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The Impact of Brexit on the United Kingdom's Crypto Sector

UK and EU Governments Crackdown on Growing Criminal Bitcoin Use

Reading Time: 3 minutes by on December 5, 2017 Bitcoin, News, Regulation
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As increasing numbers of both street criminals, tax evaders and money launderers are using bitcoin and cryptocurrency, the UK and EU governments prepare to respond with a massive crackdown. The crackdown aims to change existing laws for money laundering to apply to cryptocurrencies.

Drug Pushers Love Bitcoin ATMs

In the UK capital of London, criminals like drug dealers have taken a huge interest in cryptocurrencies as a way to store their cash outside of the formal banking system. A report that appeared on Business Insider claims that more and more street criminals are turning to cryptocurrency as a way to secure their earnings from other criminals, as well as to keep proceeds out of the bank where they are vulnerable to surveillance.

According to Detective Inspector Tim Court of the London’s Metropolitan Police, “If you’re a local drug dealer [crypto ATMs] are a great opportunity to quickly dispose of cash.”

Not only are the criminals using bitcoin to store their earnings, but they are also making use of other cryptocurrencies offered on London ATMs such as litecoin and ether.

In addition to drug peddlers, other street criminals including brothel operators are also beginning to adopt cryptocurrency. White collar criminals such as those guilty of tax evasion are also employing cryptocurrency to launder or hide funds.

Advantages of Using Cryptocurrency

Aside from the obvious bonus of keeping money hidden, cryptocurrencies offer several unique advantages to criminals. First, for those that deal on the streets, it makes money much more difficult to steal. Second, a cheap mobile phone is all that is necessary to have a fully functional, portable, and anonymous cryptocurrency wallet. If the mobile phone with the wallet is stolen, the software can be password protected, or biometrically locked. Any android phone today is fully capable of storing and transacting cryptocurrency. Many full-featured devices can be bought for less than $80.

Finally, as cryptocurrency values often fluctuate, but generally trend upwards, money stored in bitcoin or other assets has a good chance of appreciating in value. They do, however, also face the possibility of losing value as assets can just as likely depreciate.  

Not Completely Anonymous

The Business Insider article does make a few technical mistakes, however.

While bitcoin is much more anonymous than banks, it is not completely anonymous. For instance, smart use of CCTV cameras and timestamps could effectively identify anyone using a Bitcoin ATM, and then consequently identify their wallet address. Then, as all transactions occur on a public ledger, the flow of funds from and to that address can be easily monitored and tracked.

This, of course, is not a perfect solution to the issue of criminals employing cryptocurrency for nefarious purposes, but as the technology stands today, it is far from completely anonymous. The article does not make mention of any privacy-centric currencies like monero or zcash. These technologies were designed with privacy in mind, whereas Bitcoin, Litecoin, and Ethereum all use open ledgers and thus would require more effort to anonymize transacted value.

EU and UK Plan Crackdown In Response

In response to growing use by both street criminals and those looking to avoid paying taxes, both the UK and EU governments are planning a crackdown. The plan is to institute new laws that would put cryptocurrencies on the same legal standing as other more established assets so that existing anti-money laundering laws can apply to them easily.

In a piece that appeared in the Guardian, the UK Treasury was noted as saying:

“We are working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.”

New rules will likely take effect in the UK sometime in the near future. Such legislation will likely extend to the EU at large later in 2018. According to Stephen Barclay, economic secretary to the Treasury, the laws will result in ATM and wallet providers “activities being overseen by national competent authorities for these areas.”

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