Microsoft co-founder and the world’s former richest man Bill Gates has raised concerns about cryptocoins being used for financing criminal and other illegal activities. During a Reddit ask me anything session (AMA) on February 27, 2018, he squarely blamed cryptocurrencies for causing death in a fairly direct way. His remarks were in reply to a question asked by another Reddit user on Gates’ thread.
Microsoft Visionary Criticizes Bitcoin
Gates did explain why he really thinks cryptocurrencies are bad though. He said that cryptocurrencies help in hiding the identity of those who do want to disclose their finances to the government. Gates said, “The main feature of cryptocurrencies is their anonymity. I don’t think this is a good thing.” He then went on to add that, “the government’s ability to find money laundering and tax evasion and terrorist funding is a good thing.”
However, his main concern is that these cryptocurrencies can be very easily used for buying drugs. Gates then went on to add that blockchain and cryptocurrency technology is a technology that is causing deaths. He said, “Right now cryptocurrencies are used for buying fentanyl and other drugs, so it is a rare technology that has caused deaths in a fairly direct way. I think the speculative wave around ICOs and cryptocurrencies is super risky for those who go long.”
Fentanyl and Bitcoin are Not Two Peas in a Pod
Of course, digital currencies have enabled some drug trade, of which observers do not yet understand as a new wave or just an extension of the existing underground economy. But to link fentanyl with bitcoin is a fallacy in the opinion of many Bitcoin advocates. The first thing that comes to mind when you talk about buying something with bitcoin, for many people, is alpaca socks, pizza, or coffee (yes, drugs too, but not predominantly fentanyl).
First, a lot more legal transactions are done then illegal with bitcoin. One study by Elliptic shows that the proportion of illicit transactions in the Bitcoin ecosystem have been relatively small and have also declined over time as the cryptocurrency’s popularity has increased.
Second, attributing the deadly nature of fentanyl to a cryptocurrency without mentioning the possibility of information or government failure in this regard. Governments in the US (and elsewhere) have historically misinformed people on the both the danger and nature of drugs. You might even say that it is down to the individual to educate themselves and know what they are feeding their body; it is simply a failure of the individual, their family or even the government to provide the right information to make informed decisions about drugs.
Thirdly, the producers of fentanyl are motivated by money, full stop. It doesn’t matter whether it’s Chinese yuan, U.S. dollars, or bitcoin. To blame the deaths on cryptocurrency when organizations are intentionally producing a compound that is extremely harmful and bears no medicinal qualities is an insult to the people who have succumbed to fentanyl. So if it’s not the individual, who do you blame; the producer? No, Gates blames the medium of exchange. While bitcoin, like the Internet, is making the world ‘smaller,’ the negative aspects highlighted must be weighed with the benefits, which are potentially massive.
The criticism of bitcoin and other cryptocurrencies received stinging replies, with a user pointing out that fiat currency could also be used to buy the same drugs, making both, fiat and cryptocurrencies equally responsible.
Gates, in his usual way of clarifying his stand on a topic, further added, “Yes, anonymous cash is used for these kinds of things, but you have to be physically present to transfer it, which makes things like kidnapping payments more difficult.” The Microsoft co-founder also went to add that the speculation and volatility surrounding the crypto market was something that investors who have taken a long view on these cryptocurrencies must be careful of.
Do They Not Know About Blockchain Analytics?
Bill Gates is not the only one to share such skepticism on cryptocurrencies. His friend and billionaire investor, Warren Buffett, too has been a vocal critic of bitcoin and other cryptocurrencies. He has always maintained that these digital currencies do not have an underlying value and hence, makes them outside the scope of the value investment ideology that he had learned from famed value investor, Benjamin Graham. Many rich investors have come out against bitcoin and other cryptocurrencies citing similar, if not the exact same, reasons.
Research has revealed that more than half of all bitcoin transactions have, in the past, been associated with illegal activities. Furthermore, the study found more than 25 percent of bitcoin account holders have carried out an illegal transaction from their wallet. The study was conducted by researchers from the University of Sydney and the University of Technology Sydney.
But it is also probably true that the cash in your pocket has passed through the hands of the underground economy too; central banks issue new notes, but the criminals start using them again and the money supply slowly tainted once more.
The advantage of blockchain technology is that it transparently displays every transaction that occurs in the Bitcoin ecosystem – while pseudonymous – a whole industry has sprung up, known as blockchain analytics, to fight cybercrime. The development of this field is one reason why bitcoin has become more legitimized over the recent years. In any case, fungibility is an important property for money, so Gates’ remark about anonymity is misguided on several levels.