Have you ever thought about why you should have to pay fees to keep your hard earned cash in a bank?….
Banks are some of the wealthiest companies in the world and it has only been up until recently that most big banks in Australia have stopped charging customers transaction fee’s to withdraw their own money from an ATM. Secondly, banks accumulate a wealth of data on customers spending habits. This data can be very valuable information for advertising companies and governments to create customer profiling and effectively produce more data trends as Barclays started doing in 2013 (Jones, 2013, The Guardian).
But what if there was a way of cutting out the middle man?
As society becomes more and more virtual, demand to be able to pay for goods and services with virtual currencies in a decentralised way has resulted in the invention of cryptocurrencies, ruling out the need for banks.
The most commonly known of these virtual currencies is Bitcoin, however the concept of e-cash was theorised long before the arrival of Bitcoin. In a 1999 interview, Professor Milton Friedman, an American economist who received the 1976 Nobel Memorial Prize in Economic sciences, predicted the global influence of cryptocurrencies when he said “I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed is a reliable e-cash.” (Youtube, 2013).
Bitcoin has been the buzz word in the finance and investment world over the past year or two, being described as ‘volatile’, ‘speculative’ and in a ‘bubble’ by media reports since it hit a record high of AU$24,000 in December 2017 (Allam, 2018, Law Society Journal). Whilst Bitcoin is the most widely known application, as of March 2018 there are now 1,494 cryptocurrencies in existence (Allam, 2018, Law Society Journal) with exchanges and markets accumulating a daily dollar volume of around $50 billion (Foley, Karlsen & Putnin 2018, p.1). The nature of cryptocurrencies is anonymity as the blockchain acts as a global online data base that anyone, anywhere can use. Such a complex record of transactions, known as ‘blocks’, would traditionally be owned and under the surveillance of banks, companies or governments, however, blockchain isn’t owned by anyone.
Explaining what the potential of the Blockchain could mean for the future of the internet and data freedom is complex and confusing to explain in a few sentences but is summed up well in this short video that featured on Lateline in 2017.
‘Blockchain: the technology that could dramatically change the internet’. ABC Lateline, 28 September 2017
This entirely unregulated new world of digital currencies has bamboozled regulators and governments, with some governments like China and South Korea putting a blanket ban on initial coin offerings (ICO’s). Cryptocurrencies do have potential benefits such as faster and more efficient transactions, and its biggest fans even believe that blockchains can not only replace central banks but usher in a new era of online services outside the control of internet giants like Facebook and Google (Finley, 2018, Wired). However the other side of the (Bit) coin is that it has also created the perfect trading system for the darknet, a hidden online black marketplace. Recent research by forensic financial analysts from the University of Technology Sydney (UTS) and the University of Sydney claims that nearly half of all Bitcoin transactions are associated with illegal activity. The upcoming research paper, Sex, Drugs and Bitcoin: How much illegal activity is financed through cryptocurrencies? (2018), discusses the ethics of people investing in currency that is being used to sell drugs, weapons, finance terrorism, forgeries, launder money and sometimes even murder for hire (Foley, 2018, p.1).
The research proposed by academics Sean Foley, Jonathan Karlsen and Talis Putnin estimates that $72 billion of illegal activity per year involves Bitcoin, and one quarter of Bitcoin users are engaged in illegal activities (Foley, 2018, p. 2). Bitcoins existence on the dark web is explained by Francis Pouliot, the CEO of Satoshi Portal, Bitcoins first ever Blockchain hub, as “when Bitcoin was first becoming more readily used it was the only e-currency that was censorship resistant unlike PayPal or Visa and this is why it was the only payment option for users of the dark web” (CGTN, 2017). Whilst the methodology of the research conducted for Sex, Drugs and Bitcoin (2018) holds merit, it is important to remember that this is a study on the activities of those who do not wish their activities to be discovered in the first place (Torpey, 2018, Bitcoin Magazine). The anonymity of cryptocurrencies makes it very difficult to track or prove illegality and is possibly why the dark realities of Bitcoin’s anonymous trading methods rarely makes it into media reports. Furthermore, buying and selling cryptocurrencies is considered high-risk as the Australian Competition and Consumer Commissions (ACCC) received 1,289 complaints related to Bitcoin in 2017 with investors reporting being scammed losses totalling $1,218,206 (Hobday, 2018, ABC). However this has not stopped transnational companies like Shopify, Webjet, Expedia, Microsoft and Subway who have started accepting Bitcoin as payment for products and services. Some of the worlds biggest corporations adopting the use of Bitcoin and the high demand for digital money means that governments are scrambling desperately to find a way of regulating the use of cryptocurrencies.
As cryptocurrencies become more widely understood and adopted by mainstream institutions it is showing exciting potential for the future of the internet and data freedom, however will a way of implementing consumer protection laws and regulating it’s illegal uses emerge?. Creating a digital artefact surrounding this issue may be challenging as there is limited academic research available on the uses and legitimacy of cryptocurrencies however this is the question I wish to explore through my research report.
Allam, K 2018, ‘The Dark side of Bitcoin’, Law Society of NSW Journal, Issue 24, March 2018, p.28-29
Finley, K 2018, ‘The Wired guide to the Blockchain’, Wired, 02.01.2018, https://www.wired.com/story/guide-blockchain/
Foley, S, Karlsen, J, Putnins, T, 2018 ‘Sex, Drugs, and Bitcoin: How much illegal activity is financed through cryptocurrencies?’ SSRN https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3102645
Hobday, L 2018, ‘More than 1,200 people complain to ACCC about bitcoin scams’, ABC News, http://www.abc.net.au/news/2018-02-19/more-than-1200-people-complain-to-accc-about-bitcoin-scams/9462240 viewed 21.03.2018
Jones, R 2013, ‘Barclays to sell customers data’ The Guardian, 25 June, https://www.theguardian.com/business/2013/jun/24/barclays-bank-sell-customer-data
Torpey, K 2018, ‘Study suggests 25 per cent of bitcoin users are associated with illegal activity’ Bitcoin Magazine, Jan 22, https://bitcoinmagazine.com/articles/study-suggests-25-percent-bitcoin-users-are-associated-illegal-activity1/