Colonial Pipeline Bitcoin was Traced – Will Politicians Find a New Narrative?
Just recently, the Federal Bureau of Investigation managed to recover a large portion of the Bitcoin that Colonial Pipeline had paid to Darkside in ransom. This exposed a widespread delusion regarding cryptocurrencies: they are impossible to track.
The half-truth that cryptocurrencies are untraceable has been a widely favored vector of attack by politicians, especially when “money laundering” concerns are addressed. But since it has been exposed that cryptocurrencies are not impossible to track, is this vector of attack authentic anymore?
A Fictitious Narrative: Bitcoin is Solely Used for Illicit Activities
Since the inception of the very first cryptocurrency, Bitcoin, authorities in power labeled it with a wide range of illicit activities — e.g. drug dealing and tax-evading, to name the more popular ones. However, it has been manifested, several times, that the majority of cryptocurrency is not used for criminal activity.
According to a 2021 report from Chainalysis, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume — roughly $21.4 billion worth of transfers. In 2020, the criminal share of all cryptocurrency activity dropped to just 0.34%, accounting for $10.0 billion in transaction volume.
The figures lose more traction once they are compared with the illicit activities associated with fiat money. In 2020, $10 billion worth of BTC was used illicitly, while $1.4 trillion in USD was associated with illegal activities.
While certain facts support the thesis that merely a small percentage of cryptocurrencies are used for illicit activities, politicians continue to disparage crypto enthusiasts using this vector of attack. For example, Joe Biden’s pick for Secretary of the Treasury, Janet Yellen, asserted that cryptocurrencies are “a particular concern” when it comes to illegal activities. She stated:
“The technologies to accomplish this change over time and we need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology, cryptocurrencies are a particular concern.”
Larry Fink, CEO of the world’s largest asset management firm BlackRock, was another cryptocurrency detractor who called Bitcoin, in 2017, an “index of money laundering.” Though, it seems that he has since changed his mind as BlackRock revealed that it is studying crypto.
Bitcoin is Pseudonymous, not Anonymous — and Can Be Traced
People with a shallow knowledge of Bitcoin might think it cannot be tracked, though the leading cryptocurrency is easily traceable. In fact, a more realistic term for Bitcoin transactions is pseudo-anonymous, as it is not entirely anonymous.
All Bitcoin transactions and the associated wallet addresses are recorded on a public ledger called the Bitcoin blockchain. They are open and easily accessible to everyone. The only problem is, Bitcoin wallet addresses alone don’t reveal any identifiable details.
However, Bitcoin wallet addresses do provide a footprint for additional research. But again, it is very hard to link a Bitcoin address to some identifiable persona. Think of a pseudonymous email address for example: What are the odds of finding the actual person behind that email simply by tracing its actions?
Bitcoin Can Become Untraceable, But What’s Really to Blame?
There are a limited number of truly untraceable cryptocurrencies — with the most popular one being Monero (XMR). However, Bitcoin, in its essence, is easily traceable. Yet certain tricks can make Bitcoin almost entirely anonymous.
The most popular process that attempts to annihilate the traceability of Bitcoin is Bitcoin mixing — also called Bitcoin laundering, Bitcoin washing, or Bitcoin tumbling. Mixing breaks the link between Bitcoin addresses by either creating temporary addresses or by swapping coins with other addresses of the same value.
It is worth mentioning that Bitcoin mixing is a paid service, so no regular trader would use it for a routine transaction. Rather, when services of this kind are used, illegal activities have to be involved. But does this make Bitcoin blameworthy?
A more reasonable approach towards such circumstances would be to spite the identity-hiding services that aim to anonymize Bitcoin transactions — not Bitcoin itself.
Why do you think politicians disparage Bitcoin for involvement in illicit activities, while it is obvious that a very small portion of the coin is used in illegal activities? Let us know in the comments part.