February 28, 2018 12:52 AM
On Tuesday, Bill Gates provided his opinion on cryptocurrencies and initial coin offerings. Despite his previous excitement about bitcoin, it seems that the billionaire tech titan is not buying the present hype. In indicting cryptocurrencies for being complicit in drug-related deaths, Gates may be missing the bigger picture.
On February 27, 2018, Bill Gates hosted his sixth Ask Me Anything (AMA) on reddit. Unsurprisingly, Gates was asked to share his thoughts on cryptocurrencies. Here’s what he had to say:
“The main feature of cryptocurrencies is their anonymity. I don’t think this is a good thing. The government’s ability to find money laundering and tax evasion and terrorist funding is a good thing.
Right now cryptocurrencies are used for buying fentanyl and other drugs so it is a rare technology that has caused deaths in a fairly direct way. I think the speculative wave around ICOs and cryptocurrencies is super risky for those who go long.”
An AMA is hardly the place to provide a long-winded answer, but Gates seemed to pigeonhole cryptocurrencies. He suggested that anonymity is their “main feature,” but his allegations about money laundering, tax evasion, and drug purchases just as easily apply to cash transactions (remember, even Al Capone was convicted of tax evasion).
What Gates missed in his brief reply is that cryptocurrencies are novel in large part because of their intangibility, which is facilitated through distributed ledger systems. Intangibility, paired with anonymity, is agnostic. These elements provide privacy and security. How an actor employs these powers is separate from the innovation. Remittances and financial services for the unbanked are “good” use cases for cryptocurrency that are currently operational. Conversely, blockchain technology is also being harnessed the Venezuelan government, a development that has been fiercely criticized by opposition lawmakers and American politicians.
When Gates said that he doesn’t think anonymity is a good thing, he failed to recognize that there are legitimate reasons for people to want or use cryptographically-secured systems. For instance, last year, the Electronic Frontier Foundation profiled a Brazilian political dissident who avoided financial retribution from his government by keeping his wealth in bitcoin. Living in America, it’s easy to forget that individual liberties cannot be taken for granted and that judicial systems can inappropriately be weaponized against citizens.
Another nuance that the Microsoft founder missed is that many of the most popular cryptocurrencies are easily traced. Even if wallet addresses are difficult to associate with a specific individual, the associated transactions are freely available for the public to examine in perpetuity. Where things get trickier is with cryptocurrencies like Zcash, which has anonymizing features built into its functionality.
Regulating A Rapidly Evolving Field
All told, the US government has effectively prepared for the challenges of cryptocurrency-based money laundering and tax-evasion.
US Deputy Attorney General Rod Rosenstein recently observed that “every new technology finds early adopters in people with criminal intent, and cyber currency is no different.” Yesterday, Rosenstein revealed that the Department of Justice’s cybersecurity taskforce is developing a “comprehensive strategy” to address the use of cryptocurrencies for money laundering.
As ETHNews previously reported, various agencies of the US government (including the Internal Revenue Service) have signed extensive contracts with the bitcoin blockchain explorer firm Chainalysis. The company calls itself the “leading provider of Anti-Money Laundering software for Bitcoin.”
On the subject of tax evasion, in November 2017, Coinbase was ordered to produce records for approximately 13,000 customers after a summons by the IRS. The cryptocurrency exchange notified affected customers this past week.
Other government agencies have also been able to pursue bitcoin-related enforcement actions. For example, the Securities and Exchange Commission (SEC) filed civil charges against BitFunder last week, even though the company only operated from 2012 until 2013.
Also relevant is that during the last year the Department of Justice successfully shut down dark web marketplaces like AlphaBay. Can you still buy drugs with cryptocurrency? Yes, but cash is probably the more anonymous option here.
Gates called cryptocurrencies a “rare technology that has caused deaths in a fairly direct way.” But, what about guns? Or cars? Or knives? Or alcohol? A bitcoin isn’t going to walk up and stab you, but a person might.
Cryptocurrency and ICO Speculation
Despite missing the mark with most of his answer, Gates hit the nail on the head with his last statement. Calling ICO and cryptocurrency speculation “super risky,” Gates seemed to acknowledge the multitude of pump-and-dumps and outright fraudulent schemes carried out in the space.
Again, it’s important to recognize that every new technology will invite scam artists and fraudsters. You don’t have to look far to remember that Bitfinex executive Giancarlo Devasini was fined in 1996 for selling pirated copies of Microsoft’s software. Perhaps Gates remembers him.
Matthew is a writer with a passion for emerging technology. Prior to joining ETHNews, he interned for the U.S. Securities and Exchange Commission as well as the OECD. He graduated cum laude from Georgetown University where he studied international economics. In his spare time, Matthew loves playing basketball and listening to podcasts. He currently lives in Los Angeles. Matthew is a full-time staff writer for ETHNews.
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