Annotated Bibliography-Cryptocurrencies and Criminal Activity

Annotated Bibliography-Cryptocurrencies and Criminal Activity

The continuous development of technology has led to the establishment of digital currencies. The system on which these cryptocurrencies are created was established in 2008 by Satoshi Nakamoto. This led to the development of multiple cryptocurrencies. A cryptocurrency is a digital currency that can be used to purchase goods and acquire services, which uses cryptography technology to secure transactions; an excellent example of a cryptocurrency is bitcoins. The cryptography technology applied involves encryption techniques to ascertain and safeguard the creation of digital currencies and their transfer. Consequently, these characteristics of cryptocurrencies promote and regulate their use in criminal activities.

Annotated Bibliography

Kuo Chuen, D., Guo, L., & Wang, Y. (2017). Cryptocurrency: A New Investment Opportunity?. The Journal Of Alternative Investments, 20(3), 16-40. doi: 10.3905/jai.2018.20.3.016

In this article, Kuo Chuen, Guo & Wang (2017) elaborate on cryptocurrency properties and types, focusing on Bitcoin and the blockchain technology applied. Further, they continue to illustrate how Bitcoin created a gateway for creating more altcoins that addressed various aspects not managed by Bitcoin through the use of varying algorithm designs (p. 16). All these digital currencies are used for transactions despite their registration and lack thereof of registration. Additionally, the article elaborates on the use and function of blockchain technology to illustrate the lack of need for third parties during a transaction between participants on specific platforms. Further, Kuo Chuen, Guo & Wang (2017) indicate the investment opportunity cryptocurrency presents as the world continues to evolve with technological developments, focusing on Cryptocurrency Index (CRIX). On this aspect, they illustrate that societal classes have no influence on cryptocurrency, and thus, any individual in a society can use CRIX to trade (p. 18). Consistently, with the availability of many potential users, cryptocurrency-creating organizations might increase in number, indicating the apparent investment opportunities (p. 20). However, with this increase in users and blockchain technology, the risks associated with cryptocurrency are evident, including increased criminal activity.

Hendrickson, J., & Luther, W. (2021). Cash, crime, and cryptocurrencies. The Quarterly Review Of Economics And Finance. doi: 10.1016/j.qref.2021.01.004

In this article, Hendrickson & Luther (2021) point out that criminals, cryptocurrency, and cash are interrelated. The basis of all criminal activities is criminals who conduct illegal businesses. In most of these businesses, money is essential, and therefore with the presence of the option of digital currencies, transactions are safeguarded (p. 1). Aside from criminal activity, people opt for cryptocurrency to evade doing their taxes.  However, Hendrickson & Luther (2021) also argue that the increase in the use of cryptocurrency will reduce criminal activity. Therefore, its domination over cash is essential beyond cash elimination (p. 2). Additionally, they call for the elimination of money to influence the greater majority to opt for digital currencies. Additionally, cryptocurrency poses more advantages to its users due to aspects such as the security of its privacy with the use of blockchain technology. One persuasive aspect argument is the type of goods, whereby “…one is a legal good, where digital dollars, currency, or cryptocurrencies might be used, and one is an illicit good, where physical dollars or cryptocurrencies might be used” (p. 2).  The various characteristics of cryptocurrencies favour this trade for both types of goods. Accordingly, they apply a model to establish the similarities between cash and cryptocurrency (p. 6). In addition, they emphasize the role of the government in promoting cryptocurrency use by eliminating cash and any other alternatives (p. 6). This might be a limitation to the argument because cash transaction is still a part of society.

Butler, S. (2019). Criminal use of cryptocurrencies: a great new threat or is cash still king?. Journal Of Cyber Policy, 4(3), 326-345. doi: 10.1080/23738871.2019.1680720

In this article, Butler (2019) argues that despite the allegation of the role of cryptocurrency in criminal activities, cash is used more often as compared to cryptocurrencies. This argument indicates that money is used more frequently in illegal activities and that criminal activities might be reduced with the use of cryptocurrency. Additionally, Butler (2019) points out the fallacies associated with cryptocurrency, especially bitcoins, and clarifies these misconceptions. Consequently, the article is an analysis of the relationship between cybercrime and cryptocurrency. Accordingly, Butler (2019) stipulates that “a small number of cases where virtual currencies have been used in connection with terrorist financing” (p. 334). With this in mind, it is evident that criminal activity is promoted with the use of cryptocurrency, especially in marketplaces on the dark net. The ease of illegal activity is enhanced through the anonymous aspects of digital currency. In addition, the privacy guaranteed through blockchain technology allows for the ease of illicit transactions (p. 333). However, techniques have been established to discover these anonymous participants in criminal activities. This indicates the advantage of cryptocurrency over cash, whereby cash is anonymous and cannot be traced to a specific individual to illustrate an illegal activity trait. In contrast, a digital currency must be transacted on specific platforms to reveal participants of criminal activity such as terrorism (p. 335).

Weaver, N. (2018). Risks of cryptocurrencies. Communications Of The ACM, 61(6), 20-24. doi: 10.1145/3208095

In this article, Weaver (2018) points out the risks associated with cryptocurrency. Further, the most susceptible aspects to cryptocurrency include; the participants, “technical risks to participants, economic risks to participants, systemic risks to the cryptocurrency ecosystem, and societal risks” (p. 20). Another challenge of digital currencies is power consumption. Weaver (2018) proceeds to argue that cryptocurrency is not fit for use in purchasing transactions. This argument is supported by the lack of reversing options and the lack of censorship. With censorship, the transactions will not be limited to the two types of participants but will also involve a third, who will overlook activities on the trading platforms. Moreover, with censorship, the rate of criminal activity involving digital currency, since the censorship will curb these transactions. Subsequently, this poses risks to the economy and society the participants are a part of (p. 24). Other risks are apparent in the personal lives of the participants. The societal and economic risks arise from the criminal activity occurring through money laundering and tax evasion (p. 24). Additional risks include “worms, exchanges, central authorities, and government intervention” (p. 23). Theft of cryptocurrency is also a risk, in addition to bugs that increase the risks. Subsequently, the argument appears to merit the potential dangers of cryptocurrency, including criminal activity (p. 24). Despite this, the only limitation of this article is that it only focuses on probable risks associated with cryptocurrency.

Belomyttseva, O. (2015). Conceptual Framework for the Definition and Regulation of Virtual Currencies: International and Russian practices / Konceptualni okvir za definition in regulation virtualnih value: mednarodne in risk prakse. Naše Gospodarstvo/Our Economy, 61(5), 32-39. doi: 10.1515/ngoe-2015-0020

In this article, Belomyttseva (2015) focuses on the use of financial regulators to monitor cryptocurrency use. This monitoring is established through various actions, such as the imposition of taxes on digital currencies (p. 33). Additionally, the countries supporting digital currency use are highlighted in the article and the countries that demonstrate their lack of support by highlighting the risks associated with cryptocurrency. Some of the dangers highlighted are “market risk, the problem of a shallow market, counterparty risks, transaction risks, operational risks, privacy-related risks, and legal and regulatory risks (p. 33). Further, Belomyttseva (2015) highlights why some banks support or do not support the use of cryptocurrency over cash, including the schemes that involve digital currencies (p. 34). The limitation of digital currency is made apparent with its restriction to specific platforms, indicating its use does not compare to cash transactions. The role of the Financial Crimes Enforcement Network is stipulated as regulators of digital currencies with the providence of guidance on cryptocurrency use. Also, the significance of the Financial Action Task Force is stipulated in relation to criminal activity involving digital currency (p. 35). The anonymous nature of transactions and the lack of a third party in transactions influence the risks and illegal activity associated with digital currencies (p.35). One of the limitations of this article is the focus on mainly one country while taking on digital currencies varies around the world.

Marian, O. (2015). A Conceptual Framework for the Regulation of Cryptocurrencies. https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1703&context=facultypub

In this article, Marian (2015) presents a framework by which regulations can be put in place to regulate cryptocurrency use. The basis of this argument is based on the definition of cryptocurrency; “cryptocurrencies are essentially protocols that allow for the validation of transactions without the need for a trusted third party such as a bank, credit card company, escrow agent, or recording agency” (p.55). Subsequently, with the absence of transaction costs, cryptocurrency is presented as a potential investment opportunity due to the ease of transactions without extra transaction charges. The anonymous nature of the ledgers contributes to their vulnerability to criminals and criminal activities. Accordingly, even with the presence of regulatory policies, identifying participants involved in criminal activities is still a difficult setback to overcome (p. 56).  However, with the exception of some cryptocurrencies that do not have the anonymous feature, regulations can be put in place and activities monitored. Additionally, third parties’ absence in transactions also promotes the ease of conducting criminal activities (p. 57). Consequently, with the knowledge of the vulnerable aspects of digital currencies to criminals, regulations can be put in place to limit criminal activity. The limitation of this article is its theoretical propositions that are not yet supported practically but have the potential to be implemented.

Sprenger, P., & Balsiger, F. (2018). Anti-money-laundering in times of cryptocurrency. Retrieved from https://assets.kpmg/content/dam/kpmg/ch/pdf/anti-money-laundering-in-times-of-cryptocurrency.pdf

In this article, Sprenger & Balsiger (2018) indicate the essence of financial bodies in regulating the use of cryptocurrencies. The use of cryptocurrency in funding criminal activities and laundering money influences regulations put in place by financial bodies. Blockchain technology is one of the limitations to regulating the usage of digital currencies because of the certainty of the anonymous nature of cryptocurrency. Subsequently, the participants of digital currency transactions cannot be exposed easily, favoring criminal activities. When it comes to money laundering, cleansing of the digital currency is used to ensure financial bodies do not detect this activity. Moreover, Sprenger & Balsiger (2018) elaborate on how a criminal conducts a criminal activity by stating the steps involved from purchasing digital currencies, conducting unlawful activities, and cleansing the currencies acquired from the criminal activities. In this regard, different methods of combating these money laundering activities are stipulated, including the implementation of regulations. One limitation of this article is its basis on theories; the approaches prescribed are theoretical due to the minimal use of digital currencies.

References

Belomyttseva, O. (2015). Conceptual Framework for the Definition and Regulation of Virtual Currencies: International and Russian practices / Konceptualni okvir za definition in regulation virtualnih value: mednarodne in risk prakse. Naše Gospodarstvo/Our Economy, 61(5), 32-39. doi: 10.1515/ngoe-2015-0020

Butler, S. (2019). Criminal use of cryptocurrencies: a great new threat or is cash still king? Journal Of Cyber Policy, 4(3), 326-345. doi: 10.1080/23738871.2019.1680720

Hendrickson, J., & Luther, W. (2021). Cash, crime, and cryptocurrencies. The Quarterly Review Of Economics And Finance. doi: 10.1016/j.qref.2021.01.004

Kuo Chuen, D., Guo, L., & Wang, Y. (2017). Cryptocurrency: A New Investment Opportunity?. The Journal Of Alternative Investments, 20(3), 16-40. doi: 10.3905/jai.2018.20.3.016

Marian, O. (2015). A Conceptual Framework for the Regulation of Cryptocurrencies. Retrieved 19 November 2021, from https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1703&context=facultypub

Sprenger, P., & Balsiger, F. (2018). Anti-money-laundering in times of cryptocurrency. Retrieved 19 November 2021, from https://assets.kpmg/content/dam/kpmg/ch/pdf/anti-money-laundering-in-times-of-cryptocurrency.pdf

Weaver, N. (2018). Risks of cryptocurrencies. Communications Of The ACM, 61(6), 20-24. doi: 10.1145/3208095

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Follow the directions below to complete the Annotated Bibliography assignment for Unit II. If you have questions, please email your professor for assistance.
• Purpose: The purpose of the annotated bibliography is to summarize the sources that you have gathered to support your research proposal project. These summaries help you to think about the complex arguments presented in your sources.

Annotated Bibliography-Cryptocurrencies and Criminal Activity

• Description: In this assignment, you will create an annotated bibliography consisting of seven sources. Each entry will consist of a reference list citation, a summary of the source’s information, and a one-sentence assessment. Each annotation should be between 150 to 200 words. If an entry is shorter than 150 words, it is likely you have not fully developed your summary, and this lack of development can severely impact your grade for this assignment.