Bitcoin’s ‘usefulness in illicit trade’ might undercut its fundamental message
Bitcoin, a cryptocurrency that came to public attention following the crisis that was the 2008-09 recession, has come a long way since. The world’s largest decentralized cryptocurrency now has a market cap of over $250 billion, at press time. What is driving such growth? Well, to a huge extent, it’s adoption really. But, what is driving the adoption of Bitcoin infrastructure across the world? This was the question a recent paper titled ‘Global drivers of cryptocurrency infrastructure adoption‘ tried to address.
Here, it is important to note that according to the paper in question, Bitcoin infrastructure includes not only “infrastructure supporting Bitcoin’s peer-to-peer network (the hosting of bitnodes, which are infrastructure meant to validate and verify transactions),” but “infrastructure facilitating the integration of Bitcoin into the regular economy (merchants’ acceptance of bitcoins as payment),” as well.
Interestingly, the paper in question not only confirmed a few of the narratives associated with Bitcoin, but it also raised a few concerns that could potentially be interesting in light of growing institutional entry into the cryptocurrency market.
One of the cryptocurrency’s prominent narratives that was underscored by the findings of this report was the rate of Bitcoin infrastructure adoption in places where banks and financial institutions have a low degree of trust. According to the paper, the level of distrust in such institutions is directly proportional to adoption, with the number of unique Bitnode adopters per million higher than average.
Interestingly, this finding is an extension of the findings of a previous paper which found that increasing levels of distrust fuel increasing participation by lenders and borrowers in online peer-to-peer lending markets, while also increasing the likelihood of financial innovation among the populace.
This observation lends credence to the birth of Bitcoin and the modern cryptocurrency market from the ashes of the 2008-09 recession. In fact, it also supports the narrative that the failures of centralized and oligopolistic banking and financial systems are pushing people to embrace new technologies that enjoy a greater degree of trust.
In yet another victory for these supporters, the paper also verified the increasing use and trustworthiness of cryptocurrencies such as Bitcoin in countries with high inflation and unstable fiat economies. This is true in the cases of countries such as Venezuela and Zimbabwe, both of which have seen increasing crypto-volumes over the past few months.
“Low faith in the currency’s stability, coupled with distrust in the national financial system, can drive the populace into digital currencies, rendering a monetary authorities’ monetary supply less effective.”
However, one finding made by the paper may not go very well with many of Bitcoin’s supporters. According to the same, another factor that may be contributing to fast-growing Bitcoin infrastructure hotspots across the world is its “usefulness in engaging in illicit trade,” especially for the purpose of money laundering.
This might be a setback for a market that is trying really hard to leave the shadow of the Silk Road behind it. The fact that a key driver of infrastructure adoption is how useful Bitcoin is as an accessory to illegal activities is an unwelcome sight.
With the world’s largest cryptocurrency recording spurts of organic growth lately on the back of increasing mainstream recognition and institutional entry to its markets, it is crucial that the industry keeps its history and association with such activities well and truly away.