Corporate Finance, DeFi, Blockchain, Web3 News
Corporate Finance, DeFi, Blockchain News

Less than 1% of Bitcoin transactions used for illicit activities

Less than 1% of Bitcoin transactions used for illicit activities; Crypto-loans coming to town; Social media sentiment and Bitcoin prices are interlinked.
by Ilias Louis Hatzis

Ilias Louis Hatzis
Ilias Louis Hatzis
The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.

Story 1: Feds ran a bitcoin-laundering sting for over a year

Decrypted: On June 26, the US Department of Justice (DOJ) released a statement outlining the results of Operation: Dark Gold, a substantial investigation into illicit activities undertaken on the Dark Web. The investigation has resulted in the arrest of more than 35 individuals and in the seizure of over $20 million worth of cryptocurrencies.

Our take: Drugs. Terrorism. Money laundering. Bitcoin and cryptocurrencies get a bad rap. In the minds of many people Bitcoin and cryptocurrencies are still linked to drugs, terrorist financing and money laundering.

To some extent, this may have been true in the past when Bitcoin was marginal and the authorities didn’t really watch it as closely, but now its not the case. Despite sensationalist headlines, that associate Bitcoin with the Darkweb, the reality today is very different.

A recent report from the joint Bitcoin analysis team of Ellicit and FDD, has shown that less than 1% of all Bitcoin transactions involve money laundering. Also a report by the UK Treasury noted the risk for Bitcoin to be a low, if not the lowest risk for money-laundering, when compared to other methods.

While, laundering with crypto is difficult, it not impossible.

If someone wanted to launder money with crypto, it would be sort of similar as in the real world, when you try to launder cash. Have you ever seen “Breaking bad”? The main character Walter White becomes a drug lord and in the process makes so much money he has a problem legitimizing it. So what does he do? He buys a car wash to put his dirty money into the system, by showing it as profit from a legal activity.

And that is what transnational criminal organizations (TCOs), are doing. They are using Bitcoin, to easily transfer illicit proceeds internationally, according to 2017 U.S. Department of Justice Drug Enforcement Administration report. The report went on to highlight China as a pivot point for many money-laundering schemes. Essentially, these TCOs purchase goods from China using digital currency and then ship them to other locations (often Mexico or South America) where they are paid in local currency.

Yet, the idea that Bitcoin is used by terrorists is fairly widespread and baseless claim. After the 2015 Paris attacks, a barrage of headlines popped up claiming Bitcoin was being used by ISIS. But, Europol published a report citing there was no evidence to link ISIS to Bitcoin. In fact, from a terrorist financing perspective, the big culprit in the recent Paris attacks was prepaid cards, an industry that was projected by Mastercard to be over $820bn in 2017.

Do people buy drugs with Bitcoin and other cryptocurrencies? Yes they do. Bitcoin is money, just like other money. People use digital money to buy goods, just like they use cash. For the record, cash is still the most common way to buy and sell drugs.

But I think criminals are starting to realize that cryptocurrencies, such as Bitcoin, Litecoin and Ethereum, aren’t really anonymous and their transactions are very public, traceable, permanent and provide a substantial source of data for analysis.

Governments, regulators and businesses have access to tools that provide better data and new ways to mitigate risk, like Chainalysis, Elliptic,, Blockseer and Scorechain.

The reality is that there are not many ways to purchase the cryptocurrency without a trace. Basically you have two options. Either you can open an account on an exchange or trade over-the-counter (OTC) with a dealer.

To purchase Bitcoin and other crypto on any exchange, you need to use a bank account or a credit card. Most exchanges have a banking relationship and their bank will require extensive KYC/AML (Know-Your-Customer) checks on all accounts. Its impossible to buy or sell crypto, if you are unwilling to provide information about who you are. If the purpose is to hide funds, this is not the optimal way. If the exchange is presented with a court order, it will be obligated to release customer details.

Now if you can’t use an exchange, perhaps an OTC dealer would trade with you. But, again in this case large dealers also follow KYC/AML regulations. They also have banking relationships to maintain.

As with any disruptive technology, many of the initial use cases revolve around illicit activities. But as the crypto market grows, governments will impose more regulations and find ways to track and tax your digital assets. Moreover, most business and platforms will want to operate legally, and will require all their customers to submit appropriate identification documents like photo IDs, bank accounts, credit card information, residential address, utility bills, etc.

Story 2: This Company Helps Bitcoin Millionaires Unleash Their Fortunes

Decrypted: SALT is a lending platform that lets you leverage your blockchain assets to secure cash loans. The company rolled out its first loans late in 2017 after two years spent developing the technology to make the loans work and so far it has issued $40 million in crypto-backed loans.

To become a member, users purchase SALT tokens and then put up their Bitcoin or other blockchain-backed assets as collateral, to borrow money from the platform's network of lenders. Once the loan is paid back, borrowers get their crypto back.

Our take: The ability to secure a loan is one of the main reasons why economies flourish. Traditionally, access to loans has been in the realm of banks. Banks use customer deposits, to give loans to individuals and businesses.

However, blockchain is revolutionizing consumer lending, bringing transparency, efficiency, security, and perhaps most significantly, the use of cryptocurrency as collateral.

Crypto-loans allow those who hold quantities of Bitcoin (BTC), Ethereum (ETH) or other digital assets to use them as collateral for getting a loan. The efficiency of crypto as collateral and the growing cryptocurrency market cap, suggest that crypto-loans could capture a big piece of the worldwide consumer lending market, which is estimated to reach $48.3 trillion by 2019.

There are several companies (SALT, ETHLend, CoinLoan, Nexo, Othera and Celsius) going after this market, and each one has a somewhat different approach.
SALT use a centralized P2P model that matches lenders with borrowers. On both SALT and CoinLoan lenders determine the terms and rate. ETHLend uses a decentralized P2P model, using Ethereum smart contracts to connect borrowers and lenders and interact directly with each other. On ETHLend, borrowers determine the terms and rate, while investors choose which loans to fund. Nexo takes a completely different approach. Nexo provides the loans directly to borrowers, with no additional lenders on the platform. Othera is an Australian based company working on building a blockchain lending platform and token exchange.

Also some news articles suggest that Credit Suisse are working on a blockchain loan platform of their own. If successful, they'll be making use of smart contracts like SALT, however at this stage it doesn't look as though they will be asset-backed loans.

It’s only natural that cryptocurrencies will be used as a new form of collateral, decentralizing the entire lending industry. Crypto-loans will make financing a quicker and smoother process, completely disrupting how the entire lending industry operates. Also because of the global nature of cryptocurrencies, blockchain facilitates lending on a cross-border scale, allowing for more options and greater liquidity.

When you consider that we are tokenizing everything and placing real world assets on a token, which can be pledged for a loan, you can only imagine the potential for the crypto loan market.

Story 3: Social Media "Silent Majority" predicts Bitcoin Market

Decrypted: Researchers led by Feng Mai, a professor at Stevens' School of Business, found that Bitcoin’s price is affected by public sentiment.
In fact the research shows that periods of increased positive commentary on social media, significantly influence the rising price of Bitcoin. The results of the work verify what we already know to be true. Social media sentiment and Bitcoin prices are interlinked.

Our take: People are affected by other people, both in the real world and on their social networks. Good and bad news can have a substantial effect on the value of a product or service. In that respect, cryptocurrencies are no different. We make life changing decisions based on information that crosses our paths, based on what a friend told us, what we read on Twitter or watched on Youtube.

The growth of social media and micro-blogging, created a radical shift in the way information flows and how we make decisions. Web 2.0 services such as blogs, tweets, forums, chats, email etc. have changed how we learn and how knowledge is shared. And furthermore, emotions we express through these channels can affect decision-making and individual behavior. In 2017 each and every day we generated 2.5 million terabytes of information, 500 million tweets, 1.8 billion pieces of shared information on Facebook.

A single tweet or the expression of some strong opinion, can affect market prices and trading activity.

For example, on September 12, 2017, Charlie Lee, Litecoin's founder tweeted that Bitcoin would be banned in China. In a Tweet several minutes later, he clarified that was he was only referring to Bitcoin exchanges in China and later he deleted those tweets. Around the same time, Jamie Dimon, CEO of JPMorgan Chase, called Bitcoin a fraud at the Delivering Alpha conference in New York (a few months later he recanted that statement).

After both of these events, other people tweeted, retweeted and added comments, expressing their sentiment, which in turn led to substantially higher trading volumes and a drop in Bitcoin price.

Bitcoin and cryptocurrencies attract a lot of attention. They represent a radical change in financial systems. Also, in 2017, the combined market caps of all cryptocurrencies soared to nearly $600 billion. This is a 3,300% increase in a single year. No other asset class has ever come close to these single-year returns, and we may never see anything like it again.

As such, Bitcoin has attracted a large number of users, media attention and a definitely lot of opinions of what the future holds. But unlike traditional currencies, Bitcoin and cryptocurrencies are very volatile because they are not regulated by any authority. This can be scary for retail investors, and any popular sentiment or a point of view that pops up in their news feeds can drive their investment decisions. The reality is that most retail investors are more prone to allow emotions dictate their investment decisions, rather than logic.

Financial markets are largely driven by periods of exuberance and pessimism and social media can amplify this sentiment a hundred-fold. Bitcoin is definitely not an asset for the faint-hearted.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Finyear - Daily News

Mercredi 4 Juillet 2018