The representative of the US Federal Reserve Lael Brainard said that Bitcoin is being used to perform criminal acts and illegal transactions.
Lael Brainard, governor of the Federal Reserve Board, said that a high percentage of transactions conducted with Bitcoin could currently be associated with criminal acts.
Brainard made her statements during a panel of experts at a monetary policy event in Germany. During a speech delivered in honor of the member of the Executive Board of the European Central Bank Benoît Cœure, the official shared some considerations about the current state of the ecosystem of digital currencies and how, in her opinion, they have promoted crime in the different strata of society.
In this regard, Brainard cited a study made earlier this year in which she indicates that Bitcoin has a broad base of users that commit criminal acts. She explained that only a third of the most popular exchanges handle mechanisms to verify users’ identity and address when making deposits or withdrawals. This is worrisome since several studies claim that digital currencies support a significant number of criminal acts.
Bitcoin and Criminal Acts
One of Brainard’s most controversial statements had to do with the volume of operations linked to crimes throughout the history of the main cryptocurrency. The official said that 50% of Bitcoin transactions have in some way violated the legal provisions in force.
However, several analysts say that the official has misconceptions regarding the use of Bitcoin since the anonymity given to financial operations by the network does not mean that it goes against the laws in force. Other studies show that cash transactions are still the main vehicle for perpetrating unlawful acts, while a large number of irregularities in money laundering constantly pass through the hands of major banks, including those operating internationally.
A study conducted by MIT and Elliptic researchers in the middle of 2019, discredits the official’s statements. Of around 200,000 transactions analyzed it was found that only 2% of these could be related to illegal activities. The researchers indicated that these figures occur because, despite the anonymity granted by the digital currency, operations can be perfectly traceable by using different software tools to analyze in detail the data hosted on the blockchain network.
Rise of Stablecoins
Another point highlighted by Brainard is related to the rise of stablecoins, digital currencies whose value is equated with that of fiat currency whilst being backed by reserves in legal-tender money. The official believes that they have grown in popularity and adoption in recent months due to initiatives such as Facebook’s Libra.
Brainard highlighted how digital payment systems have evolved greatly in countries such as China, as well as the Fed’s efforts to develop an almost instantaneous transaction platform by 2023. However, she noted that many people and organizations are interested in the issuance of stablecoins by Central banks. In this regard, she said that there are still many challenges to address in this area, mainly associated with policies against money laundering and the financing of terrorist acts.
Returning to Facebook’s Libra, the official said that this project is far from other “legal” stablecoins such as Paxos or Gemini Dollar, due to the scope and magnitude of the project, which would allow more than 2 billion people the possibility for making payments without any regulatory control. She stressed that stablecoins seek to operate as traditional money without relying on central banks, which represents risks as there would not be an institution that responds in case of irregularities that go against users’ interests.
By Willmen Blanco