The Dark Side of Cryptocurrency
Bankers now view bitcoins and cryptocurrencies as the biggest financial market bubble in history after making fantastic headlines in the past and making nerds rich. Bitcoin’s high prices and broad attention are ruining the markets.
There are already a plethora of cryptocurrencies available for trading on the alternative market, so it is not the only one. In reality, there are platforms that are specifically designed for trading cryptocurrencies. If you want to put it that way, the cryptocurrency industry as a whole is generating a lot of excitement. Less is known about the use of cryptocurrencies in financial crime, which is surprising given that they have characteristics that make them perfect for concealing assets obtained illegally.
Even though these transactions are very secure, the story has a sinister undertone. This is all without taking into account the bitcoin price’s rapid volatility or the countless new forms it is taking.
The Risk of Cryptocurrencies
Crypto-assets, or crypto-currencies as some refer to them, are risky because of the very characteristics that make them so enticing. These decentralised, digital services are frequently created without the aid of a central bank. As with cash transfers, this makes crypto-asset transactions anonymous.
As a result, a potentially major new method of financing terrorism and money laundering has been created. The scope of the issue is best illustrated by a recent instance.
In July 2017, a global operation headed by the United States shut down AlphaBay, the largest illegal online marketplace on the internet. For more than two years, AlphaBay has been selling illegal drugs, hacking equipment, firearms, and hazardous chemicals all across the world. Before the website was taken down, more than $1 billion worth of cryptocurrency had been transferred.
Of fact, financing terrorism and money laundering are only one aspect of the threat. And then there’s financial stability. Due to their rapid growth, extreme price volatility, and hazy connections to the established financial system, cryptocurrencies may easily introduce new hazards.
The following is a list of some of the prohibited or unidentified factors that could endanger the acceptance of bitcoin and other cryptocurrencies.
1. Not Effective for Retail
Blockchain technology, a system built on consensus, underlies cryptocurrency transactions. Blockchain technology is extremely sluggish for retail transactions since it needs multiple places to communicate, update, and validate ledgers (contracts). In these circumstances, cash and cards move significantly more quickly.
2. A lack of market laws
Trading in cryptocurrencies is not currently subject to any enforceable market laws. Even governments have their doubts about the long-term viability of bitcoin. As a result, no financial institutions subject to government regulation accept bitcoin transactions (such encashing).
Furthermore, because to the lack of regulations, cryptocurrencies are particularly hard to trace, which is why they are commonly utilised for illegal transactions. As a result, bitcoins are likely to trigger financial instability if all transactions take place outside of the purview of regulators.
3. There are No Refunds or Cancellations Possible
Once the cryptocurrency has left your wallet, you won’t be able to ask for a refund or cancellation because Crypto is not under the jurisdiction of any entity or organisation. Since it is a direct transaction, neither party has any recourse if something goes wrong.
However, certain platforms, such as Binance, serve as a go-between for the buyer and the seller. If you utilise one of these sites, they will also take refund or cancellation requests into account; otherwise, you are on your own.
4. Inefficient Energy Use
Energy-intensive bitcoin mining can generate more than 25% of a miner’s income. Unless we have access to renewable energy sources, it is not worthwhile. For instance, mining bitcoins in India uses about INR 180000 worth of electricity. The world’s electricity would not be sufficient to support the transactions even if the Indian economy functioned solely on bitcoins.
5. Price Volatility
Because it is so tightly linked to intrinsic values, price volatility in cryptocurrencies is a significant problem. The bitcoin ecosystem is like a bubble that could explode at any moment. By connecting the bitcoin to a tangible or intangible object, this might be prevented.
6. Regulation
As mentioned earlier, authorities have been unable to maintain any sort of control on cryptocurrency. Since they understand that they have no influence over it, some governments have tried to regulate it as a formality.
There has been an increase in cryptocurrency use even in nations without regulations. Because it is completely out of the hands of the government, cryptocurrency is risky and simple to acquire for criminals.
What Can Be Done About This?
For the purpose of identifying and de-anonymizing illegal activity on the blockchain and preventing bad actors from using bitcoin to finance their actions, it is critical to apply specialised crypto analytics and blockchain intelligence.
Only in this fashion can law enforcement and security organisations effectively combat and mitigate a range of complex threats, such as:
- Identifying transactions and crypto addresses that are illegal or suspicious
- Making use of the blockchain to monitor activity
- Tracing the route taken by money used for illicit activities.
- Exposing the real identities of those responsible for these transactions and prosecuting them.
But having cutting-edge technology alone is not enough. This dynamic environment offers many services that enable criminals and terrorists to more easily cover their tracks, including:
- Mixers: used to strengthen the anonymity of cryptocurrencies by combining them with other possibly traceable digital currencies.
- Shapeshifters: used to combine and convert cryptocurrency money from one coin to another.
- Privacy-enhanced Crypto Wallets: These include security or privacy features like anonymized TOR browsers and/or mixing services for transferring cryptocurrency funds between different crypto coins. Therefore, preventing cryptocurrency from being used to support crime and terrorism also requires extensive subject expertise.
Will cryptocurrencies survive into the future or will they burn up in the process? Governments will eventually be forced to regulate cryptocurrency or outright outlaw it due to the risks it presents. Numerous experts have voiced their worries about the risks associated with cryptocurrencies and their negative effects on both society and the economy.
The goal of block-chain technology and cryptocurrencies was to create a currency that would displace fiat money and take over as the default method of payment. The cost of this move to the rest of the world, however, could not be known to the producers.
Cryptocurrency is easily used for unlawful activities, it emits a lot of carbon emissions, it is uncontrolled, and there is no assurance that it will always be profitable. These are just a handful of the negative features of cryptography, which some could argue are much worse than any potential positive effects on society.
