Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever. Malicious ransomware attacks targeting growing numbers of firms and individuals could prove to be the tipping point.
CAMBRIDGE – Ransomware – a type of malicious software that restricts access to a computer system until a ransom is paid – is not a good look for cryptocurrencies. Proponents of these digital coins would rather point to celebrity investors such as Tesla founder Elon Musk, Dallas Mavericks owner Mark Cuban, star football quarterback Tom Brady, or actress Maisie Williams (Arya in Game of Thrones). But recent ransomware attacks, and cryptocurrencies’ central role in enabling them, are a public relations disaster.
The attacks include last month’s shutdown of the Colonial Pipeline, which drove up gasoline prices on the US East Coast until the company paid the hackers $5 million in Bitcoin, and, even more recently, an attack on JBS, the world’s largest meat producer. Such episodes highlight what for some of us has been a longstanding concern: difficult-to-trace anonymous cryptocurrencies offer possibilities for tax evasion, crime, and terrorism that make large-denomination bank notes seem innocuous by comparison. Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators cannot sit on their hands forever.
The view that cryptocurrencies are just an innocent store of value is stupefyingly naive. Sure, their transaction costs can be significant enough to deter most ordinary retail trade. But for anyone trying to avoid stringent capital controls (say, in China or Argentina), launder illicit gains (perhaps from the drug trade), or evade US financial sanctions (on countries, firms, individuals, or terrorist groups), crypto can still be an ideal option.
After all, the US government has for many decades turned a blind eye to the role its $100 bills play in facilitating weapons purchases and human trafficking, not to mention undermining poor-country governments’ ability to collect tax revenues or maintain domestic peace. Although Bitcoin and its crypto variants have by no means surpassed the dollar in facilitating the global underground economy, they are certainly on the rise.