“Bitcoin is a market for criminals and millennials.” This sentiment, expressed by economist Dennis Gartman, is common amongst many cryptocurrency critics today.
We’ve encountered some of these adversaries of cryptocurrency firsthand. While attending an alumni event not too long ago, for instance, we spoke with a high-ranking compliance executive who had a negative (if naive) view of cryptocurrency.
The executive, who worked for a top 100 financial institution, asserted that cryptocurrency “isn’t real” and associated its use with criminality. When challenged, the executive dismissed our arguments. He was ultimately unreceptive to any logic which supported cryptocurrency’s legitimacy.
But here’s the deal.
Unbeknownst to this high-level executive and other like-minded parties, criminals aren’t the only ones who have reaped the benefits of blockchain technology. Lawmakers and law enforcement officials have also found ways to use cryptocurrency and its associated technologies to identify and apprehend the very criminals the industry purportedly supports.
Take a look at these three ways in which law enforcement is currently engaging with cryptocurrency:
1. Leveraging Blockchain Technology In Investigations
Law enforcers are already successfully using blockchain technology to crack criminal cases. The FBI’s 2012 seizure of $28.5 million worth of bitcoin from Silk Road owner Ross Ulbricht, for example, is just one of law enforcement’s most notable uses of cryptocurrency’s technology to fight crime.
And taking down the world’s largest anonymous black market for illegal substances was just the tip of the iceberg.
Banks are now turning to bitcoin tracking to fight human trafficking. In fact, last year BitAML joined the efforts to track down the profits generated from the human trafficking industry. Experts have estimated those profits to be $150 billion.
Some cryptocurrency experts believe that tracking these illegal activities will become easier as technology develops. Blockchain technology currently provides criminals with some degree of anonymity. According to economic historian Garrick Hileman, cryptocurrency users’ anonymity won’t last forever.
We’re already seeing bitcoin’s privacy fade over time as law enforcement learns to utilize distributed ledgers to track criminal activity. The lack of privacy of some cryptocurrencies has led many cybercriminals to seek out coins with advanced privacy protections like Monero. Even these specialized privacy coins, however, have weaknesses law enforcers can exploit.
2. Enforcing Civil Asset Forfeiture
Civil asset forfeiture entails seizing private property from citizens, often citizens who have been involved in criminal activity. Assets eligible for seizure have traditionally included property such as houses, cars, and cellphones.
Now law enforcement agents have added cryptocurrency to that list of eligible assets. Why does this matter?
The United States government owned over $9 million worth of bitcoin in 2017, which a federal judge granted the government permission to sell late last year. Much of this cryptocurrency was once the property of criminals.
One of those criminals is the deceased drug dealer Alexandre Cazes. After he hanged himself in a jail cell in Thailand, the U.S. government seized his properties. Amongst his most valuable possessions were his flashy cars and offshore bank accounts.
And his internet wallet.
The wallet contained millions of dollars’ worth of cryptocurrency. This currency is now in possession of the U.S. Department of Justice.
Seizure Of Cryptocurrency: Revising Civil Asset Forfeiture Laws
The seizure of cryptocurrency might also encourage law enforcement to rethink the current civil asset forfeiture laws. The possible changes would come in the midst of a push for civil asset forfeiture reform. Cryptocurrency’s volatility might play some part in this potential reform.
The following case illustrates why cryptocurrency’s fluctuating value is legally problematic:
Not too long ago, a thief kidnapped a man, held him at gunpoint, and forced him to turn over his digital wallet’s private key. He walked away with $1.8 million worth of Ethereum. He then converted the stolen Ethereum to bitcoin, and the cryptocurrency’s value increased significantly after he did so. Authorities eventually caught the thief and discovered what he’d done.
But the increase in the currency’s value raised questions about who was entitled to that added value.
Law enforcement would traditionally return the victim’s assets to him. In this case, however, the thief had used stolen currency to turn a profit. Under normal circumstances, the government would simply confiscate that additional currency which the criminal had illegally obtained.
Even so, the victim could reasonably have argued that he was the rightful owner of all of the bitcoin. Though the thief’s actions led to an increase in the value of his cryptocurrency, the amount of stolen cryptocurrency the thief had in his possession didn’t change. He simply converted the currency; market forces increased the value of the cryptocurrency.
This might seem tangential, but it’s important to the next point…
3. Using Crypto Tools To Track Cryptocurrency
Today’s law enforcers have more cryptocurrency tools at their disposal than their predecessors. These tools allow them to better track the flow of cryptocurrency and enforce compliance.
One such tool is the Coin ATM Radar. This online database provides users with important information about cryptocurrency ATMs near them. Users simply input their addresses to get a listing of these local cryptocurrency-enabled ATMs.
The best part? Once a user selects an ATM, the radar provides more detailed information about that ATM. This information includes:
- The location of the ATM
- The operator’s contact information
- The compliance requirements
While the tool is available to anyone who wants to invest in cryptocurrency, it is useful to law enforcement officials who are investigating crypto-related incidents.
Just imagine a case similar to the kidnapping and robbery we discussed in the last section. The Coin ATM Radar could easily help local authorities track down a thief who has stolen someone’s private key. If that thief accesses any of the local crypto ATMs, he increases his chances of being caught since law enforcers know the locations of these machines and can subpoena its operator for the transaction records and security camera footage.
Here’s The Deal: Cryptocurrency Technology Is Already Changing Law Enforcement
The existence of cryptocurrency will continue to change the way law enforcers approach their jobs. Bottom line: Skeptical financial crimes investigators must stop demonizing the industry and start engaging with cryptocurrency and blockchain technology. This technology could help authorities take down more criminals and enforce laws more effectively in the future.
And, ultimately, build a better world, block by block.