Search

Tired of explaining crypto isn't used only for crime? I am. In fact, it's making me a little bananas

Updated: Dec 6, 2021

Every meeting I am in when crypto is brought up, every function I attend where it is an informal topic, or even at social events, I am asked or even told that Bitcoin is used for money laundering and crime.


Yes. It is. But at a fraction of a percentage compared to traditional banks! It drives me a little bonkers. Even people that are grasping decentralized computing (and I'm talking about my age [middle 40s] and older mostly) and the blockchain and even the potential, still have concerns that it makes crime too easy. And then I say something like this...


Bitcoin transactions are open to the public. The entire blockchain is open. Anyone can see it. The ledgers are open and all transactions ever done are open. (In fact, this is how Bitcoin mining is done--but I've learned not to get tangential when talking to people of my generation about cryptocurrency. Small bites).


Much like the Gopher in the caddyshack movies, yes Bitcoin can be anonymous when it is hiding in anonymous wallets. But when the Gopher pops his head up, he's vulnerable to Carl Spackler's many methods to catch him.


The FBI and the United States Secret Service are not nearly as good as they are in the movies or on TV. They screw up a lot. But this is also the Department of the Treasury's other bureaus and agents, too. And sometimes they can be very good. All of them, even the FBI and the federal prosecutors.


By using pattern recognition, and the tracing of fiat currency movement, and other algorithmic programs of which I understand nothing with computer programs I could never understand, the feds can trace Bitcoin. And they are getting better at it.

The Feds still use their traditional favorite, a criminal accomplice who's trading jail time to further a criminal prosecution by telling the Federal agents everything he knows about other people, usually above him in some scheme or organization, they're able match a wallet with a person. With a live witness and the aforementioned computer programs, the prosecutions are better.


The truth is the real criminals are sticking to traditional Banks because their ledgers are closed. Private. They use Banks that they know are not in US or Western jurisdiction. There are plenty of them. Some are the tax Havens and some are just regular countries that refuse the United States extra territorial demands. The banks would never open their records of transactions even if asked to do so by the US government...for almost any person and for almost any crime (terrorism is an exception...). So the movement of money in Fiat and traditional banking is far safer for for a gangster or a hacker from criminal prosecutions all over the world, usually.


The FBI seized over 3.5 billion dollars in Bitcoin in 2021. They estimate it will be more than double that in 2022 based ongoing investigations.... They are able to get at it.


Also, the FBI, the Secret Service, the DEA, Treasury agents all have to establish something called probable cause and then bring it to a judge to get subpoenas or warrants to find ways to look at traditional Bank account ledgers. And the bank's army of lawyers will still fight them tooth and nail. (Again, terrorism exceptions).


The alphabet agencies (FBI, DEA, DOT agents, etc.) don't need to do this for crypto--at least for now. What they trace and seize is pretty much at their discretion. They certainly don't need to show a federal judge probable cause.


Yes, of course, there are absolutely some criminal schemes that work only with crypto. This is true. But the real money moved around the world by criminals and criminal organizations is done through traditional Banks or physical fiat currency is moved (usually US dollars). Also, it is done through banks where the United States or or other Western countries don't have jurisdiction. They can't even look at the transactions if they know and can prove it is criminal.


Since 9/11, the United States has greatly expanded it's extraterritorial jurisdiction over foreign banks in the name of fighting terrorism, as well as passing laws requiring all US citizens outside of the US to show what's in their bank accounts twice a year. And amazingly most banks in many foreign countries comply---literally making new customers fill out and certify an IRS W-7 with their passport. This author lives in Thailand and there are no banks where an American can open an account without a W-7. I even had a bank in Cambodia give me a W-7 for a new account. However, it was only one of Cambodia's 30 Banks that did so...There are many banks in many countries and many territories that do not allow a foreign government to look at anything.


But still, criminal proceeds are being turned into fiat, not crypto.


So even the crypto specific schemes change their money to fiat, eventually. It is usually exchanged into US dollars, and moved into the traditional banking system. Once there, it becomes very difficult to trace and quite easy to launder.


This is how criminal organizations move their money around. Not through Bitcoin.


Even the hackers demanding ransoms from large US/Western companies. They demand US dollars, not Bitcoin. And the organizations or individuals that do demand Bitcoin, change it to fiat to begin the process of laundering it into the traditional banking system. Why?


Otherwise you can't use it to buy anything! At least for now. You could buy a Tesla with your Bitcoin, you can get some cash out of Bitcoin ATMs, some shops take Bitcoin, and brokers are beginning to give their clients debit cards backed by their Bitcoin and other crypto...but this is a lot of transactions that could be traced for a criminal! Too many. And all thee transactions are open to the public. The Feds don't even need a judge to give them permission. The transactions are public. The ledgers are public.


Criminals do not use their Bitcoin to buy a Tesla. Unless they sit on all of their criminal proceeds anonymous wallets, either soft or hard, to really do anything, the crypto has to be changed into our traditional banking system.


If the person who asked me about Bitcoin for money laundering it's still around after that explanation, I buy them a drink, or two or three.


What I usually say is it's a stigma on cryptocurrency. Most money laundering and financial cimes are still done the old fashioned way.


Criminals do not like the open blockchain.











57 views0 comments