06.06.2021 – 20:09
Ransomware, a type of malicious software that restricts access to a computer system until a ransom is paid, is not a good idea for cryptocurrencies. Proponents of her case have been working to make the actual transcript of this statement available online. But recent ransomware attacks and the central role of cryptocurrencies in enabling them, are a public relations disaster.
The attacks include the closure of last month’s colonial pipeline, which pushed up gasoline prices in the US East Coast until the company paid hackers $ 5 million in Bitcoin and, most recently, an attack on JBS, the largest producer of meat in the world. Such episodes highlight what has been a long-standing concern for some of us: hard-to-find anonymous cryptocurrencies offer opportunities for tax evasion, crime and terrorism that make large-denomination banknotes seem harmless. compare. Although prominent cryptocurrency advocates are politically affiliated and have democratized their base, regulators cannot sit on their hands forever.
The view that cryptocurrencies are merely an innocent repository of value is extremely naive. Of course, their transaction costs can be significant enough to deter most retailers. But for anyone trying to avoid strict capital controls (say, in China or Argentina), launder illicit profits (possibly from the drug trade), or avoid US financial sanctions (on countries, firms, individuals, or terrorist groups), crypto can still be an ideal option.
After all, the US government has turned a blind eye for many decades to the role its $ 100 bills play in facilitating arms purchases and human trafficking, not to mention undermining the ability of poor governments to collect tax revenues or maintain internal peace. Although Bitcoin and its crypto variants have by no means surpassed the dollar in easing the global underground economy, they are certainly growing.
As even top American financial firms seek to offer crypto opportunities to their clients, one may ask what people are investing in. Despite the frequent claims that there is little use for cryptocurrencies in transactions and no core business, there is a thriving one: from being a bet on dystopia, cryptocurrencies offer a way to invest in the global underground economy.
If governments will ultimately have to dramatically increase their regulation of cryptocurrency transactions, why have cryptocurrency prices in general, and the price of Bitcoin in particular, increased. Part of the answer, as economic theory tells us, is that with interest rates at zero, there can be massive and sustained bubbles in worthless assets. Moreover, crypto investors sometimes argue that the sector has become so large and has attracted so many institutional investors that politicians will never dare to fix it.
Maybe they are right. The more regulators need to act, the more difficult it will be to get private digital currencies under control. The Chinese and South Korean governments recently began cracking down on cryptocurrencies aggressively, though it is not yet clear how determined they will be. In the United States, the financial industry lobby has been relatively successful in thwarting the meaningful regulation of digital assets; witness the recent US withdrawal of Facebook’s digital currency project in the face of the global regulatory push orchestrated by the Swiss authorities.
True, the administration of US President Joe Biden is now, at the very least, moving to force the reporting of cryptocurrency transfers of over $ 10,000 as part of its efforts to raise a larger portion of the taxes it owes. But ultimately, reducing the potential liquidity of hard-to-trace cryptocurrencies will require a high level of international coordination, at least in advanced economies.
In fact, this is an argument why a cryptocurrency such as Bitcoin could justify its high value of around $ 37,000 at the end of May (although its price varies as the weather progresses). If Bitcoin is an investment in transaction technology that supports the global underground economy and if it takes many decades for even advanced economies to curb currency, then it can gain a lot of rent from transactions in the meantime. After all, we should not expect a company to be in business forever, think of fossil fuels, for it to have considerable value today.
Of course, there will always be a market for cryptocurrencies in war-torn countries or parish countries, although their ratings would be much lower if coins could not be laundered in rich countries. And perhaps there are technologies for removing anonymity and removing the main opposition to cryptocurrencies, although it is suspected that this would also lower their main selling point.
No one is arguing against blockchain technology that supports cryptocurrencies and has great potential to improve our lives, for example, by providing a reliable network of manipulation protection to monitor carbon dioxide emissions. And although the operation of the Bitcoin system itself requires high power consumption, there are now more environmentally friendly technologies, including those based on “Stock test”.
Unfortunately for those who have invested their life savings in cryptocurrencies, ransomware attacks targeting a growing number of firms and individuals can prove to be the turning point when regulators finally develop a backbone and intervene. Many of us know people whose small businesses are struggling to be destroyed by such extortion. While governments may have better means of tracking cryptocurrencies than they allow, they are in an arms race with those who have found an ideal means of paying for crime. Regulators need to wake up before it is too late.
* Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the Chief Economist of the International Monetary Fund from 2001 to 2003
Translated and adapted for Konica.al by Project Syndicate