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Cryptocurrency: The Challenge of Regulation

Since 2009, the cryptocurrency market has gone from having zero worth to almost $353 billion as of March 2018, according to U.S. Special Operations Command (SOCOM).

One main attraction of cryptocurrency and blockchain is privacy. A direct peer-to-peer transaction can occur without involving a third party like a bank, meaning transactions can be conducted anonymously.

Transactions involving cryptocurrency also happen rapidly, according to Colonel Josh Potter of SOCOM, who spoke in a keynote address at the 2018 Synapse Innovation Summit in Tampa, Florida.

“They can proliferate it [cryptocurrency] around the world in the blink of an eye,” Potter said. “Blockchain has immediate, powerful and sweeping implications.”

According to Potter, key drivers of the cryptocurrency growth include:

  • Converging of internet and mobile technologies
  • Increasing distrust of government and banks
  • Changes in blockchain and cryptography
  • Anonymity gives criminals a chance to use it without repercussion

The rise of blockchain and cryptocurrency means that new regulations and laws will have to be implemented – but how can that happen while ensuring legitimate transactions are still allowed to go through?

Examining Illegal Crypto Transactions

Currently, threat actors, something or someone responsible for incidents threatening an organization’s security, are using cryptocurrency to finance operations across the globe through more than 9,500 crypto-exchanges, according to Potter.

It’s also the preferred method of transaction across the dark web, meaning criminals can use it to fund any number of illegal activities like micro-purchases of weapons, drugs and chemicals; money laundering; illicit trades or avoiding sanctions.

“Cryptocurrency doesn’t have anything backing it and it’s being used by folks without any sort of consequence,” Potter said. “It’s got to be properly regulated. Humans are more important than hardware.” For example, a recent case involved a man who allegedly used Bitcoin, the most common cryptocurrency, to finance trafficking of fentanyl, an opioid that can easily cause overdoses. Authorities are looking into 28 fatal overdoses linked to this activity, and this is just one case where criminals are using cryptocurrency to fund the opioid epidemic, one of the worst drug epidemics in U.S. history.

“You can order illicit opioids right online and have them delivered right to the comfort of your living room,” said Greg Nevano, deputy assistant director of Homeland Security Investigations in an interview with CNBC.

Regulating Cryptocurrency Use While Maintaining Legitimate Transactions

While government officials and legislators work to create regulations around cryptocurrency, they are also seeking a way to keep legitimate transactions easy to complete.

Potter outlined a need for law enforcement agencies, military personnel, national policy authorities and foreign policy and international authorities to work together to create an enforcement system that still allows for the legitimate transactions.

  • National policy authorities can develop a national strategy and policy oversights and update federal laws and regulations.
  • Law enforcement agencies like the FBI and Secret Service can use biometrics, seize assets and arrest key facilitators of illegal activity.
  • Military personnel can identify and monitor threats while also collecting intelligence and analyzing it.
  • Foreign policy authorities can block financial access from other countries and work to shape the international blockchain environment.

Enforcing these policies means these multiple agencies will need to use their individual authorities and skills to work together, Potter said:

“Technology must be able to empower humans. We’re not trying to disrupt legitimate commerce… we need solutions that matter to us in the field. We don’t have a U.S. agency that can tell you how cryptocurrency is defined – we need to find ways to work with a consumer population who want to use it for legitimate purposes.”

As the cryptocurrency climate continues to evolve, the need for professionals to work with it and analyze it will also increase. For more information on degrees in the information technology and cybersecurity fields, click here.

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