Terrorism and Criminality
One event that might spur Congress and the President to action would be clear evidence that a terrorist group or specific attack was funded with Bitcoin. A terrorist attack on U.S. soil that is directly linked to payments of bitcoins could deal a severe blow to Bitcoin’s future. At that point, the debate would be between the anti-terrorist hawks and the libertarians who don’t want the government excessively regulating nascent industries.
Fortunately, the risk of a terrorist attack being funded with bitcoins, and the risk of criminal activity using the Bitcoin network, are dramatically reduced by the auditability of the Bitcoin blockchain. The news media love to publish fearmongering clickbait headlines on the use of Bitcoin by criminals, but this is one of the most inaccurate characterizations of Bitcoin prevalent today. On August 7, 2018, Bloomberg reported that according to a member of the DEA (Drug Enforcement Agency) 10-person Cyber Investigative Task Force, which coordinates with the FBI and the ATF, the use of cryptocurrencies in criminal activity had shrunk from about 90% of transactions in 2013 to 10% in 2018.¹⁷⁴ Subsequently, former DEA agent Patrick O’Kain stated in an interview released on May 8, 2019, that Bitcoin now accounts for just 1% of money laundering activity, which is less than the percentage for the U.S. dollar.¹⁷⁵
It’s not hard to see why Bitcoin in its current form isn’t very good for criminal activity. Because the Bitcoin blockchain contains every transaction in the history of the network, all a criminal investigator has to do is link an identity to a Bitcoin address at a single point in history and follow the transaction history from that point onward. “Chain analysis” has become an industry in its own right, with multiple companies using software to analyze the Bitcoin blockchain and provide corporate and government clients with actionable information that allows law enforcement to connect crimes with their perpetrators’ identities. Meanwhile, as discussed in Chapter 8, money launderers continue to move $800 billion–$2 trillion annually through the normal banking system. Needless to say, the largest proportion of money laundering is believed to happen through the U.S. dollar.
Meanwhile, numerous agencies of the U.S. government have effectively accepted the legality of Bitcoin. The IRS has declared it “property” for purposes of levying income tax.¹⁷⁶ The Commodities Futures Trading Commission (CFTC) has deemed it a “commodity” and claimed jurisdiction with respect to trading it.¹⁷⁷ U.S. law enforcement services have auctioned bitcoins seized from criminals who acquired them via illegal activity.¹⁷⁸ In contrast to the treatment of illegal contraband, such as drugs, which must be destroyed if seized, the act of a government agency selling bitcoins is a stamp of approval with respect to their legality.