March 28, 2024
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Bitcoin is not for criminals

If you have heard (or suddenly believe) that Bitcoin is mainly used by criminals, remember whoyour relatives or friends can hold bitcoins,and then ask yourself how many of them are probably criminals. There are indeed widespread cases of criminals using Bitcoin, and since skeptics have no other way to explain why anyone would use it, they default to the assumption that it is being used for illegal purposes. Typically, the assumption is that Bitcoin is inferior to dollars, either because it is too volatile or too slow, or because it is rarely used in everyday transactions. These erroneous assumptions lead to the conclusion that, as a practical matter, Bitcoin can only be used for illegal activities, mainly to circumvent the law. Some senator or treasury secretary may say so, but fortunately Bitcoin is not for criminals - it is for everyone.

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"Bitcoin's Explicit Purpose for Tradingillegal goods and services or for speculative gambling makes me suspicious of its use,” Senator Joe Manchin Letter to Regulators (February 2014)

If Bitcoin was predominantly used inillegal purposes, then it would be more logical that it is mainly for criminals. Since this is not the case, the typical argument that follows that Bitcoin should be banned to prevent such activity is also untenable. This view is based on the false premise that history's first cryptocurrency is worse than the dollar, when in fact it is better than all pre-existing forms of money, mainly due to its fixed supply (see “Bitcoin is backed” and “Bitcoin is not a pyramid scheme”). . The fixed supply of BTC forms the basis for the fundamental demand for it. And no matter how many point-of-sale transactions Bitcoin processes each day, it is used every day as a censorship- and inflation-resistant store of value. Of course, the largest and relatively anonymous cryptocurrency is used by drug traffickers and various unscrupulous characters on the darknet. However, it is unreasonable to think that this is its main use or that it should be banned because of it. It is illogical to simultaneously believe that Bitcoin is functional enough to be a viable currency for criminals, and deny that such a view only confirms that Bitcoin is functional for everyone.

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But, before finally refuting the theory ofdrugs, we must admit that criminals rely not only on Bitcoin, but on any massively used access points. Roads, the Internet, mail, airports, the banking system, etc., are all used by criminals to commit offenses. But, again, the criminals also use all of the above not for offenses. And it is here that the logic of the statement that Bitcoin needs to be banned because it contributes to crime is completely collapsed. Crimes are crimes. There is nothing in the instruments used for crimes that would make them illegal in themselves. Using mail to send a letter to your mother is not a crime. But using it to send drugs is against the law. Likewise, buying flowers for dollars for your mom is normal. But buying drugs for dollars (or bitcoins) is a crime. Despite the illegal use, no one is calling for a ban on roads, the Internet, mail, etc. And you certainly will not see advocates of public interest call for a ban on dollars, because this is the most popular currency among criminals around the world. Of course, the fear of criminal activity was universally used as an excuse for violating the rights of law-abiding citizens, but to consider that Bitcoin should be prohibited because it is used by drug dealers is the same as calling for a ban on dollars for the same reason.

Misunderstanding

This look becomes even moreuntenable if you understand that Bitcoin is not for criminals, but to do this you also need to understand that Bitcoin is also for criminals. This is the whole paradox. When viewed from the right angle, the idea itself is turned on its head. The fact that criminals can (and do) use Bitcoin in their business simply demonstrates that Bitcoin can be used in any commerce. If one of the earliest and most publicized uses of Bitcoin was related to the Silk Road website, which facilitated transactions in drugs and other illicit goods using Bitcoin as a means of payment, this does not change the broader conclusion:Bitcoin worked. But instead of focusing on this,Bitcoin research often tries to prove the opposite - that only a small percentage of Bitcoin transactions are used for illegal purposes. For example, the title two years ago:

“New Study Finds Less than 1% of Bitcoin Transactions on Exchanges Are Illegal,” Coincenter, January 2018.

Perhaps this is essentially the case, but similarrebuttals wage a battle on the wrong front. If Silk Road proves something, it is that people are willing to accept payment for goods and services in bitcoins. It doesn't matter that Silk Road was mainly selling illegal goods. Silk Road, where it is estimated that more than a million transactions took place, was one of the earliest demonstrations of the real massive use of bitcoin. So, yes, bitcoin has been and is used in the drug trade, but this is just one application that helps to prove the general usefulness of bitcoin. Although all drug dealers know about Bitcoin and can use it, they still give preference to dollars. Whether it’s a reaction to Silk Road or something else, one who draws the limited conclusion that “Bitcoin works for drugs” does not see the forest behind the trees. A more consistent and breaking assumption: Bitcoin just works. Dot.

If Bitcoin can facilitate tradingdrugs, then can it not promote any other commerce? It is enough to connect a little imagination to develop this logic. If someone accepts Bitcoin for some product, can others also accept Bitcoin for any product? In the Silk Road case, drug dealers may not have fully understood why Bitcoin “works,” but it worked well enough to be used in exchange for drugs. What they probably understood was that there was sufficient market demand for bitcoin to be an effective medium of exchange. And since it provided an electronic transaction processing method, it opened up a market and a market mechanism that otherwise might not have been available. Whether you like it or not, the market just took advantage of the new technology.

illustrations: BitNews

Despite the existence of Bitcoin, drug dealersDo not stop, as if by magic, to give preference to dollars. In the same way, they did not stop laundering dollars in the banking system. Drug dealers on Silk Road did not use bitcoin just to circumvent legislation, and the dollar drug trade did not suddenly disappear. They used bitcoin because it was functional and because it met the demands of the market. If the cryptocurrency was not functional and if it was not expected that it would retain a certain threshold value for a certain time, then BTC would not be used as a means of exchange on Silk Road. After all, drug dealers do not engage in a loss-making business. But most importantly, when someone laments that criminals use bitcoin for illegal purposes, whether it is an American senator or finance minister, by default you need to ask the question: why does bitcoin even work as a medium of exchange, promoting commerce?

Litmus test

Focusing on criminals distracts attentionfrom a more fundamental question and consequences. If Bitcoin works for criminals, then it can work for everyone, and in order for Bitcoin to be an effective currency, it just needs to work for everyone, including criminals. This is not an endorsement of criminal activity using Bitcoin, but a recognition of the properties that enable Bitcoin to function. Think of criminal activity as a litmus test. If Bitcoin does not work for drug dealers, then it does not work for anyone. But if he works for drug dealers, then he can work for everyone. If it was possible to censor (or prevent) Bitcoin transactions related to certain activities or certain people, then any activity and any person could be censored. And if there was a primary target for censorship, then it would be a criminal activity. Such attempts have already begun.

“Office for the Control of Foreign Assets(OFAC) The US Treasury has sanctioned three Chinese citizens and their cryptocurrency addresses, claiming that they violated money laundering and drug smuggling laws ... The agency also cited a number of Bitcoin addresses ... which allegedly belong to Chinese citizens, ”Coindesk, August 2019

In this context, Bitcoin's “work” refers tonetwork protocol level. Whether a company or an individual accepts bitcoins from an address under OFAC sanctions, or whether any financial institution freezes the account associated with such an address, does not really matter for the long-term effectiveness of bitcoin. What matters is whether the network confirms the transaction from the sanctioned address or the block containing the transaction. In other words, will miners or Bitcoin nodes reject such a transaction if it does not contradict the consensus rules of the network. Bitcoin is only valid as a currency because it is decentralized. But decentralization is not an end in itself. The ultimate goal is resistance to censorship. And it is needed not to protect criminals, but to protect the functioning of the monetary system at the very root level.

Resistance to censorship - all or nothing

Resistance to censorship - the most critical propertynetwork because it ensures that network rules will not be arbitrarily changed or applied inconsistently, without which the system would be inoperative. The most important of these rules is the ultimate rarity of the currency. Censorship resistance strengthens rarity, while rarity strengthens censorship resistance. Bitcoin becomes more resistant to caesure as it scales, because the network is gradually becoming more decentralized. With the growth of adoption, each (on average) controls an ever smaller share of the network’s fixed supply, and adoption is mainly facilitated by the rarity of the currency. As a network becomes more and more decentralized, it becomes more difficult for individuals or companies to censor it. However, it is impossible at any given moment to find out if Bitcoin is sufficiently resistant to censorship. Resistance to censorship is measured only during the test of time, with each unsuccessful attempt to censor the network.

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From a practical point of view, the risk of censorship hastwo main forms: changing consensus network rules and rejecting (or avoiding) valid transactions. By design, anyone with a full node can access the Bitcoin network without having to get permissions. Each node can broadcast the transactions of the rest of the network, and each node with each subsequent block checks the complete blockchain history based on a common set of rules. So, nodes distributed around the world are able to reach consensus on the actual state of ownership of bitcoins on the network, on a decentralized basis and without the need to trust anyone. Bitcoin's consensus rules are a common language that coordinates all network participants, and no one dictates a rule and everyone agrees with them voluntarily. If one of the participants or some central authority could impose changes on the network or influence the activity of the network so as to block actual transactions, then this would demonstrate that the network is not decentralized enough to prevent censorship.

But how does this relate to criminals? If it were possible to censor criminal activity in the network, either by blocking access to the network, or by preventing confirmation of otherwise valid transactions, this would indicate that the network is not decentralized enough to guarantee censorship resistance. The Bitcoin network does not understand what crime is. She is beyond morality and politics. Bitcoin is a closed system; all she understands when confirming transactions is consensus rules. A Bitcoin transaction is valid if it is consistent with the consensus rules of the network, otherwise anything would be possible. If criminal activity could be censored, it would simply prove that any activity could be censored. But that's not all. If you can censor any activity on the network, then you can censor the network as a whole. A demonstration of the ability to prevent or censor a single transaction will prove that consensus network rules are also at risk.

Bitcoin cannot be partially resistant to censorship, just as a little pregnant cannot be.

Resistance to censorship means all or nothing. She is either there or she is not. And if it is not, then everything is at risk, including a fixed bitcoin offer of 21 million BTC. This figure and the reliability of rarity underlie all other economic incentives that allow the Bitcoin network to function and increase value, including the mechanism by which the network reaches consensus. Accepting that the Bitcoin network will always be used to some extent for illegal purposes is not some libertarian fad. This means recognizing that in order for Bitcoin to be functional and effective as a currency system, it must be such for everyone. If someone - be it a person, an organization or a state - could prevent someone from using the network, then Bitcoin would be at risk of failure. Censorship at the Bitcoin protocol level is not equivalent to how PayPal blocks an individual or company, how Bank of America closes a current account, or Visa does not authorize a transaction. Bitcoin is a currency issuer and a settlement level. Any effective form of censorship will undermine the system as a whole, so activity with the highest probability of censorship is a litmus test for the rest of the network. If censoring the most risky activity is impossible, then this confirms that Bitcoin works reliably in all cases.

Bitcoin - for everyone

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Ultimately, Bitcoin istechnological improvement in the global competition of money. It is better than existing fiat money systems, even if few people understand it well today. And anyone who calls to ban Bitcoin because of the belief that it promotes criminal activity, at the same time recognizes that Bitcoin is functional as a currency. Therefore, if Bitcoin successfully promotes commerce related to illegal activities, despite the best efforts of regulators, then it can also promote any commerce, including that carried out by law-abiding citizens. If you build on such a reality and admit that bitcoin is of course a rare resource, it does not follow that it will be used or is being used exclusively on the darknet now.

The competition for Bitcoin is global. Over time, those who produce the most relative value will accumulate the largest share of bitcoins. To think that those involved in illegal activities will account for a larger share of the future Bitcoin economy than in today's dollar economy is irrational. And calling for a ban on bitcoin is like being afraid of your own shadow. This is not only impractical to implement, but the activity that such a policy will seek to prevent today relies on dollars on a much larger scale. It's like throwing a baby out with water. We accept the good with the bad, recognizing that because of the very nature of bitcoin, it is not for us to decide. There are always concessions, and in this case, the fact that Bitcoin will inevitably be used in illegal activities is a concession, which we gladly accept in exchange for the economic stability that a global currency that is not subject to manipulation will provide. As with any technology, the value will accumulate for those who use Bitcoin in the best way that only the market can determine. The total benefit will not go to someone alone, and just like the Internet is not only for drug dealers and terrorists, Bitcoin is not for criminals. He is for everyone.

“It’s more important to defend innocence than to punish guilt,because guilt and crime are so frequent in this world that it is impossible to punish everything. But if you condemn innocence itself, then citizens will say: "It doesn’t matter if I do good or evil, because innocence does not protect against anything." And if such thoughts take hold of the minds of citizens, it will be the complete end of security, ”- John Adams

 

“Drive wisely and as little as possible,” Sam Houston

In conclusion: history will look more favorably on Ross Ulbricht, the founder of Silk Road, than on central bankers. Not because of drugs, but because of Bitcoin.

Ross Ulbricht during the Silk Road trial