Finextra is at Davos this year, covering global insights into the impact fintech has on wider issues such as responding to Covid-19, restoring economic growth and advancing a new social contract.
Glenn Hutchins, co-founder of global technology investment firm, Silver Lake, dismisses the long-held belief that bitcoin’s primary use is for criminal activity.
Hutchins explains how this assumption ignores the immutable nature of the blockchain technology on which bitcoin is built.
“In the US, 80-90% of $100 dollar bills are used for organised crime and tax evasion and there’s a very good reason for that – they’re untraceable and fungible,” he says.
“Bitcoin, however, leaves a permanent, unalterable record, hence why almost all criminals using it are caught. It is fundamentally wrong to say that Bitcoin is mostly used for crime.”
Research by blockchain data firm, Chainalysis finds that illicit activity made up 0.34% of cryptocurrency transaction volume in 2021, down from 2% the year before.
An association with organised crime, such as selling stolen goods, dealing drugs and smuggling is one of the reasons for crypto reticence put forward by mainstream financial players.
Janet Yellen, the US’ new treasury secretary, mentioned this in her confirmation hearing, saying that the the government must look to encourage the use of cryptocurrency for legitimate purposes, while ”curtailing their use for malign ad illegal activities.”
This assumption about crypto’s use in criminal activity has often been met with skepticism, given the inherent volatility of currencies like bitcoin.
Criminals may be drawn to the greater anonymity of cryptocurrency offers compared to other digital forms of money, but be put off by its unstable value. A drug dealer, for example, would not want to have to speculate on the price of bitcoin while selling his wares.
Also speaking on the panel at Davos, Andrew Bailey governor of the Bank of England, states that the possibility of any currency being used for criminal or nefarious activity must remain a consideration in determining how regulatory frameworks are to be established, which would be necessary to drive adoption through stabilisation of value.
Regulation, according to Bailey, is about “defining where the public interest lies.”
Part of this is address its use for criminal activity, the privacy of users and instability in its value. Failure to do so would drive up costs of using a cryptocurrency or CBDC to send payments and transact, which would not be in the public interest.