Michael Morell, the former deputy director of the Central Intelligence Agency, who also twice served as an acting director, claimed that Bitcoin and the technology behind it – blockchain – should be embraced by governments since it is a “boon for surveillance.”
“Blockchain technology is a powerful but underutilised forensic tool for governments to identify illicit activity and bring criminals to justice,” Morell said in a report published by the recently formed Crypto Council for Innovation.
The report defends Bitcoin amid “concerns about the illicit finance implications of the cryptocurrency ecosystem,” concluding that criminal use of Bitcoin is “significantly overstated” and claiming that it could rather be used to catch the criminals.
The report, co-authored with Josh Kirshner and Thomas Schoenberger, comes amid governments expressing worries about criminals using the cryptocurrency. In February, US Treasury Secretary Janet Yellen said that Bitcoin was used “often for illicit finance,” while ECB President Christine Lagarde said in January that Bitcoin was used for money laundering.
The report, however, shows that the percentage of illicit activity using Bitcoin has significantly dropped since 2013 when the Silk Road darknet market was shut down by the authorities. The report compares the world’s most famous cryptocurrency to privacy coins like Monero, which is, as it shows, more favoured by criminals.
To support the claims that blockchain technology helps to catch criminals, the study draws several examples, including the Twitter Bitcoin extortion hack in 2020, when it took only two weeks for investigators to identify the perpetrators and make arrests as investigators linked the wallet addresses to user accounts on various forums.
Another example was the law firm Kobre & Kim using blockchain analysis to trace and retrieve $32 million in cryptocurrency that had been passed through coin mixers in late 2020.
The report also debunks the idea that Bitcoin’s decentralised nature “seem to pose a disruptive threat to traditional financial institutions.”
“The same could have been said for electronic banking and e-signatures 20 years ago, which stirred up significant debate regarding consumer protection and integrity of the financial system,” the report says.
“Eventually, traditional financial institutions found ways to successfully incorporate it into their businesses.”
Launched in early 2009, Bitcoin is the biggest cryptocurrency in the world by market capitalisation. It's is based on blockchain technology that ensures the security of its transactions. The said technology also means that every transaction will forever be inscribed in it, which could possibly pose a privacy risk. The components of Bitcoin, however, such as addresses, private and public keys, and transactions, are all read in text strings that can’t be directly linked to anyone’s personal identity, making the cryptocurrency anonymous to some extent.