Confront any crypto-enthusiast with statistics regarding the mammoth rise in crimes facilitated by cryptocurrencies, the response will almost always be: What About Fiat? Crimes Committed With Fiat are Far Worse Than Crime With Crypto.
This newfangled retort of Whataboutism is a flawed pivot and anemic argument form. Yes, legions of criminals have committed crimes using fiat currency. But crypto has evolved into the killer app for criminals, ushering in a crypto-crime wave of epic proportions. The scale of crime in crypto is orders of magnitude greater than what it is in traditional finance.
Crypto and Crimes
Take for example the crypto-crime of ransomware. Perpetrators of ransomware attacks demand crypto to unlock corporate IT systems and data that the attackers have surreptitiously encrypted. Collecting crypto in extortion transactions allows ransomware attackers not only to conceal their tracks and identities, but also to conduct their schemes from anywhere in the world. But for bitcoin, ransomware would not exist.
Traditional crimes have also increased exponentially because of crypto, including: drug-dealing, terrorism financing; human sex trafficking; money laundering; sanction evasion by countries like Russia, North Korea and Iran, who use crypto to transfer funds outside financial systems; assassins and other killers seeking payment for murder-for-hire services; and a slew of other financial crimes.
Meanwhile, U.S. law enforcement is often helpless to investigate, let alone, prosecute, crypto-related crimes. The U.S. Department of Justice (DOJ) recently reported that criminals use crypto internationally for their innovation, claims of decentralization and anonymizing features. The cross-border nature of digital asset technologies therefore requires collaboration with foreign law enforcement, which presents extraordinarily complex and sometimes impossible challenges for the identifying, arresting, extraditing and prosecuting crypto-criminals.
For instance, according to DOJ, the cross-border nature of digital asset technologies requires collaboration with foreign law enforcement partners to locate and gather electronic records and digital evidence involving off-shore digital asset issuers, trading platforms, service providers and other online infrastructure; to seize and prevent further distribution of digital assets linked to crime; and to identify and hold responsible criminal actors who exploit pseudonymity features of defi and blockchain technologies to avoid detection, identification and prosecution.
To add insult to injury, the crypto marketplace itself has also created a new target for criminal activity – digital wallets, exchanges, and DeFi. Given crypto’s pseudonymity and that the crypto-marketplace remains unregulated and lacking in transparency, wallets and exchanges have become attractive targets for a broad range of hacking, theft and fraud. According to the U.S. Government Accountability Office, North Korea steals crypto from crypto-exchanges and is using the stolen crypto to finance the building of a nuclear weapons arsenal.
There’s no There There
It’s been 13+ years since blockchain became a “thing” and, as famed economist Paul Krugman noted in the New York Times, there still remains no beneficial use for it:
“These [blockchain] protocols are, everyone tells me, extremely clever. I’ll take their word for it. The question I’ve never heard or seen satisfactorily answered, however, is, “What’s the point?” Why go to the trouble and expense of maintaining a ledger in many places, and basically carrying that ledger around every time a transaction takes place?”
Krugman goes on to list a range of blockchain’s most notorious failures and struggles to find any block chain foray that has been of benefit to anyone. For instance, five years ago, Australia’s stock exchange announced that it was planning to use a blockchain platform to clear and settle trades. But it canceled the plan, writing off $168 million in losses. Maersk, the shipping giant, has also announced that it is winding down its efforts to use a blockchain to manage supply chains. Tim Bray, who used to work for Amazon Web Services, explained in a recent blog post why Amazon chose not to implement a blockchain of its own: “It couldn’t get a straight answer to the question, What useful thing does it do?”
Bray described one meeting he and several AWS colleagues has with a Tribeca New York start-up as follows:
“The key moment was when we got in a room with the CTO of this one startup, in Tribeca I think. When I heard their VC funding number I thought it was the valuation, not the investment dollars. The customer list was blue ribbon and don’t you forget it. These guys were razor-sharp. They presented some of the systems they’d built and yep, we were impressed. Then, with the startup CTO in the room, one of my fellow engineers asked the key question: “All these systems, are there any that wouldn’t work without blockchain?” The guy didn’t even hesitate: “No, not really.””
Along these same lines, over 1,300 independent, expert technologists have explained that a mere record on a glorified limited-writer, append-only database linked to the solution of a very complex yet entirely meaningless and irrelevant mathematical problem is not, and will never be, a financial and societal panacea, stating:
“By its very design, blockchain technology is poorly suited for just about every purpose currently touted as a present or potential source of public benefit. From its inception, this technology has been a solution in search of a problem and has now latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions to these issues already in use. Despite more than thirteen years of development, it has severe limitations and design flaws that preclude almost all applications that deal with public customer data and regulated financial transactions and are not an improvement on existing non-blockchain solutions.”
What Does Blockchain/Crypto Do For the World?
Blockchain’s lack of necessity or even application is also demonstrated by an extraordinary study which analyzed 34 Real-World Blockchain use-cases. Thirty-three are either dead, pivoted away from blockchain, use blockchain in a (sometimes dangerously) bad way, or are have no real-world utility. The remaining project is used for de-anonymizing and blocking transactions. Thus, blockchain’s most notorious and widely used application remains now, and forever, cryptocurrencies.
But crypto fails as an “investment” because there’s no regulatory oversight, transparency, consumer protections, insurance, licensure, net capital requirements, and the crypto rug-pull bazaar is so rife with market manipulation, insider trading and fraud, investors stand no chance from the get-go. Residing amid a dense smokescreen of misinformation, conflicts of interest and bogus market data, the crypto-marketplace is akin to a post-apocalyptic Walking Dead-like anarchy. Fraud is not only rewarded, but also taught. The cybersecurity risks alone render crypto-markets a hazardous choice for any sort of investment.
Crypto also fails as a “currency” because the price is too volatile; fees are too high; taxes are too burdensome; risks are infinite; and the list goes on. How can anyone accept crypto as payment when it could be worth a lot less just a few hours, or minutes, later?
Crypto was supposedly created to provide the freedom to engage in transactions without the government knowing about it, which has always enjoyed a certain libertarian appeal to most people. But that notion dramatically contradicts U.S. laws already on the books. For instance, the Bank Secrecy Act establishes record-keeping and reporting requirements for national banks, federal savings associations, federal branches and agencies of foreign banks and other financial institutions. The USA PATRIOT ACT requires every bank to adopt a customer identification program as part of its BSA compliance program.
Further, U.S. law generally prohibits making payments to those who are enemies of the U.S, such as terrorist organizations, so in the U.S., a person must also know the identity of anyone to whom they make payments. Hence, the U.S. Treasury Department’s Office of Foreign Asset Controls (OFAC) supervises the enforcement of these sanctions laws, such as the Trading with the Enemy Act and the International Emergency Economic Powers Act.
There are also a mass of broad and sweeping U.S. federal reporting requirements to the Financial Crimes Enforcement Network, the IRS and other government regulators and law enforcement institutions relating to financial transactionsby banks, broker-dealers and a litany of other financial firms.
Even withdrawing more than $10,000 dollars from a bank account will automatically trigger the filing of a Suspicious Activity Report with the Financial Crimes Enforcement Network of the U.S. Treasury Department. And withdrawing of $25 from a bank could do the same, if the bank teller or the bank’s anti-money laundering or other criminal activities algorithm notes anything at all suspicious relating to the transaction.
Crypto Carnival Barkers
Sam Bankman Fried was right about one thing. It’s all about 10x.
During SBFs recent interview with Andrew Ross Sorkin, SBF treated listeners to his view of Wall Street financiers such as venture capitalists, “ . . . you put yourself in the eyes of an investor, of a venture capital firm. What you’re thinking about primarily is upside. Right? What you’re thinking about primarily is investing in a private company, and thinking might this 3x, might this 5x, might this even 10x on the upside cases, and, yeah, there’s some chance that will . . . maybe it will go down to zero. But that’s counterbalanced by the upside . . .”
It goes without saying that there are certainly professionals among Big Crypto financiers, who genuinely buy into the idea that a 2008 relic of computer code, which solves no problem; offers no consumer protections; and has no intrinsic value (except that another fool can be induced to pay more for it), is somehow a futuristic panacea for fiscal woes and financial inclusion. Some are friends of mine — entrepreneurs seeking to make the world better place or lawyers yearning for an assigned seat at the innovation table. But these true believers are few and far between.
Due diligence regarding blockchain seems to have gone askew. Drilling down into companies, pouring over financial statements and digging into the people, products and services of a possible investment opportunity too often takes a back seat to the answer to two simple questions:
1. Can this company’s blockchain pitch generate enough buzz and hype to convince investors that it is the next big thing?
2. Can our legion of shills manipulate the company’s blockchain buzz and hype to rapidly inflate the company’s enterprise value exponentially, so we can sell it all for a quick and gargantuan profit of 10x or more?
Sadly, these high-tech robber barons and their cohorts may as well be bankrolling heroin plants or blood diamond mines. It’s all about short term profits that can boost personal cash flow.
Of course, everyone wants to get ahead, make better lives for family and friends. That’s how capitalism works. And unless there is fraud, it is all more or less lawful.
But The bulk of Big Crypto profiteers, including so many self-proclaimed “fintech” lawyers, have evolved into nothing more than high-tech carnival barkers.
Institutional investor asked the question recently: How did so much smart money get tangled up in FTX? The answer is simple. The blockchain-fairy tale is an easy sell. Crypto and blockchain fit neatly within the Silicon Valley paradigm of innovation and wonder. Crypto even, for a few moments, became quite glamorous for financiers, who partnered with an exciting array of celebrities and professional athletes – from Matt Damon and Larry David to Tom Brady and Shaq.
For the most part, financial pioneers have made our lives better, by supporting transformative technologies like the Internet, mobile phones and cloud computing — and they deserve their 10x profits. But blockchain and crypto are not innovations or anything else of such dramatic importance.
Some blockchain enthusiasts distance themselves from crypto, chiding critics for conflating the two i.e. crypto is merely one application of blockchain, and blockchain should not be judged by one mere application. But given that blockchain has no uses that anyone can articulate without plunging into a vague aspirational vortex, that is a misguided deflection.
Both crypto and blockchain remain faulty solutions of commutative mathematical blather that solve no U.S. problem, but have initiated an era of digital mayhem beyond imagination, wreaking havoc and turning victims into victimizers. And for what?
Crypto has two primary beneficiaries: Grifters, who shill crypto to lure in investors, especially if those investors are the downtrodden, injecting a predatory element of affinity fraud into their schemes (just like check-cashing services and payday loans do) and Criminals, who exploit the pseudonymity of crypto to orchestrate globally a vast array of devastating crimes.
No amount of whataboutism can counter this stark reality.