From: Financial Transparency Coalition
By: Priscilla Lin, FTC Spring Intern 2014
Priscilla researched an evolving trend in illicit flows: using the electronic currency Bitcoin to obscure the identities behind financial transactions. Here is what she learned about the practice:
Bitcoin can be sent from anywhere to anywhere at a very low cost, while simultaneously keeping a user’s identity hidden. This all sounds convenient for online payments, but without proper regulations, the use of crypto-currency could easily lead to tax evasion.
Bitcoin was launched in 2009, as the world’s first crypto-currency. Satoshi Nakamoto, a pseudonym for the unknown person or group of people responsible, created the revolutionary currency. One key feature of Bitcoin is its decentralized nature, which doesn’t require regulators or bankers, resulting in low transaction costs. However, this also poses severe challenges for revenue authorities trying to trace and tax the digital currency.
With hard-to-trace attributes, Bitcoin makes it easier to launder money, traffic drugs, and engage in other illicit activities. For example, Silk Road, an online black market that was notorious for its drug sales through Bitcoin, handled roughly $1.2 billion in 2.5 years. The anonymity and decentralized nature of crypto-currency creates the likelihood of a new type of financial haven: cyber havens.
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