Bitcoin: Friend or foe?

By Mmesoma Mezie-Akabudu

A cryptocurrency is a fully decentralized, secure, digital currency whose creation is controlled by cryptography. Cryptocurrencies are not issued by central banks and their value does not depend on bank policies. Unlike regular currencies where new money can be introduced in the money supply through Quantitative Easing (QE), crypto currency prices are purely based on supply and demand. Bitcoin, created in 2009, was the first crypto currency. There currently are over 800 alternative crypto currencies, called Altcoins, such as Ethereum, Ripple and Litecoin.

Bitcoin is the first and most valuable cryptocurrency and it has seen massive growth in 2017. But many people are warning about the risks associated with Bitcoin. A number of high-profile investors regard Bitcoin as a ‘bubble’ or ‘mirage’, and expect the market to crash, like the dot-com bubble. Others highlight that crypto currencies like Bit coin help to enable financial crime and funding of terrorism, due to the level of anonymity that digital currencies can provide to technologically adept criminals.


It seems like everybody is talking about crypto currencies at the moment. With apps like Coinbase making it possible to buy and trade crypto currencies at the tap of a button, thousands of people – from political idealists to economic opportunists – have been jumping on the crypto investment bandwagon.

Crypto currencies are creeping into the mainstream, with even Goldman Sachs recently announcing their plans to start trading Bitcoin. 2017 saw the asset value of Bitcoin boom, amidst growing confidence in the first and most important crypto currency.

Many crypto currency investors have seen the growth of Bitcoin as a win-win situation for all concerned. But are crypto-investors inadvertently paying into a system that is making the world less safe, and putting us all at risk?

Since its early days, Bitcoin has had its share of ties with criminal activity. With the increased level of anonymity that it provided, Bitcoin was a popular currency on the dark net marketplace the ‘Silk Road’, where it was used chiefly to trade illegal drugs, as well as other contraband.


As it crawls towards the mainstream, Bitcoin has certainly shaken off some of these negative associations. But the fact remains that crypto transactions continue to afford criminals with a veil of anonymity, enabling them to evade justice – and enabling the financing of all manner of malicious activities.

The problem is that, unlike conventional currencies, crypto currencies are decentralized, and therefore not subject to the same regulations, reviews, and monitoring as in financial institutions or banks. This means that potential criminal transactions that are processed in crypto currency bypass the regulatory controls that banks are legally required to perform.

One of the key issues is how easy it is for potential criminals to buy and transfer Bitcoin using Bitcoin ATMs. Irwan and Milad note that using a Bitcoin ATM, a bad actor is able to very quickly and easily transfer funds anywhere in the world. “In many cases, insufficient or ineffective levels of verification are being carried out to determine their money laundering or terrorism financing risk,” they state.

For many years, Irwan and Milad explain, financial institutions have successfully used red flag indicators and suspicious behaviour models to detect money laundering and terrorism financing activity. They state that it is “unlikely that similar behaviour models or red flag indicators exist for detecting illicit transactions in the Bitcoin block chain.”

In another recent article, Reynolds and Irwin highlight that although Bitcoin users’ public keys can be traced through transaction history, they remain anonymous unless accompanied by other requirements of confirming identity data, such as an email address. This limits detection if an account user submits fraudulent information or simply doesn’t submit any personally identifiable information.

As Bitcoin and other cryptocurrencies continue to grow, the question of regulation becomes increasingly pressing. “It is essential that steps are taken now to understand potential areas of weakness in this technology before it, and others like it, become mainstream methods of transferring illicit funds around the world,” Irwan and Milad conclude. “Failing to respond now may be a recipe for disaster.”

Is bitcoin truly a friend or a foe ?

Mesoma is a proficient financial market analyst and crypto enthusiast. His passion for the fast emerging crypto market drives him to write articles both praising and criticizing the crypto space. Mesoma is also a real estate broker and business developer .

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