, bunkers are safe havens for storing assets, and finally, escape hatches are the ways out that let people take their assets with them when they exit the system altogether. There is no denying that this opportunity is valuable for the world’s most vulnerable.
Second, despite criminal activity splashing headlines across every major news outlet, criminal activity only represented 0.34% ($21.4 billion) of all cryptocurrency transaction volume in 2020. As Hailey Lennon explains, if one compares this number to the United Nation’s estimates of global money laundering ($1.6 to $4 trillion), cryptocurrencies were only used around 2% of the time. And the other 98%? Those are largely using good old-fashioned national currencies.
Third, cryptocurrencies are not as valuable for criminals as one might think. The author is right that there have been a number of disruptive ransomware attacks recently. However, many cryptocurrencies are poorly suited for criminals. In fact, criminals might have better luck with cash.
Despite their reputation for anonymity, cryptocurrencies are not as hard to track as many people think. The trail of breadcrumbs left behind on the public ledger is partly why the FBI was able to recover nearly 85% of the ransom money paid after the Colonial Pipeline attack, and that wasn’t the first time that public ledger spoiled a criminal’s plot. In short, the ledger details the beginning and end of each transaction, and anyone can take a look. We might not know who spent 42 bitcoins on a pirated copy of Dr. Strangelove, but the two accounts can then be traced and possibly identified if later transactions reveal more telling information. That is something that would be nearly impossible with physical cash—hence why criminals still prefer it.
Permit Cryptocurrencies
So, how should governments respond? In contrast to the author’s support for the idea of governments creating their own central bank digital currencies (CBDC) and making cryptocurrencies illegal, cryptocurrencies should be welcomed with open arms. Rather than ostracize the community by labeling cryptocurrency users as “tax evaders and narco-terrorists,” government officials should actively engage with them and work towards a system that benefits everyone.
Manning is absolutely correct when he says, “Governments should guarantee safe, stable, and useable money.” Yet sadly, this has not always been the experience in practice. Permitting cryptocurrencies, however, might just offer a much-needed touch of competition that steers governments toward guaranteeing a safe, stable, and useable money.
For anyone interested in understanding why cryptocurrencies are worthwhile (and going beyond stories based solely on price changes), here are a few resources that are worth exploring:
Tunnels, Bunkers, and Escape Hatches: Defending Economic Rights under Fire, Jill Carlson
Financial Freedom and Privacy in the Post-Cash World, Alex Gladstein
Cryptocurrencies: What Are They Good For?, Marta Belcher
Bitcoin: A Tool for Human Freedom, Conor Okus