> I haven’t even mentioned gold, which is used all the time in criminal transactions, let alone cryptocurrency, the single biggest recent innovation in money laundering.
Curious how that line is received within the HN crowd.
I think it’s the best explanation for crypto’s apparent massive success. Crypto isn’t especially convenient to use, and for a lot of the popular coins transaction fees are quite high. There are certainly non-criminals who care a lot about privacy and don’t want to be surveilled, and while I’m sympathetic to that viewpoint, I think it’s a tiny minority of people who care enough to inconvenience themselves.
Yet, somehow, billions of dollars of value move through crypto. I wouldn’t be surprised if most of that activity is tax evasion and money laundering.
It seems pretty obvious that cryptocurrency can be used to transfer funds. The question is whether this is actually an innovation or just method #373453 of doing the thing that was always possible a million other ways.
Suppose someone has a million dollars in cash and wants to turn it into "clean" money in a bank account, or transfer it to another country. They pick any goods with a high cost to weight ratio and a third party sale value close to its store price, list them on any marketplace for a competitive price in the country they want the money to end up. When someone orders it from them, they use the dirty money to buy one at any retailer, ship it to buyer, get paid in clean money. When operating at scale they could even get the wholesale price for the goods and be turning a small additional profit from the operation.
What does cryptocurrency add to this? Maybe slightly lower overhead or setup time? If it didn't exist, would they actually be prevented from laundering the money?
The IRS sees a clean million dollars in your bank account. They ask "how did you get that?" You answer "Oh I just sold this super expensive thing on a marketplace". Then they ask "Ok, but how did you get/buy this expensive thing?"
What do you say?
> They ask "how did you get that?" You answer "Oh I just sold this super expensive thing on a marketplace". Then they ask "Ok, but how did you get/buy this expensive thing?" What do you say?
This is not the part cryptocurrency replaces. If you suddenly have a million dollars and you say it's because you sold some Bitcoin, they're just going to ask where you got a million dollars worth of Bitcoin.
Moreover, the answer in practice is that they make something up. Pretend they're playing Storage Wars and finding treasures when they're actually buying worthless storage lockers with a tiny amount of clean money and expensive items with dirty money, or sell things they could plausibly claim to have made themselves or restored/repaired themselves. There are tons of real companies whose business is to haul away some other company's junk and then try to sell it, but then who can say whether or not all the TVs they're selling were among the pallets of junk they were paid to haul away from a dozen different corporate offices?
There was one before Bitcoin called Liberty Reserve. It was a website. You could mail cash to some guy and he'd put it in your account and you could request cash mailed back to you and you could transfer your balance to other people on the website.
It was a centralized operation. The feds seized the server and arrested the guy. For money laundering, obviously. No more Liberty Reserve.
You can't do that with Bitcoin - that's the innovation. It's very censor-resistant.
The problem, of course, being that what "Liberty Reserve" was doing should both never have been a crime to begin with and doesn't prevent any real crime by prohibiting it, the same as with Bitcoin.
Suppose you had the Liberty Reserve guy mail you a box with a million dollars in cash, proceeds from your unspecified illegal enterprise. Now you want to go buy a house or a Ferrari or whatever. What are you supposed to tell the IRS when they ask where you got the money? It helps you with that not at all. Meanwhile the things people actually do to provide a manufactured answer that question are unrelated to the ability to send cash over the internet.
Sanction busting is an interesting thing because states are sovereign so if one state imposes sanctions on another, it's not illegal for the sanctioned state to do everything to ignore/bypass them, unless we consider the sanctioning state to be somehow above others/source of truth for what's legal.
It's usually illegal in the counterparty's state. If I'm in the EU and I sell weapons to Iran, Iran isn't breaking Iranian law, but I'm breaking EU law. Iran is also breaking EU law but that's irrelevant to them the same way it's irrelevant to me that I break North Korean law all the time.
Yet, somehow, billions of dollars of value move through crypto. I wouldn’t be surprised if most of that activity is tax evasion and money laundering.