Cryptocurrencies are digital virtual currencies that can be transferred, stored and traded electronically. These currencies do not have legal tender status.
Over the years, cryptocurrencies have been seen to facilitate illicit activities such as:
Money Laundering: Criminals use the proceeds of their crime to open online accounts with cryptocurrency exchanges, which accept fiat currency from banks. They then create a trail that is impossible to track and can use a privacy coin that enhances anonymity. Once the money’s origin is properly disguised, it is integrated into the financial system as clean money.
Terrorism: Due to the anomalous nature of cryptocurrencies, they can be used to fund terrorist organisations without knowing who is behind the funding. The anonymous or pseudonymous cryptocurrencies receivable donations as a source of terrorist financing facilitate arms trafficking and easy transfer of funds cross border that cannot be detected by the normal financial system.
Sanctions evasion: Individuals and countries that have been subject to economic sanctions and embargo have moved to cryptocurrencies to circumvent such sanctions. This undermines UN economic and trade sanctions put in place to make countries comply with global efforts to make the world a safer place to live.
Scams and Fraud: Bitcoin has been used to facilitate a lot of scams and fraud. Many people have reported being targeted in investment scams that have resulted in substantial loss. Fraudsters target the vulnerable in romance scams, fake exchanges, fake wallet apps, money mules, 419 scams, blackmail scams, fraudulent ICOs, pump and dump schemes, ponzi and pyramid schemes to mention a few.
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Darknet transactions: Bitcoin is widely accepted in the darknet market, which is a commercial internet site in the underground that can only be accessed by use of special software. It is a black market for drugs, arms, weapons, illicit goods, counterfeit currency, stolen data, and child abuse materials.
Ransomware: Bitcoin is often demanded by ransomware attackers. Ransomware is malicious software that blocks computer systems, prevents users from accessing their system or personal files and demands a ransom payment in bitcoin in order to allow users to regain access.
Cybercrime: Cryptocurrencies ecosystem is linked to other cybercrimes such as Account takeover, Crypto-jacking, Phishing, Sextortion, Worm, Spyware, and Malware.
Drug trafficking: The anonymous nature and the value transfer system of certain cryptocurrencies enable buyers of illegal drugs like cocaine and heroin to pay their dealers in cryptocurrency.
Human Trafficking: The near anonymity of cryptocurrencies works for the advantage of human traffickers who are able to conduct a transaction in labour and sex trafficking that have no virtual end destination.
Cryptocurrencies also poses risk to the overall financial system:
Risk to financial stability and market integrity: Bitcoin poses a risk to the real economy as large fluctuation in the value of bitcoin controlled by unregulated and unidentifiable persons can cause concerns. Due to complete reliance on technology, outages and technological disruptions can impact the financial system.
Risk to consumer public: This risk arises from inexperienced investors participating in a very complex product, which has very high price volatility whereby the value can increase, or decrease within minutes. Other risks are excessive fees, high price, exchange hacking, loss of data, operational risk, fraud and maladministration, risk of inaccessible accounts due to loss of private key, no deposit protection.
Risk to Competition: Cryptocurrency poses risk to traditional banks that have been in existence for many years and are properly regulated. Cryptocurrency can suddenly dominate the market by creating the attraction of large volumes of savers away from these reputable banks that are complying with well-established regulations.
Risk to local fiat currency: Cryptocurrencies linked to the value of dollars will see the exit of huge sums out of the country thereby putting pressure on the Naira, the local fiat currency and creating a negative impact on the economy of the country.
Opportunities of Cryptocurrency
Cryptocurrencies provide the following opportunities:
Speculative Investment: As the return on investment appears to have dried up in traditional banking, with low-interest rates and the stock market not being impressive for a considerable period of time, people are turning to bitcoin as speculation to make profits by buying low and selling high, taking advantage of frequent price fluctuation aided by growing market capitalisation and liquidity.
Means of exchange and a store of value: The value of cryptocurrency helps store value during economic instability as no one entity has sovereignty over Bitcoin. In addition, the presence of blockchain technology makes transactions immutable, secure and transparent and parties can monitor their transactions in real-time. Also, unlike fiat where you can have counterfeit notes, there are no counterfeit cryptocurrency coins.
Cross border remittance: Speed of transfer of funds can be as fast as sending an email. The process is completely decentralised, trading can be done freely in a cost-effective manner across borders. Anyone can access and use cryptocurrency no matter where one is in the world. Thereby facilitating financial inclusion and frictionless eCommerce with global reach.
Overall, a lot of regulatory effort will be required to police the use of Cryptocurrencies and perhaps take positive advantage of the opportunities it presents.
