Today, Bitcoin is known as many things. It’s at once a premier digital currency, a speculative asset, and a financial instrument. When it comes to crypto, the best use case is often in the eye of the beholder.
These delineations are vastly different and are almost incongruous with one another, but Bitcoin’s role in the future of finance remains unsettled and influx, so they all feel like viable possibilities for the currency. However, they each reflect Bitcoin’s transition from a back-alley asset to one of the most intriguing financial products of the digital age.
Even so, the currency’s dark origins cause many to question its legitimacy. In addition, think tanks like the Rand Corporation and government agencies like Europol, have expressed concern about the possibility that Bitcoin is being used to fund terrorism.
While these allegations cause many to question the currency’s legitimacy, it’s becoming increasingly clear that Bitcoin is shedding its dark past and is becoming more legitimate as it proliferates within the mainstream financial system.
Bitcoin’s dark-web roots
In some ways, Bitcoin is a bit of a paradox. In the currency’s foundational white paper, Satoshi Nakamoto described Bitcoin as a new way to achieve financial privacy in the digital age. Bitcoin users are identified by a public key, a lengthy sequence of letters and numbers, that are as random as their holders are anonymous. Nakamoto explains,
“The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone.”
This feeling of anonymity conveniently aligned with the rise of the dark web, an alternative internet inaccessible by traditional web browsers and frequented by privacy purists and nefarious actors. Entities like the notorious and now-defunct Silk Road thrived here, and Bitcoin became a dominant currency for the movement.
According to Fortune, when Silk Road, an illicit online bazaar full of illegal items for sale, was shuttered by the U.S. government, the Department of Justice seized 144,336 Bitcoins from the site.
Of course, although Silk Road is closed, the dark web remains open for business, but Bitcoin is being used less to fund its operation. The Atlantic notes that Bitcoin’s rising transaction costs have made it less prevalent on the dark web.
Perhaps most importantly, many realized that Bitcoin wasn’t quite as anonymous as they initially believed. As Wired noted in January, “Your sloppy Bitcoin deals will haunt you for years.”
Fears of a terrorist fundraising mechanism
Last year, authorities in Indonesia expressed fears that Islamic militants were using Bitcoin and PayPal to fund terrorist operations. According to The Straits Times, a news organization in Singapore, The Center for Financial Transaction Reporting and Analysis found that, year over year, terrorism fundraising using Bitcoin or PayPal doubled from 12 known cases to 25.
In testimony heard by the House Financial Services Committee, Yaya Fanusie, director of analysis for the Foundation For Defense of Democracies, concluded that Bitcoin does not play a significant role in funding terrorist organizations.
In prepared remarks, Fanusie testified that “Cold hard cash is still king” when it comes to financing terrorism. To illustrate this point, Fanusie notes that a terrorist group in Jerusalem only acquired $500 from two investors in a campaign to use crypto to raise funds for the organization.
Ultimately, cash truly is more anonymous and untraceable than Bitcoin, which lacks usability as an illicit fundraising mechanism.
Since its inception in 2009, Bitcoin has undergone a tremendous facelift that’s not just smoke and mirrors. To that end, Bitcoin received a big boost from the recent hearings help in the U.S. Congress. Coupled with its weakening usability on the black market, it appears that Bitcoin is becoming a serious financial asset, rather than a mechanism for facilitating illegal activity.
Picture from Max Pixel.