Cryptocurrencies

Cryptocurrencies: From positive aspects to illegal activities.

The origin and definition of cryptocurrencies.

The term ‘cryptocurrency’ is derived from a combination of the words ‘cryptography’ and ‘currency’. It refers to a digital representation of value that is based on cryptography.

How do cryptocurrencies and blockchain work?

Cryptocurrencies are digital currencies that can be used as a means of exchange or for investment purposes. They are typically issued by private entities using highly specialised software and blockchain technologies that employ cryptography. A blockchain is a ‘chain of blocks’, with each block containing the most recent transactions being recorded and added to the chain. These blocks are stored in chronological order to create open, permanent and verifiable documentation, which is managed by a network of participants.

They adhere to a precise protocol for validating new blocks, and no record can be altered without the agreement of all participants.

Therefore, cryptocurrencies are not subject to guarantees or controls by central banks or public authorities. Instead, they function thanks to a distributed community of participants (validator nodes or miners) who work to ensure their security. For this reason, they are defined as decentralised currencies and are usually stored in virtual wallets, also known as e-wallets.

Bitcoin: the world’s first cryptocurrency.

There are currently several thousand cryptocurrencies available online, but the first and best known is Bitcoin. Bitcoin was conceived in 2008 when Satoshi Nakamoto, a person or group of people whose identity remains unknown, published a white paper explaining his idea of a cryptographic virtual currency, without intermediaries and governed by algorithms. The Bitcoin network began functioning in 2009.

Advantages of cryptocurrencies

This is how the Bitcoin network started out in 2009. The advantages of virtual currencies are numerous. For example, they are completely independent of governments, banks and corporations, so no authority can interfere with transactions, impose additional charges for exchanges or take away users’ money. Another strength is transparency. Since all transactions are stored on an open ledger — the blockchain — errors and attempts at fraud can easily be detected and corrected by all network participants. Furthermore, there are no national borders that affect the value of the currency, and identity theft is not possible, unlike with credit cards. Furthermore, transferring money in the form of cryptocurrency is much cheaper than using intermediaries such as banks, which charge fees.

The risks and critical issues of cryptocurrencies.

However, there are also many negative aspects of cryptocurrencies. Indeed, as well as being characterised by great volatility and having a strong environmental impact, cryptocurrencies have an important weakness: the ability to hold and exchange money outside of government control makes them the ideal tool for carrying out illegal activities, and they are also exploited by ordinary citizens.

This is precisely because, unlike traditional currencies, cryptocurrency is stored in anonymous ‘wallets’ that are accessed using an impersonal digital key. This provides the anonymity that criminals need, as it does not allow the user to be identified.

Cryptocurrencies and crime

Money launderers exploit this by using Bitcoin to conceal their ill-gotten gains. Terrorists can solicit, receive and send payments anonymously and secretly. There are no identity checks, such as those involving identity cards, passports or social security numbers. This means that virtually anyone, including individuals or groups, can open a Bitcoin wallet and use it for illicit activities, transacting locally or internationally.

There have been several cases linking Bitcoin to criminal activities.

Il caso Silk Road: Bitcoin e mercato nero

One such site is the infamous ‘Silk Road’, a dark web marketplace that was launched in 2011. It used Bitcoin and other cryptocurrencies to facilitate illegal activities such as money laundering, drug trafficking, and the illegal trade of arms. Bitcoin provided an effective way to conduct anonymous transactions while avoiding detection by law enforcement. Following the site’s initial closure and subsequent reopening in late 2013, it was finally shut down by the FBI in November 2014. In May 2015, its creator, Ross Ulbricht, was arrested by undercover FBI agents who had infiltrated the platform. Initially, he was sentenced to life imprisonment for conspiracy, computer fraud, identity theft, money laundering, drug trafficking and internet drug trafficking. The FBI seized $3.6 million worth of Bitcoin.

Towards more effective regulation.

The widespread diffusion of new ‘virtual currencies’ and the close relationship between crypto-activities, tax evasion, money laundering and financial crime mean that the level of attention required for this largely unregulated market must increase. In particular, there is a need to implement an appropriate regulatory framework at a European level to prevent the criminal use of crypto-assets.

However, the regulatory framework is still being defined. Despite this, cryptocurrency transactions linked to criminal activity reached a new record in 2021, almost doubling compared to the previous year.

The challenges of global regulation

According to a study by the analysis company Chainalysis, the equivalent of $14 billion worth of illegal activity is expected in 2021 — almost double the $7.8 billion recorded in 2020. The link between cryptocurrencies and crime requires further study, particularly with regard to the issue of anonymity. In theory, this could be solved by making registration mandatory for all users of mining and wallet software. However, in practice, this is not so straightforward for two reasons. The first is related to the ease with which registration can be circumvented. The second is related to the practical difficulty of verifying users who operate within a state but whose servers can be located anywhere in the world.

The Future of Cryptocurrencies: Opportunities and Risks

Tuttavia, finché a livello globale persisteranno vuoti o disallineamenti normativi per le nuove frontiere digitali, i riciclatori continueranno ad avere la libertà di agire in sicurezza e con un basso rischio di essere scoperti, vanificando gli sforzi intrapresi da ciascun Paese singolarmente.