Research PaperKleber Ferraz
Mark Rubinstein
ECN 205
12 November 2018
Kleber Ferraz
Mark Rubinstein
ECN 205
10 Nov. 2018
CRYPTOCURRENCY
Argument
The currency and money are the main units of measurement that move the system which basically correspond to the form of exchange of goods and services in the current technological society of consumption. Life in society requires a series of agreements which, if not followed, make coexistence difficult or impossible. Two of these conventions, money and law, find themselves in various theoretical and practical points, sometimes coexisting peacefully and, in the cryptocurrency topic for example, brings complexity and inevitable conflicts. While a number of people points out that has to consider the existence and growth of cryptocurrency in the current economic scenario, the positive aspects of being easy to obtain and circulate, also the unreliability of the conventional economic arrangement. On the hand, it is more reasonable to agree that the lack of regulation of cryptocurrencies induces a complete unpredictable movement of it, facilitates activity on black market and the improper use of this financial currency, intending to finance illegal activities, contributes as an element of money laundering. In addition, there is potential for tax evasion in some jurisdictions and once the cryptocurrencies are not proper regulated which means no protection.
Argument Pathway
High Price Volatility and Manipulation
Most of the cryptocurrency needs a little more time to mature and develop to the point of making use of its full potential and achieving stability. Blockchain is in the process of development and change and it takes time for things to happen. The value of bitcoin follows the rules of the market, that is, the higher the demand, the higher the price. Historically, cryptocurrency has high volatility. Interesting in bitcoin exploded in 2016 and the cryptocurrency became one of the most commented investments on the planet. In 2017, the cryptocurrency appreciated 1400% and reached the highest price in history: $ 19,300. Some enthusiasts say the growth might continue with the interest of new people and greater acceptance. On the contrary, it seems clearly that the currency lives a bubble which at some point must burst. In a highly financially regulated world, people question themselves whether the price volatility of cryptocurrencies is natural or manipulated. The manipulation can appear once the crypto-market provides anonymousness on a large scale. Therefore, when it does not have a clear disclosure of buyers and sellers, there is an open door for controlling illegal acts considering the currency price.
Facilitate activity on Black Market and Money Laundering
The digital economy, born in the ascendance of the Internet, has been presenting new business models which are conducting the society to face a new paradigm such as blockchain and cryptocurrencies. The first decentralized digital currency, bitcoin that emerged in 2018, was developed to enable secure, low cost financial transactions on a global scale and without intermediaries, recorded in a distributed database, called a blockchain.
According to the article Blockchain, a collection of digital currency transactions for a day, for example, are stored in a block that is added to the chain and distributed to all the machines supporting the blockchain. The author of the article continues pointing out that each bit of data added to the blockchain is also secured using cryptography to make sure that only the people who should be adding data to it are doing so. Although all transactions are recorded in the blockchain, the absence of a regulation, and the absence of the users to identify themselves, ensure near-absolute anonymity in transactions. It was precisely this anonymity that allowed the use of bitcoin on the black market as a method of collecting ransom after hijack computing system, as seen in ransomware WannaCry, and as an instrument of money laundering, contributing to illicit activities and terrorism.
In the world of money laundering, there are a number of requirements that all participants must observe, and convenience and anonymousness are the most important among them. And since both are offered by digital currency, it is no surprise that they have great appeal to criminal organizations. Some of them are completely anonymous and cannot be linked to any individual or entity. This means that cryptocurrencies have the potential to assist money laundering.
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Supporting Evidence
High Price Volatility and Manipulation
What time has showed is that traditional frauds that used to happen in stock markets were being seen in the cryptocurrency market. Bitcoin’s price formation is one of the most controversial issues. Some claim that the hype around the cryptocurrency is a speculative bubble; others, that is a market in the process of maturing. There is one study, however, which states that the price of Bitcoin was manipulated.
A study published by University of Texas professor John M. Griffin and his student Amin Shams points out that the boom in the price of Bitcoin was influenced by the digital token Tether. The paper, entitled “Is Bitcoin Really Un-Tethered?”, has 66 pages and was published on June 13, 2018.
Tether is a digital token that, according to its creators, is created in the ratio of 1: 1 to the US dollar. For each token issued there would be one unit of fiduciary currency in one bank. The idea of ??the creator, Tether Ltd., is that Tether be traded as if it were trading with dollar, but digitally.
The researchers, known for finding market fraud with their studies, used algorithms to analyze Blockchain data and found that most of the Tether issued goes to the Bitfinex, Poloniex and Bittrex brokers. When the price of Bitcoin falls, these exchanges use Theters to buy Bitcoin “in a coordinated way that manipulates the price,” Griffin said in an interview.
The study indicates that Tether can be “pulled” by investors who have fiduciary or “pushed” into the market by Tether Ltd., since it is the only issuer. It is the same logic of the monetary policy of a government; Tether Ltd. would be like a Central Bank.
Facilitate activity on Black Market and Money Laundering
The first known case of the use of cryptocurrencies in money laundering crimes occurred in the United States in 2014, in which businessman Charlie Shrem, owner of the exchange house Bitinstant, was accused of conspiring to convert traditional bitcoins money for use on the Silk Road black market site, where users were buying drugs anonymously, within US borders.
The businessman, in negotiating of his agreement with the US Department of Justice, pleaded guilty of participating in the money laundering process led by Robert Faiella, owner of the site, where he sells bitcoins anonymously to users of Silk Road. For these charges, Shrem was sentenced to serve two years in prison for failing to report suspicious financial transactions under the Patriot Act, which was born shortly after the Sept. 11, 2001, attacks to fight funding terrorism.
Moreover, considering this cause and others in different countries, a number of world governments have begun to plan the regulation of the use of cryptocurrencies in order to prevent their use in illicit practices and to follow the development of this new modality of business.
In a developed stage considering cryptocurrency regulation, US for example has the popular Bitlicense of the State of New York, USA, the first rule that imposed on licensees the obligation to demonstrate the effectiveness of fraud and money laundering preventive policies, to prove the cybernetic security of information and assets made available by clients and, with the clear objective of positivizing the obligation imposed on the executives and companies mentioned, the duty to report any discovery of violation of law, rule or regulation as a form of prevention to the crime of money laundering.
The propagation of virtual currencies, especially of bitcoin, besides encouraged in conventional commercial transactions, unfortunately, becomes an object of facilitation to the illicit acts, with the necessity of the governments and population help the process of regulating these currencies, without taking its characterizing which is the essence that made them popular.
Work Cited
Anonymous. “WannaCry: Who’s to Blame for Worst Ransomware Attack Ever?” Web User 424 2017): 8-9. Web.
“Blockchain.” Computer Shopper 05 2018: 19. ProQuest. Web. 12 Nov. 2018.
Berlin, Michael, et al. “New York State Releases Final BitLicense Regulation.” Intellectual Property ;Amp; Technology Law Journal, vol. 27, no. 11, 2015, pp. 21–23.
Sidel, Robin. “Global Finance: Bitcoin Advocates Speak Up.” Wall Street Journal, Eastern edition ed., Jan 29 2014, ProQuest. Web. 12 Nov. 2018.
Griffin, John M., and Amin Shams. “Is Bitcoin Really Un-Tethered?” SSRN Electronic Journal, June 2018, doi:10.2139/ssrn.3195066.
Smith, Ms. “Another Huge Bitcoin Heist: Bitcoin Worth $72 Million Stolen from Bitfinex.” Network World (Online), 2016, pp. Network World (Online), Aug 3, 2016.
Vigna, Paul, and Steven Russolillo. “The Mystery Behind Tether, the Crypto World’s Digital Dollar; The Opaque Way in Which Tether Are Created Causes Concern among Market Participants.” Wall Street Journal (Online), 2018, p. n/a.
