Is Bitcoin Just About Money Laundering And Crime?

There is no denying that the early years of Bitcoin were associated with crime. This is in large part because of the quasi-anonymity that transactions have. There were – and probably still are – lots of freedom loving users who used the new and little understood crypto currency to buy and sell goods and services anonymously online.

When the anonymity of TOR (a program that hides the location of your address from other people), free anonymous email addresses and Bitcoin were combined, many criminals viewed it as an opportunity. This became their opportunity to sell illegal goods online to a worldwide audience and hopefully not be caught.

This lead to the creation of a number of underground websites, such as Silk Road, that can only be accessed via TOR. These sites specialise in selling things like drugs, guns, weapons and identity theft kits1. The public was neither really aware of Bitcoin, TOR or Silk Road, which meant that it was underground in a very real sense.

Considering the wide range of goods and services (such as assassinations and prostitution) that were available, it seems easy to believe that many people were also using it to get around money laundering laws.


Money laundering prevention is overseen globally by the Financial Action Task Force (FATF). It’s description of Mission is as follows:

The FATF is an inter-governmental policy-making body whose purpose is to establish international standards, and develop and promote policies, both at national and international levels, to combat money laundering (ML) and terrorist financing (TF).

It was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.

In October 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering.

Since its inception, the FATF has operated under a finite life-span, requiring a specific decision of the Task Force to continue. The current mandate of the FATF (for 2004-2012) was subject to a mid-term review in 2007-2008 and was reaffirmed and revised at a Ministerial meeting in April 2008.

The priority of the FATF is to ensure global action to combat money laundering and terrorist financing, and concrete implementation of its 40+9 Recommendations throughout the world. Starting with its own members, the FATF monitors countries’ progress in implementing AML/CFT measures; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the 40+9 Recommendations globally.

—–End of Note—–

In mid 2013 Silk Road was taken down by the FBI in the United States. What seemed to be amazing to most people, including your author, was that of all the hard to reach places in the world that the site could have been run from, their prime suspect was based in San Fransisco! On one hand, it seems obvious that a successful tech start-up should be in San Fransisco, on the other hand, that seems like lunacy.

Once details began to emerge in the media, especially when they related to the millions being held in the Bitcoin wallet of the man suspected of running the site, it seems that the size and scale of the operation was much larger than many could imagine2.

The wallet associated with transactions through Silk Road was seized by the FBI – they soon announced that it contained 174,000 BTC. This was tens of millions of dollars worth of commissions paid on transactions, so you can imagine just how much changed hands in total.

The owner and operator of the site used the handle Dread Pirate Roberts3, often shortened to DPR. The man charged is Ross Ulbricht (at the time of writing he has only been charged)4.

In terms of the history of Bitcoin, the Silk Road marketplace played a major role in its early adoption and use. The reality though is that the currency was not only about crime and money laundering. In many ways, closing the site and announcing it so publicly was a good thing for the adoption of the crypto currency. In the short-term, the price per BTC dropped alarmingly on the major exchanges. However, just a few months later the stigma of being attached to the criminal underground was forgotten and it was becoming much more mainstream.

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The fact the a BTC is digital and therefore borderless has appeal for many different types of people. There were many rumours through 2012 and 2013 that wealthy Chinese businessmen and families were using alt coins and BTC especially as a way to move money and wealth out of China. In early 2014, the Chinese government announced that it was now illegal to use the currency, suggesting that those earlier rumours were true. The fact that wealthy Chinese were using it as a means of moving money does not mean that they were money laundering or committing other crimes, but the reality is that it is very possible that they were.

In mid 2014, details emerged about a project soon to launch called Dark Wallet5 where the stated goal is to help enable money laundering! As the Wired article linked to above notes, this does have the potential to fix one of the privacy problems associated with Bitcoin – every transaction is visible within the blockchain. As governments around the world struggle to decide how to regulate the alt coin space, it seems inevitable that more solutions to thwart those regulations will be developed and typically, these projects will evolve much faster than the legislation.

Subject To Global Crime?

However, crime strikes in many ways and Bitcoin has enabled more than users to commit crimes. Bitcoin hacking has been a real problem for users and companies around the world.

There have been a number of smaller “bank robberies” but the problems encountered at Mt Gox, formerly the largest Bitcoin exchange, shows just what the risks can be.

Many people that own BTC have simply left their wallet in the hands of the exchange through which they purchased the coins. In many ways this seems logical. We have all been conditioned to believe that banks are more secure and that is where you keep money. Unfortunately, it has been proved on many exchanges that they are subject to hacking.

An individual is much less likely to suffer from hacking since they hold less money generally and they are virtually anonymous. In contrast, the exchanges hold lots of wealth and everyone knows who and where they are. Therefore, when it comes to hacking, wallets are probably safer stored personally or on an encrypted cloud storage provider.

One problem is the nature of digital currency – you can’t see an attack coming and it could be coming from anywhere. This is the same risk faced by all the alt coins – any hacker based in any other country could be trying to enter the system or your wallet to transfer your money away.

A great example of this happened in May 2014 when a substantial theft of Dogecoin was announced6. While the value of one Doge is much less than one BTC, it is still real value being taken from someone. The motto, if there is one, is that it is vital to investigate the security of even the biggest wallets and exchanges and if possible, download your coins onto your own secure location.

After all that bad news, how about something much cooler…? In mid 2014 a news story broke about a 15 year old that was given $1,000, invested in BTC, sold at $100,000 and launched his own company! If this7 doesn’t tell you that we live in a brave new world with lots of benefits, nothing will.