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Crypto can prevent money laundering better than traditional finance

Despite common misconceptions, cryptocurrencies like Libra allow better identification and  prevention of illegal activity than traditional payment systems.

Last week, President Donald Trump spoke out about the potential misuse of cryptocurrencies to facilitate unlawful behavior. He’s right that crypto assets are sometimes used by bad actors, but every currency and payments system in the world is exploited in this way.

We need to go beyond the sensationalist headlines to understand how to solve the money-laundering problem.

Less than 0.5% of Bitcoin transactions are used for illicit purchases

According to analysis my company conducted, so far in 2019, $829 million in Bitcoin has been spent on the dark web. These payments were used to purchase everything from narcotics to stolen credit cards. Compare this with the annual value of global illicit payments, estimated to be up to $2.2 trillion.

Illicit payments represent a very small share of all Bitcoin activity — less than 0.5% of Bitcoin payments over this period. The total proceeds of crime generated in the United States were estimated to total approximately $300 billion in 2010, or about two percent of the overall U.S. economy at the time.

The share of Bitcoin transactions that can be linked to illicit activity has dropped dramatically over the past few years, for two key reasons.

First, speculation has emerged as the primary use-case for crypto assets, with both retail and institutional trading activity soaring.

Second, there is a growing awareness that crypto asset transactions are not anonymous, and that illicit payments can be identified and traced.

Blockchain can facilitate compliance

The majority of crypto assets, including Libra, are based on transparent transaction ledgers. Anyone can download the Bitcoin blockchain and see the details of every transaction. Real-world identities are not recorded, but blockchain monitoring tools can be used ...

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