By: Sameer Prasla
Bitcoin, the most dominant form of cryptocurrency, was founded in 2009 by a programmer under the pseudonym Satoshi Nakamoto.[1] The invention of Bitcoin started a new era of digital currency that only exists electronically. Unlike federal currency, cryptocurrency is not backed by a government.[2] Every Bitcoin transaction is stored in a public ledger called the blockchain.[3] Because these movements can be traced, criminals tend to use privacy wallets which makes it very complicated to follow a money trail.[4] Dr. Robinson, a chief scientist at Elliptic, stated privacy wallets “makes it practically impossible to track funds, especially if you do a series of transactions through privacy wallets.”[5] Even with the expansion and recent boom of cryptocurrency into the mainstream market, criminals, like Louis Meza, are still abusing cryptocurrency to facilitate their criminal activity.[6] Even the most notorious terrorist organization in the world, al-Qaeda, has used Bitcoin for funding purposes.[7] Clearly it is evident we, as a society, have a problem with criminals abusing cryptocurrency. What regulations can we impose to halt these criminals from abusing this technologically advanced currency?
One thing the government can do is impose penalties on these criminals. In fact, the United States government has done just that. Prosecutors have used the Computer Fraud and Abuse Act (“CFAA”) to aggressively go after these criminals and lock them up in prison for years.[8] This utilitarian approach to cybercrimes involving cryptocurrency is a terrific way to deter future criminals from abusing cryptocurrency. These aggressive criminal punishments must continue to discourage this behavior.
Second, the government can regulate cryptocurrency. Currently, cryptocurrency is decentralized, meaning the supply of cryptocurrency is not set by a central authority or government.[9] The government can regulate cryptocurrencies “by taxing any fiat money you use to cash out a virtual token.”[10] Fiat money is any currency that is backed by the government.[11] This would not only better help trace the withdrawal of cryptocurrency, but also incentivize criminals to not use cryptocurrency because they will be charged a tax to cash it out.
With the popularization of cryptocurrency, there have been significant discussions about how to regulate cryptocurrency. Criminals have used this decentralized currency to their advantage. With the government taking initiative by imposing strict penalties and regulating cryptocurrency by the use of tax, these criminals will have a harder time using cryptocurrency to achieve their criminal efforts.
[1] Nathan Reiff, Were There Cryptocurrencies Before Bitcoin?, INVESTOPEDIA (Aug. 26, 2021), https://www.investopedia.com/tech/were-there-cryptocurrencies-bitcoin/#:~:text=Many%20investors%20consider%20bitcoin%20to,technology%20and%20decentralized%20digital%20currencies.
[2] Want To Know About Cryptocurrency and Scams, FEDERAL TRADE COMMISSION, https://www.consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams (last visited Sept. 5, 2021).
[3] Paul Vigna and Caitlin Ostroff, Why Hackers Use Bitcoin and Why It Is So Difficult to Trace, THE WALL STREET JOURNAL (July 16, 2020), https://www.wsj.com/articles/why-hackers-use-bitcoin-and-why-it-is-so-difficult-to-trace-11594931595.
[4] Anna Irrera, Criminals Getting Smarter In Use Of Digital Currencies To Launder Money, REUTERS (Dec. 9, 2020), https://www.reuters.com/article/crypto-currencies-criminals/criminals-getting-smarter-in-use-of-digital-currencies-to-launder-money-idUSKBN28J1IX.
[5] Id.
[6] Corinne Ramey, The Crypto Crime Wave Is Here, THE WALL STREET JOURNAL (Apr. 26, 2018), https://www.wsj.com/articles/the-crypto-crime-wave-is-here-1524753366.
[7] Nikita Malik, How Criminals And Terrorists Use Cryptocurrency: And How To Stop It, FORBES (Aug. 31, 2018), https://www.forbes.com/sites/nikitamalik/2018/08/31/how-criminals-and-terrorists-use-cryptocurrency-and-how-to-stop-it/?sh=497bed473990.
[8] Hanni Fakhoury, The U.S. Crackdown on Hackers Is Our New War on Drugs, WIRED (Jan. 23, 2014), https://www.wired.com/2014/01/using-computer-drug-war-decade-dangerous-excessive-punishment-consequences/.
[9] Can The Government Regulate Cryptocurrency?, THE NYU DISPATCH, https://wp.nyu.edu/dispatch/can-the-government-regulate-cryptocurrency/ (last visited Sept. 5, 2021).
[10] Id.
[11] James Chen, Fiat Money, INVESTOPEDIA (Apr. 16, 2021), https://www.investopedia.com/terms/f/fiatmoney.asp.