Cryptocurrencies and Criminal Activity

Cryptocurrencies and Criminal Activity

Introduction

Uncertainties surrounding cryptocurrencies’ application in society, especially economically, contribute to the ongoing debates on the use of cryptocurrencies. On the one hand, the use of cryptocurrency will reduce the frequency of cryptocurrency due to the presence of an online ledger that records all transactions, legal or otherwise, an aspect that is greatly debated. On the other hand, cryptocurrency use will promote the frequency of criminal activities due to the hidden identities of participants of a transaction, implying criminals can conduct their businesses comfortably without the fear of exposure. First, from these two perspectives, it is essential to elaborate that the challenges facing the application and implementation of cryptocurrencies originate from the presence of the Internet and digital currencies, which are easily and readily available to all individuals. Consistently, this points out the fact that anyone, despite their location and occupation, has easy access to the internet for transactions using digital currencies (Weaver, 2018). Secondly, the properties of digital currencies contribute to these setbacks; the hidden identity of the participants and the lack of a third party in transactions may provide an environment in which all individuals, including criminals, may transact (Kuo Chuen, Guo & Wang, 2017). Consequently, the question creating the debate is, “Do cryptocurrencies promote or reduce criminal activity? Subsequently, cryptocurrencies might reduce criminal activities due to the blockchain technology that records all transactions, including illegal transactions. In contrast, the anonymity of participants and the absence of third parties in transactions involved in cryptocurrency transactions might contribute to criminal activities. However, certain aspects can be put in place to monitor these transactions to control criminal activities, including the use of regulators, who act as third parties in the transactions involving digital currencies. Consequently, the setbacks involving cryptocurrencies can be reduced through regulators and regulations. The impacts of cryptocurrency use on criminal activity indicate reduced criminal activities because of the presence of the digital ledger, the presence of regulators on certain digital currency platforms, and the reduced use of cash with the use of cryptocurrencies.

Literature Review

Fallacies and misconceptions about digital currencies, such as cryptocurrencies, continue to limit the number of people willing to transact using digital currencies. One example of a widely used cryptocurrency is Bitcoin. One misconception of cryptocurrencies is their likelihood of promoting criminal activities. This ideology is promoted by the properties of digital currencies that allow anyone to transact without revealing their identities. Additionally, the absence of a third party in transactions illustrates that illegal transactions can occur without regulators. However, illegal transactions by criminals occurred way before digital currencies were introduced using money. What this indicates is that criminals need any type of currency to transact; however, some currencies are preferred over others (Hendrickson & Luther, 2021). One such currency is money, which cannot be traced, and transactions do not have regulators; hence it is the more preferred method of transacting (Butler, 2019). Accordingly, this literature review aims to compare the pros and cons of digital currency use in relation to criminal activity.

In 2008, Satoshi Nakamoto introduced Bitcoin, the first cryptocurrency. From this digital currency, many others were invented and generally referred to as altcoins (Kuo Chuen, Guo & Wang, 2017). Their inventions were aimed at addressing the setbacks of bitcoins to provide alternative options for people using digital currencies. As the use of digital currencies continues to increase, their costs also increase, creating an investment opportunity for all individuals interested in digital currency. Consequently, financial institutions must monitor these transactions, such as the change from cryptocurrencies to cash and vice versa. This is essential to ensure these transactions are not based on criminal activities or money laundering (Sprenger & Balsiger, 2018).

Digital currencies are online currencies. One type of digital currency is cryptocurrencies, which have various properties; one property of cryptocurrencies is blockchain technology, which is an online ledger that records all transactions involving cryptocurrencies (Kuo Chuen, Guo & Wang, 2017). The efficiency of blockchain technology illustrates the nonessentialism of a third party to oversee transactions. Additionally, the cryptocurrency index (CRIX) allows every individual to trade online despite their social status and class (Kuo Chuen, Guo & Wang, 2017). The CRIX contributes to the investment opportunity in cryptocurrencies. Additionally, various trading platforms, such as Rakuten, are used in digital currencies.

There are various pros associated with cryptocurrency use. They include “increased capacity, better security, and faster settlement” (Kuo Chuen, Guo & Wang, 2017). These pros promote cryptocurrency use amongst all individuals; however, there are varying pros, including blockchain technology, regulators and regulations, and reduced use for cash when it comes to the pros over criminal activities. The first pro is blockchain technology, in which all transactions are recorded, illustrating that illegal transactions are also recorded on this ledger, thereby reducing criminal activities using cryptocurrencies. Secondly, regulators and regulations on certain digital currency platforms also reduce illegal transactions because a third party oversees transactions. Thirdly, opting for cryptocurrencies reduces the use of cash, which is often used for illegal transactions, since it is untraceable (Butler, 2019).

On the other hand, there are various cons associated with cryptocurrency use. These cons are all based on some properties of cryptocurrencies. One of the properties includes the anonymity of participants in transactions. All transactions have participants whose identities are hidden, allowing criminals to conduct their transactions easily (Weaver, 2018). Secondly, CRIX indicates that anyone anywhere can transact using cryptocurrencies, including criminals. Thirdly, the lack of censorship allows criminals to easily transact on digital currency platforms, but the presence of regulators and regulations curtails this setback (Hendrickson & Luther, 2021). Accordingly, some of the pros of cryptocurrencies curb the cons associated with cryptocurrency use, especially in criminal activities.

            Controversies surrounding cryptocurrency use in criminal activity continue to fuel the debate of cryptocurrency use. Since its introduction in 2008, cryptocurrencies have created investment opportunities for individuals globally. This opportunity is open even for criminals who can invest and conduct their illegal transactions. Further, various arguments are made to illustrate the role cryptocurrencies play in criminal activities, including some favoring their role and some opposing their role. Some arguments that shed light on this controversy include blockchain technology, regulators and regulations, reduced use for cash, the anonymity of participants in transactions, CRIX, and lack of censorship. Therefore, it suffices to say that despite fallacies and misconceptions about cryptocurrencies’ role in criminal activities, various elaborations clarify their role in reducing rather than promoting criminal activities.

Blockchain Technology’s Role in Reducing Criminal Activities

The impact of cryptocurrency on criminal activities is greatly debated for various reasons. This debate some people support the idea that cryptocurrency promotes criminal activities (Butler, 2019), while others argue it reduces criminal activities; however, the main impact of cryptocurrency is reducing criminal activities for various reasons. First, the blockchain technology characteristic of cryptocurrencies aids in the reduction of criminal activities. Blockchain technology is an online ledger on which all cryptocurrency transactions are recorded; additionally, different types of cryptocurrencies use similar algorithms to establish this blockchain technology (Kuo Chuen, Guo & Wang, 2017). Subsequently, legal and illegal transactions are recorded in the online ledger, including criminals’ transactions; thus, as criminals turn to cryptocurrencies for their transactions, the recording of these transactions reduces the chances of the criminals transacting using cryptocurrency. Criminal activities include money laundering, whereby individuals may conduct illegal transactions as a way of evading paying their taxes. Therefore, all transactions will be recorded, presenting digital evidence that can be used to trace criminal activities based on illegal transactions.

Regulations and Regulators Role in Reducing Criminal Activities

Secondly, the presence of regulations and regulators on cryptocurrencies contributes to the reduction in criminal activities. Initially, blockchain technology was created for the security of users, eliminating the essence of censorship and preventing duplicate transactions. Censorship illustrates the presence of third parties who regulate transactions, and therefore, the absence of censorship indicates the lack of a third party to regulate transactions. The presence of regulators and regulations brings in the censorship that will guard transactions, curbing illegal transactions (Belomyttseva, 2015); the ease of participating in illegal transactions will be reduced in the presence of censorship (Marian, 2015).  Additionally, financial institutions develop guidelines such as regulations that oversee criminal activities and illegal transactions, including criminal activities funding, tax evasion, and laundering money (Sprenger & Balsiger, 2018), and the push for regulations on cryptocurrency platforms without regulation is significant in reducing criminal activities. These targets are achievable when individuals monitor exchanges between cryptocurrencies and institutions.  Subsequently, the presence of regulators, such as financial institutions and regulators, will reduce criminal activities by reducing illegal transactions that fund criminal activities.

Reduction of Cash Use Role in Reducing Criminal Activities

Thirdly, the use of cryptocurrencies reduces the use of cash, thus limiting criminal activities. Funding is necessary for successful criminal activities, and it can be in the form of cash or digital currencies, such as cryptocurrencies; however, certain currencies are preferred over others. Cash or money has been used to fund criminal activities long before cryptocurrency was introduced; it is the preferred mode of transaction for various reasons; consistently, one reason for its preference is the lack of transaction charges. Cryptocurrencies were introduced to eliminate transaction charges, and tangible cash transactions also lack transaction charges, enabling criminals to transact (Hendrickson & Luther, 2021) without the fear of losing money. The other reason is the untraceable characteristic of cash that allows criminals to transact without the potential of discovery of transactions (Butler, 2019). Once transactions are untraceable, criminals conduct illegal transactions freely, in addition to tax evasion. Subsequently, cryptocurrency records all transactions, and therefore, criminal transactions are also recorded, thereby limiting and reducing criminal activities.

Susceptibility of Cryptocurrency Use by Criminals

In contrast, some properties of cryptocurrencies fuel the debate on the role of cryptocurrencies in increasing criminal activities. First, the cryptocurrency index (CRIX) increases the chances of criminal activities occurring all over the world. The purpose of CRIX is to enable individuals all over the world to access digital currencies, including cryptocurrencies. Consequently, overlooking the advantages CRIX provides to the economy and societies around the world, it allows any individual, including criminals globally, to access cryptocurrency platforms, enabling them to transact illegally and promoting criminal activities (Kuo Chuen, Guo & Wang, 2017). Further, the anonymity of the participants in the transactions leaves cryptocurrency transactions susceptible to criminals’ use (Weaver, 2018). In cryptocurrency transactions, the identities of the participants are anonymous; therefore, their identities cannot be revealed. Additionally, even with the transaction’s records of blockchain technology, the identities of participants are hidden. Therefore, certain aspects of cryptocurrencies promote criminal activities, such as CRIX and the anonymity of participants of transactions, allowing criminals to easily conduct illegal transactions.

Conclusion

            In conclusion, cryptocurrency has various effects on criminal activities. In some instances, the effects are positive, while on the other hand, the effects are negative, whereby they may or may not facilitate criminal activities. Various factors contribute to cryptocurrencies reducing criminal activities, including reduced cash use, blockchain technology, and the application of regulations and regulators. On the other hand, cryptocurrencies may promote criminal activities due to various factors such as CRIX and participants’ anonymity. Therefore, it is evident that cryptocurrencies have more of an impact on reducing criminal activities than on promoting them.

References

Belomyttseva, O. (2015). Conceptual Framework for the Definition and Regulation of Virtual Currencies: International and Russian practices / Konceptualni okvir za definicijo in regulacijo virtualnih valut: mednarodne in ruske prakse. Naše Gospodarstvo/Our Economy, 61(5), 32-39. https://doi.org/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. https://doi.org/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. 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 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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Purpose: The purpose of this assignment is to continue drafting your academic argumentative research paper.
Description: In this assignment, you will write three to four body paragraphs according to the form that is explained in “Lesson 3: The Body Paragraphs.” The following requirements must be included in the assignment:
▪ Body Paragraphs: You will construct three to four paragraphs comprised of five to seven sentences each. Each paragraph should be between 150-200 words. At a minimum, this portion of the paper should be around 450-600 words (for three to four paragraphs); a body section of this length will meet the minimum requirements of the assignment. The following components must be included in each body paragraph (in the following order).
▪ Sentence 1: Point/reason sentence: This topic sentence will contain one of your reasons.
▪ Sentence 2: Explanation: In this sentence, you provide information that further develops or explains Sentence 1.
▪ Sentence 3: Illustration: This sentence introduces evidence that supports the reason that is presented in Sentence 1.
▪ Sentence 4: Explanation of the illustration: Because the evidence does not necessarily stand on its own, you need to provide an explanation so that the reader will understand how you interpreted the evidence to come to your reason.
▪ Sentences 5-6: Second illustration and explanation (optional): You may choose to include a second piece of evidence that is then followed by an explanation.
▪ Last Sentence: Transition: In this sentence, you will signal to the reader that you will be moving on to another point in the next paragraph. You do this to ease the movement from one point to another.
▪ Be sure to include the introduction and literature review you have already created and revised.