ET Spotlight Special One of the most common arguments that nocoiners and crypto unawares use to shy away from cryptos and the blockchain is the fact that cryptos seemingly attract people of malicious intent to carry out illicit activities.Recently, Charlie Munger of Berkshire Hathaway had the following to say about Bitcoin – “I don’t welcome a currency that’s so useful to kidnappers and extortionists.The whole thing is disgusting and contrary to the interests of civilization”.In a recent post, we’d covered why his comments are to be taken with a grain of salt [link to be added], but the comments surely left many wondering – is Bitcoin, and by extension the blockchain, a safe haven for fraudsters, kidnappers and extortionists? The answer is a clear, resounding no despite what many would have you believe.
Transparency: The core philosophy of blockchains
One of the key foundations that have led to the outraging success of cryptos and blockchains, is the pure transparency the architecture allows.Each and every participant in the blockchain will have all the necessary details of all transactions that have taken place since the inception of the specific cryptocurrency.
All the necessary information to track malicious activities that are “facilitated” by blockchains are publicly available.
“But isn’t Bitcoin anonymous?” – No.
Bitcoin is not anonymous.Bitcoin is pseudonymous.
This means, while the Bitcoin blockchain doesn’t store any real-world identities, it is possible to trace Bitcoin wallet IDs to a real-world identity, using a range of forensic tools and a little help from Virtual Asset Sercive Providers (VASPs – includes crypto exchanges, wallets, custodians, etc).For instance, WazirX is already playing a growing role in cooperating with the legal authorities, as is our duty to protect the safety of our nation, while helping ensure the authorities that criminals can not hide behind crypto to cover their tracks.
Of course, there does exist several cryptocurrency exchanges without proper KYC and AML policies, which is exactly why we insist on getting cryptocurrencies regulated as soon as possible.Making it mandatory to follow basic identity verification procedures would definitely go a long way in making cryptocurrencies even safer.A good starting place would be the five-point framework put forward by India Tech , which also emphasizes the necessity for strict KYC and AML policies.
Basic principle – Permanent, immutable records
Blockchains, by their very nature, do not allow anyone or anything to alter the transactions that are recorded at any point in time.
Due to the ingenuine utilization of peer-to-peer networks and consensus algorithms, it is practically impossible to modify any records.Due to this very nature of blockchains, no matter how hard malicious actors try, they simply cannot hide their tracks.Even when major cryptocurrencies are hacked, it is extremely easy to accurately find which crypto wallet contains the misappropriated cryptocurrencies, making it easy for law enforcement to crack down on the malicious actors.
In the early days of Bitcoin’s popularity, yes – criminals did use Bitcoin thinking it was completely safe and anonymous (as was evidenced by the infamous Silk Road saga).Since then, however, highly sophisticated blockchain analysis software can be used to trace all transactions in a blockchain, with the goal of identifying any and all criminal activities.
Sounds good in theory – What’s the reality?
In this case – the reality is just as promising as what the community has been theorising for years.
Bitcoin, constituting a whopping 62.3% of the total crypto market, with over 350,000 daily transactions, and over 10 million transactions a month is by far and large the single most popular use case of blockchains on the planet.Let’s take a look at the reality of Bitcoin.
All transactions are visible on the bitcoin blockchain, and the blockchain only stores addresses and public keys.More likely than not, these blockchain addresses and public keys can be directly traced back to a person or an institution by simply verifying KYC records.However, if the criminal managed to convert his holdings through one of the unregulated VASPs, tools like Coinpath and Maltego would still allow law enforcement agencies to follow the paper trail back to the criminal.
If you’re interested in learning exactly how this process works, here’s how Maltego and Coinpath trace Bitcoin transactions and addresses , and link them to real world identities.
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To conclude
While the infamous Silk Road debacle and other similar instances have raised the notoriety of blockchains as tools for criminals – the current reality is far from it.Admittedly there are some blockchains like Monero (dubbed privacy coins) that might need to be regulated to ensure that blockchains can never be a safe haven for criminals.
The crypto community, as a whole, has grown significantly since the Silk Road incident, and have developed multiple tools that help law enforcement agencies to keep malicious actors in check.Hopefully, with timely regulations, and cooperation from everyone in the crypto scene, blockchain will truly and 100% be the worst choice for fraudsters.
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