Stop Crypto Crime of Rogue States Like China by Banning Cryptocurrency
Commentary North Korea stole over $3 billion worth of cryptocurrency, which funds approximately 50 percent of its nuclear weapons development, according to a Wall Street Journal report on June 11. The massive crypto haul is in addition to hundreds of millions of dollars that the rogue state, supported by Russia and China, has stolen or ransomed in traditional currencies. North Korea’s global hacker army facilitates the thefts, the latest iteration in its long criminal history that stretches back to its 1970s counterfeiting. Cryptocurrency also facilitates China’s deadly fentanyl crime. According to a May 23 report by Elliptic, companies in China that ship fentanyl and fentanyl precursors accept tens of millions of dollars in crypto payments. Ninety percent of companies that Elliptic researchers received offers from accepted crypto as payment, according to the study. Facilitation of fentanyl trafficking is one of the most consequential of crypto crimes, as fentanyl overdose causes more than 71,000 deaths in the United States annually. “Elliptic’s blockchain analysis shows that the cryptocurrency wallets used by these [Chinese fentanyl precursor] companies have received thousands of payments, totaling just over $27 million, and that the number of transactions has increased by 450% year-on-year,” according to the study. “$27 million would purchase enough precursor to produce fentanyl pills with a street value of approximately $54 billion.” Russian criminals have exploited relatively insecure cryptocurrency exchanges to effect. On June 9, the U.S. Department of Justice unsealed two indictments against Russians for allegedly hacking the Mt. Gox crypto exchange and attempting to launder 647,000 bitcoin, now worth almost $17 billion. One allegedly operated the illicit BTC-e exchange, which was shut down in 2017 by U.S. law enforcement. “For years, Bilyuchenko and his co-conspirators allegedly operated a digital currency exchange that enabled criminals around the world—including computer hackers, ransomware actors, narcotics rings, and corrupt public officials—to launder billions of dollars,” according to Ismail Ramsey, the U.S. attorney for the Northern District of California. Crypto and its blockchain technology make it difficult to identify owners and their transactions, thus making it ideal for use by criminals domestically and internationally. However, its proponents claim that all currencies have been involved in crime, and crypto offers ease of transaction and financial inclusivity to parts of the world with insufficient mobile banking. Purely domestic crypto-crime in the United States may be getting more difficult, as “private and government investigators can now identify wallet addresses associated with terrorists, drug traffickers, money launderers and cybercriminals, all of which were supposed to be anonymous,” according to an April report in The Wall Street Journal. “Law-enforcement agencies, working with cryptocurrency exchanges and blockchain-analytics companies, have compiled data gleaned from earlier investigations, including the Silk Road case, to map the flow of cryptocurrency transactions across criminal networks worldwide.” Two construction workers use a lift along a wall of bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec, on March 19, 2018. Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works based on blockchain technology without a central bank or single administrator. (Lars Hagberg/AFP via Getty Images) However, it is more difficult to address international crime, for example, the theft of crypto by Russia and North Korea, or the use of crypto to traffic in illegal fentanyl precursors between China and Mexico. The relative anonymity of cryptocurrencies may still provide these international criminals with enough distance from U.S. authorities to keep them flush and on the run. One argument favoring cryptocurrency is that it facilitates easier transactions and financial servicing of underserved communities globally. But this is likely false. According to law professor Hilary Allen at American University, regular electronic transfer of fiat currency through mobile apps is just as easy, if not easier, than using crypto for legitimate transactions, including for those whose financial inclusion is challenging. Allen argues that financially-underserved communities in developing countries will likely be “left holding the bag” when cryptocurrencies crash due to the coins’ inherent lack of value. Famed billionaire investor and Warren Buffett sidekick Charlie Munger similarly argues that cryptocurrencies lack inherent value. In a February commentary, Munger warned that thousands of new cryptocurrencies are traded publicly without government pre-approval of disclosures. A lack of regulation allows promoters to get large blocks of cryptocurrencies for nearly nothing, for example, while a naive public buys at
Commentary
North Korea stole over $3 billion worth of cryptocurrency, which funds approximately 50 percent of its nuclear weapons development, according to a Wall Street Journal report on June 11.
The massive crypto haul is in addition to hundreds of millions of dollars that the rogue state, supported by Russia and China, has stolen or ransomed in traditional currencies. North Korea’s global hacker army facilitates the thefts, the latest iteration in its long criminal history that stretches back to its 1970s counterfeiting.
Cryptocurrency also facilitates China’s deadly fentanyl crime.
According to a May 23 report by Elliptic, companies in China that ship fentanyl and fentanyl precursors accept tens of millions of dollars in crypto payments. Ninety percent of companies that Elliptic researchers received offers from accepted crypto as payment, according to the study.
Facilitation of fentanyl trafficking is one of the most consequential of crypto crimes, as fentanyl overdose causes more than 71,000 deaths in the United States annually.
“Elliptic’s blockchain analysis shows that the cryptocurrency wallets used by these [Chinese fentanyl precursor] companies have received thousands of payments, totaling just over $27 million, and that the number of transactions has increased by 450% year-on-year,” according to the study. “$27 million would purchase enough precursor to produce fentanyl pills with a street value of approximately $54 billion.”
Russian criminals have exploited relatively insecure cryptocurrency exchanges to effect.
On June 9, the U.S. Department of Justice unsealed two indictments against Russians for allegedly hacking the Mt. Gox crypto exchange and attempting to launder 647,000 bitcoin, now worth almost $17 billion. One allegedly operated the illicit BTC-e exchange, which was shut down in 2017 by U.S. law enforcement.
“For years, Bilyuchenko and his co-conspirators allegedly operated a digital currency exchange that enabled criminals around the world—including computer hackers, ransomware actors, narcotics rings, and corrupt public officials—to launder billions of dollars,” according to Ismail Ramsey, the U.S. attorney for the Northern District of California.
Crypto and its blockchain technology make it difficult to identify owners and their transactions, thus making it ideal for use by criminals domestically and internationally.
However, its proponents claim that all currencies have been involved in crime, and crypto offers ease of transaction and financial inclusivity to parts of the world with insufficient mobile banking.
Purely domestic crypto-crime in the United States may be getting more difficult, as “private and government investigators can now identify wallet addresses associated with terrorists, drug traffickers, money launderers and cybercriminals, all of which were supposed to be anonymous,” according to an April report in The Wall Street Journal. “Law-enforcement agencies, working with cryptocurrency exchanges and blockchain-analytics companies, have compiled data gleaned from earlier investigations, including the Silk Road case, to map the flow of cryptocurrency transactions across criminal networks worldwide.”
However, it is more difficult to address international crime, for example, the theft of crypto by Russia and North Korea, or the use of crypto to traffic in illegal fentanyl precursors between China and Mexico. The relative anonymity of cryptocurrencies may still provide these international criminals with enough distance from U.S. authorities to keep them flush and on the run.
One argument favoring cryptocurrency is that it facilitates easier transactions and financial servicing of underserved communities globally. But this is likely false. According to law professor Hilary Allen at American University, regular electronic transfer of fiat currency through mobile apps is just as easy, if not easier, than using crypto for legitimate transactions, including for those whose financial inclusion is challenging.
Allen argues that financially-underserved communities in developing countries will likely be “left holding the bag” when cryptocurrencies crash due to the coins’ inherent lack of value.
Famed billionaire investor and Warren Buffett sidekick Charlie Munger similarly argues that cryptocurrencies lack inherent value. In a February commentary, Munger warned that thousands of new cryptocurrencies are traded publicly without government pre-approval of disclosures.
A lack of regulation allows promoters to get large blocks of cryptocurrencies for nearly nothing, for example, while a naive public buys at far higher prices and without full knowledge of the currency’s pre-dilution.
“A cryptocurrency is not a currency, not a commodity, and not a security,” wrote Munger. “Instead, it’s a gambling contract with a 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity.”
Allen, the law professor, argues that the widespread adoption of cryptocurrencies in the U.S. financial system leads to unnecessary risk due to their lack of inherent value. Much as the mortgage crisis of 2008 destabilized the U.S. financial system, with banks going under and the stock market crashing due to mortgage bundling that obscured a lack of inherent value, a similar financial crisis due to overinvestment in crypto could lead to future financial instability in the United States.
Added to these problems is the inflationary pressure that the increasing use of crypto puts on traditional fiat currency. The total market capitalization of all cryptocurrencies at the time of writing is over $1 trillion. As this is unregulated, no central bank can increase interest rates to soak up excess crypto liquidity in the market. Crypto inflation as a whole cannot be controlled because new coins continually enter the market. And the higher the capitalization of all crypto assets, the lower the demand for fiat currencies, all else equal.
While crypto special interests reportedly spend more on lobbying than the defense industry in an attempt to keep themselves unregulated, Munger and Allen have apparently not been bought. They convincingly argue for regulations and laws that ban or limit cryptocurrency to avoid unnecessary risks taken by the banking system and naive consumers.
For the good of Americans and the U.S. economy, upon which our military strength and freedoms rely, we should take their warnings and prescriptions seriously.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.