We hear it in the media almost every day; “Bitcoin is a hotbed of money laundering, child pornography, terrorism, and dug dealers”. These are the “Big Four” that governments and other regulatory bodies often site as the reason for laws, crackdowns, and privacy invasions; and they use them with great success to slowly strip away our privacy and freedoms.

Here’s the thing, as long as people do nefarious things they will use whatever means of exchange is available to them to meet their goals. Barter, gold, silver, diamonds, dollars, euros, and yes bitcoin.

Of all means of exchange available, bitcoin is arguably the worst from the criminals standpoint, and the best from an enforcement prospective.

The popular misnomer that bitcoin is anonymous could not be further from the truth. Bitcoin transactions today are conducted under a thin veil of pseudonymity that is provided by using a public address rather then personally identifying information in transactions.

All that is required to lift that veil is a single transaction where an individual is known. It does not even need to be the actual criminal that slips up, it could be someone sending to or receiving bitcoin from them.

Using bitcoin completely anonymously is possible, however it requires a very high level of both technical knowledge and operational security, including the implementation of practices that limit it’s usefulness.

Lets take a look at the “Big Four”, and why bitcoin is a horrible means of conducting those types of transactions.

Money Laundering

Money laundering is a process by which criminals attempt to disguise the original source of ill gotten gains to make them appear as though they have come through a legitimate enterprise.

In the US we have already seen a conviction for a money laundering related charge. Robert Faiella, a Florida resident, was tried and convicted of operating an unlicensed money service business. He has been sentenced to 4 years in prison.

He primarily would accept US dollars in exchange for bitcoins that were intended to be used on the darknet market Silk Road.

Faiella’s problem was that he needed a place to buy more bitcoin to fulfill his orders, he turned to Charlie Shrem’s now closed bitcoin exchange BitInstant where he bought north of 1 million dollars worth of bitcoin.

Because of this his pseudonymity was compromised and he was easily apprehended.

Perhaps, if had had laundered the funds through the US banking system like most other criminals do he would not have been caught.

Terrorism

Again, with terrorism we see that just a single weak link in the chain can unravel the whole enterprise. Let’s take The terrorist group ISIS for an example.

In July 2014 an ISIS supporter calling himself Amreeki (American) published a document outlining how bitcoin could be used to fund Jihad.

This document outlines some sophisticated techniques to remain anonymous including coin mixers and Darkwallet. While most currently existing coin mixers have been shown to be flawed, Darkwallet’s mixing and stealth address features may be more difficult to thwart.

Still, a single weak link in the chain can expose the bad actors. The fact that to date no evidence supporting that bitcoin has been used to fund terrorism has surfaced suggests that it is not.

Further, ISIS has taken over many oil fields, and is smuggling the oil to black markets that operate solely on the US dollar, the primary source of their funding.

If bitcoin did not exist today, it is safe to say that ISIS would be just as well funded as it is currently, and in fact accepting bitcoin exposes them to a slew of risk.

Child Pornography

Child pornography is a heinous crime, and as a father of two young children I support any and all efforts to bring its perpetrators to justice.

Like most things online, payment for child pornography often comes in many forms. The UK Internet Watch Foundation reported in October of last year in a study that Visa credit cards were the most popular means of purchasing child pornography online, followed by MasterCard and PayPal.

More recently bitcoin has been showing up as a means of payment on these sites, however it still likely the single most risky payment option offered. When a perpetrator of these crimes is caught with a bitcoin wallet, you can bet that many consumers of child pornography will be exposed through Bitcoin’s public ledger.

Compared with the ability to completely anonymously purchase pre-loaded debit or gift cards that support Visa and Mastercard networks Bitcoin is highly non-private. I believe that Bitcoin will emerge as a tool to help track down and stop these types of crimes, rather then perpetuate them.

Drugs

Until the emergence of the Silk Road drug deals was primarily conducted in person for cash. Silk Road changed that by offering a darknet marketplace where bitcoin could be exchanged for a wide variety of illicit substances.

University of Lausanne criminologist David Décary-Hétu and University of Manchester law professor Judith Aldridge released a study in June 2014 that found the Silk Road marketplace actually reduced dug related violent crimes.

The argument was simple, and indisputable: online marketplaces limit the scope of direct interaction and physical contact between involved parties leaving less of a chance for violent interaction.

As I write this Ross Ulbrich is standing trial in New York, accused of creating and running the Silk Road online marketplace and charged with conspiracy to traffic in narcotics, computer hacking, money laundering and that he is engaged in a continuing criminal enterprise (a charge typically reserved for mob and cartel bosses) among other things.

The FBI reported that they seized 144,000 bitcoin worth at the time over 28 million dollars. The US Marshals service has already held two successful public auctions to sell the sized bitcoin, both won by prominent venture capitalists.

The shutdown and seizure of bitcoin that belonged to the largest online drug marketplace in history should be enough to demonstrate that bitcoin is a poor choice for dealing with drugs.

If that is not enough, we can reference Operation Onymous conducted on November 5th and 6th 2014 where 414 websites were shut down, including many online drug marketplaces. The operation included the police forces of 17 nations and resulted in 17 arrests of people accused to be operating those sites.

While it is clear that secret online markets have reduced drug related violence, it is also clear that paying in bitcoin grants less anonymity then paying by traditional conventional means.

Conclusion

Bitcoin is a means of exchanging value, and not a particularly good one to use for nefarious purposes. It’s pseudonymity is easily broken by law enforcement as has been demonstrated by arrests, convictions, and shut-downs.

Traditional means of exchange, using FIAT currency, are still far more anonymous and remain the preferred method for financing these crimes.