This lecture was quite old (May 2015). It brings up many of the points that I’ve read in current news articles. Also, some of the speculation on how certain countries would have behaved have come true. I’ve chosen not to expand beyond this lecture since that’s a separate post in itself.
Questions answered in this Post:
- Why governments started to care about Bitcoin?
- Example of a Illicit Marketplace: Silk Road
- Lessons from the Silk Road
Why notice digital assets?
It’s nice to see the lecturer provide historical context for when the government noticed Bitcoin. At this point, both the SEC and CFTC have released several statements on how they view Bitcoin and digital assets. He states, “untraceable digital cash defeats capital control”. Money under most circumstances has traditionally been created by central institutions, usually governments. Governments control the total capital, how much cash and how it is valued. With Bitcoin, the country cannot stop people from moving it in and out of the country. Whole economic groups would have no way to track a country’s wealth or economic success if this took of. thus, the idea of finance becoming borderless does not sit well with governments. Some countries have taken strict countermeasures such as disconnecting Bitcoin from fiat currency financial institutions. This only works when the country has a strong control over its citizens and currency.
It is not just lack of total capital though, there is also a security concern present. With untraceable currency, people immediately think of crime and national security. Digital assets in the hands of criminals is dangerous. This money can be used for terrorism, money laundering, and tax evasion. If these crimes were to happen to a nation’s citizens how would law enforcement be able to track these criminals. White collar crimes are already difficult and adding increased technology would make it near impossible. Silk Road is one example of an anonymous marketplace that facilitated the transfer of illicit items. It took many man hours to capture Ulbricht, the man behind the site.
Silk Road: Illicit Market for Drugs
Apologies for the redundancy, this is the second time, the course has talked about the Silk Road. The Silk Road is a prime example of what government institutions fear. It was a large online market for illegal drugs, essentially a black market can was run pseudo-anonymously and theoretically borderless. It was run as a Tor hidden service thereby adding more difficulty in tracking the website. Payment as in Bitcoin and the site held the BTC in escrow while goods were shipped. This is not a trustless system, but ran with more of a reputation system as well as trust in the Silk Road site to not steal funds. Nontheless, it was successful. It operated from Feb 2011 to October 2013. The creator was caught via entrapment where they had an FBI agent befriend the creator and force his hand. The site had 174K worth of Bitcoin which was auctioned off to the public. He received life in prison excluding the previous mentioned crimes and even in 2017 that sentence has been upheld.
Lessons of Life after Silk Road
The lecturer points out three main lessons. The first is the difficulty of keeping a real an virtual life private. This uploads the idea that a Bitcoin address is pseudo anonymous. In addition, it also adds value to the number of identity projects via a blockchain. People realize that having a digital entity may be just as important as your physical one. In addition, your digital entity, is not completely separate from your physical one. It’s hard to stay anonymous because transactions will be tracked via both the blockchain as well as information about how the transactions are sent. Federal officers while new to this type of crime will follow the money. They’re good at what they do and while adding technology makes it harder, it doesn’t make it impossible. Also one of the worse things they could do is just make the money untouchable. If they mark a certain address as a black (criminal address), then anyone who submits a transactions is immediately under suspicion. Law enforcement can block transactions or the movement of money. This is similar to what they can do with banks. From what I can tell, it also makes cash still king when carrying out an anonymous crime.