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POST Bitcoin and crime on a street corner near you

According to the Daily Mail, the police have seen an "explosion in the use of digital currency by criminals who are strolling into cafes, newsagents and corner shops to dump their ill-gotten gains in virtual currency ATMs". Well, let’s hope so because Bitcoin isn’t fungible (unlike the £50 notes so helpfully provided to the criminal fraternity by the - yes, couldn’t make this up - Bank of England) which means that the money can be traced from wallet to wallet so that should make it easier for these detectives to get a handle on where the ill-gotten gains are heading.

While I remain concerned about the rise of Bitcoin for reasons of consumer protection, I am much less concerned about its use in crime. First of all, if the demand for Bitcoin were about crime (and not speculation) is would actually be worth far less than it is today. There just isn’t enough crime. Calculations based on the use of Bitcoin in this sector of the economy put its value at something like one-twentieth of the current price. Now, I think these kinds of calculations are highly spurious, for two main reasons. First of all, I have yet to see any evidence that criminals are adopting Bitcoin at scale. And the reason for this is obvious: it’s not anonymous enough. Wallet addresses are pseudonyms, and once any of these pseudonyms has been linked to a mundane identity in anyway, the identities can be connected, monitored, tracked and traced. This is why ransomware rogues convert their Bitcoins out into something more suited to the less-regulated corners of the economy. The people behind the famous “WannaCry”, which hit more than 300,000 computers in over 150 countries, took their rewards and converted them into Monero, a privacy-focused cryptocurrency that has seen some growth in its popularity over the last year or so.

The second reason why I think such calculations are spurious is that it is they are often based the value of the global market in illegal drugs. Now, while no-one can be sure of the exact size, this is undoubtedly a vast market. But it is a market that is conducted almost entirely in cash. Were these transactions to be converted to digital money, the sums involved are so vast that it would be almost impossible to create to an AI machine-learning transaction monitoring services to ignore them.

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