Cryptocurrencies seem to be taking a special place in the minds of financial industry professionals as a wide range of cryptocurrencies have reached quite a significant market capitalization and turnover over the past year. However, even though cryptocurrencies are undeniably an essential part of the ecosystem and the companies working with them, they have been quite a debatable vehicle for payments due to the poor regulations and high attractiveness for international criminal activities.
Cryptocurrencies promise fast and anonymous fund transfers at a low cost. Unfortunately, all the possible risks with them are getting blurred by their convenience and cost-efficiency. Those and other hallmarks of cryptocurrencies have made them a perfect tool for international criminals to launder funds, illegal trade substances, and establish international trafficking. Let’s go through the hallmarks of cryptocurrencies that are causing headaches for the government and making them so attractive to criminals:
One of the problems with cryptocurrencies is poorly developed regulation in a wide range of countries. Just recently, after such loud cases as the Liberty Reserve and the Silk Road, there has been a movement in developing a legal framework for regulating the whole cryptocurrency business. The main problem governments have is the difficulty in tracking transactions. The New York BitLicense is one of the US government’s steps to take the industry under control. BitLicense has made a lot of noise, but in the end, it aims to curate the industry and enhance safety.
A major disadvantage of cryptocurrencies that work great for fraudsters is the inability of the owner to restore the value in case the cryptocurrency is stolen or lost. The absence of a central authority makes the general public using cryptocurrencies for transactions a great target for online robbery. It also has a wonderful feature: if a criminal steals someone's bitcoins, the victim wouldn't even have anywhere to go to report the crime.
Anonymity is another hallmark of cryptocurrencies that made criminals see them as great tools for illegal activities. Even though certain doubts on the true anonymity of cryptocurrencies are taking place, it is believed that they provide a certain level of shading for those who are not eager to get caught on certain transactions. For example, could a criminal wish for a better tool to pay for drug trafficking than one that doesn’t provide a way to trace it back to him and doesn’t require proof of identity?
Another feature that makes cryptocurrencies a perfect criminal facilitator is that they have developed a vast international network. The scale provides an opportunity to reach almost any corner of the world, making it easy to do illegal businesses in countries with developing law enforcement systems and toothless regulatory authorities. In addition, since cryptocurrencies have reached a global scale, they provide a great opportunity for untraceable anonymous offshore transactions.
The inability to reverse a fund transfer made in cryptocurrency also goes into the bucket of features making it a perfect vehicle for the crime. Immediate and final settlement of the deal leaves less space for any back-and-forth actions, decreasing the risk of attracting third parties and extra attention to the transaction. Finally, last but not least is the speed of transactions. In addition to irreversibility, the relatively high speed of performing transactions also leaves less space for any third party to intercept and create complications. Excluded mediators (regulators, any other third parties, other criminals, etc.) are one of the features making cryptocurrencies a great vehicle to move funds quickly, safely, and anonymously with less chance for unpredictable situations.
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