In the mainstream financial world, there has been a pervasive argument that dismissively regards Bitcoin as nothing more than some kind of digital asset used by the seedy, virtual underbelly of the Internet we more commonly know as being the Dark Web.
If there were studies used to flaunt this kind of narrative, the more recently discussed among them would be from the research team consisting of Talis Putnins of UTS Sydney which hosts the particularly leading title – ‘Sex, Drugs and Bitcoin,’ named after the study of the same name.
So what did this study find? Through scraping Bitcoin transactions over the course of 2013-2017 – Putnins and the team found that anywhere from 44-46% of transactions taking place on Bitcoin was being quantified as 'illegal' ones. Putnins disclosed that this roughly equates to more than $76bn.
Putnins goes on to suggest that with the application of Bitcoin and other cryptocurrencies, we have seen the advent of a ‘black e-commerce’, enabling users to participate in illegal arms, drugs and even human trafficking.
While we, as investors, traders of or even just holders and enthusiasts of cryptocurrencies like Bitcoin, should be welcoming of research that helps to illustrate a serious problem.
Also speaking to the professor of finance shortly after the talk, he concedes that the study has its limitations, one being chronological in nature; because this is information 'scraped' during the nascent days of BTC as one example.
We'll be digging into just some of the aspects that need to be taken into consideration when approaching Bitcoin now as opposed to what it WAS, just years ago, because the difference is significant.
To both the professor's credit: they did use to be. But according to more recent research provided by Chainalysis back in June 27, 2019, this number has plummeted. The crypto analytics firm demonstrates that there's been a dramatic amount of self-regulation going on, with only 1% of transactions being illegal.
If we cross-reference this with Bloomberg's recent study on the same topic: this 1% counts for $515 million, which is forecasted to double to nearly $1bn by the end of this year (2%).
While this would mean that the annual numbers don't essentially add up to $76 billion. It's likely that the study concluded that this was the net figure from 2013-17 instead of on an annual basis.
But even if this was the case, this would mean that the total amount of illegal transactions, were current trends to continue, would equate to over $80bn over the same span of time. Which is hardly some kind of remarkable increase. Especially considering that illegal activities using Bitcoin have decreased annually.
But the problem is two-fold with this definition of 'illegal' transaction. During the course of the talk, Putnins pointed to increased uses of Ethereum, Dash and ZCash within the region of the US from 2014-2017, contributing somewhat to criminal transactions.
What he misses out is what these transactions were in aid of. Since at least 2014, the Venezuelan economy had been undergoing a tumultuous period of hyperinflation, debasing the value of the Bolivar significantly. As a result, desperate citizens resolved to obtain cryptocurrencies in order to exchange for US Dollars and buy food among other supplies.
What kind of crypto did these Venezuelans use? Ethereum, ZCash and Dash. CEO of the Dash Core group, Ryan Taylor admitted to Coin Telegraph journalists last year, in fact, that Venezuela was one of its biggest markets ahead of China and Russia.
To this day, there are initiatives that intend to provide Venezuelans with access to cryptocurrency in order to obtain US Dollars for supplies they need. Which is great news considering the re-emergence of bartering in the country. Initiatives like #AirdropVenezuela provide crypto users with QR codes with which to airdrop crypto to wallet holders there.
Hardly drug trafficking, but it goes to show the glaring problem with labelling something as 'illegal'. While these points we have illustrated would make for some meaningful kind of critique as to the challenges faced by this study.
The problem remains that this is an older study, with a broad application of what constitutes illegal activity, while failing to mention the drastic improvements that have taken place over the last few years alone.