What are the risks with Bitcoin? Bitcoin is the first and most valuable cryptocurrency and it has seen massive growth in 2017. But many people are warning about the risks associated with Bitcoin. A number of high-profile investors regard Bitcoin as a ‘bubble’ or ‘mirage’, and expect the market to crash, like the dot-com bubble. Others highlight that cryptocurrencies like Bitcoin help to enable financial crime and funding of terrorism, due to the level of anonymity that digital currencies can provide to technologically adept criminals.
It seems like everybody is talking about cryptocurrencies at the moment. With apps like Coinbase making it possible to buy and trade cryptocurrencies at the tap of a button, thousands of people – from political idealists to economic opportunists – have been jumping on the crypto investment bandwagon. Cryptocurrencies are creeping into the mainstream, with even Goldman Sachs recently announcing their plans to start trading Bitcoin. 2017 saw the asset value of Bitcoin boom, amidst growing confidence in the first and most important cryptocurrency. Many cryptocurrency investors have seen the growth of Bitcoin as a win-win situation for all concerned. But are crypto-investors inadvertently paying into a system that is making the world less safe, and putting us all at risk? Since its early days, Bitcoin has had its share of ties with criminal activity. With the increased level of anonymity that it provided, Bitcoin was a popular currency on the darknet marketplace the ‘Silk Road’, where it was used chiefly to trade illegal drugs, as well as other contraband. As it crawls towards the mainstream, Bitcoin has certainly shaken off some these negative associations. But the fact remains that crypto transactions continue to afford criminals with a veil of anonymity, enabling them to evade justice – and enabling the financing of all manner of malicious activities. The problem is that, unlike conventional currencies, cryptocurrencies are decentralized, and therefore not subject to the same regulations, reviews, and monitoring as in financial institutions or banks. This means that potential criminal transactions that are processed in cryptocurrency bypass the regulatory controls that banks are legally required to perform. Jargon buster Bitcoin – a digital cryptocurrency and payment system. It is a decentralized digital currency, as it operates independently of a central bank. Cryptocurrency – a digital asset designed to function as a medium of exchange. Encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Bitcoin is the first, and, at present, the most valuable cryptocurrency. Blockchain – an encrypted ledger which records the history of cryptocurrency transactions Bitcoin and terrorist funding Amongst the criminal organizations that are benefitting from unregulated cryptocurrency transactions are ISIS. In a PDF circulated on social media, entitled “Bitcoin and the Charity of Violent Physical Struggle”, one ISIS supporter explains, “This system has the potential to revive the lost sunnah of donating to the mujahideen, it is simple, easy, and we ask Allah to hasten it’s (sic) usage for us”. As academics from Macquarie University have highlighted, the utility of crypto for helping to fund ISIS terrorist operations is significant. Ghost Security Group, a hacktivist and anti-terrorism group, claimed to have identified a chain of transactions to Bitcoin wallets believed to be owned by ISIS which contained funds between $4.7m and $15.7m – between one to three percent of their estimated annual income. The group stated to news network NewsBTC that ISIS is “extensively using Bitcoin for funding their operations”. In 2015, German media company Deutsche Welle reported that one Bitcoin wallet believed to belong to ISIS received around $23m within a single month.
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