What then to do about this Crypto-mania?
This blockchain must die.
Cryptocurrencies are one of the worst technological developments of the 21st century. They manage to combine a litany of sins, wasting staggering amounts of energy while creating waves of ponzi schemes and bubbles waiting to burst.
They have also helped enable a wave of ransomware attacks, where data and IT systems are held hostage until a large sum is paid with a cryptocurrency such as Bitcoin. In the traditional financial system it would be quite hard for criminals to extract such illegal payments online, but with cryptocurrencies allowing unregulated transactions these crimes have been subsidised into a global business.
Every day brings a new example of scams, money laundering, copyright violation, theft, hacks and environmental damage brought about by “web3” technology.
Everything is fixed, and you can't change it.
And we have really only scratched the surface of the bad things the blockchain can do. Currently the extremely high transaction fees that make any non-speculative business model unviable also limit the number of evil activities that can take advantage of the blockchain.
Consider what might happen if people’s personal details start getting doxxed on the blockchain, or revenge porn (or worse) got uploaded to a blockchain? The blockchain is permanent and distributed which means any illegal or immoral information that gets uploaded will be copied immutably to thousands of servers around the world.
Currently the high fees involved with any transaction makes this unviable, but there are hundreds of dedicated programmers around the world trying to lower the barriers to uploading data to the blockchain which will enable both legal and illicit use cases alike.
Meta (aka Facebook) spends half a billion dollars a year on moderation efforts - and they still do a terrible job especially outside the US! Any decentralised crypto product will, by design, never been able to censor objectionable content certainly not at any scale.
Damned for all time
What then to do about this crypto-mania? One obvious answer is to ban it all, but unfortunately outside the most authoritarian regimes (ie China) this is unlikely to be politically or practically viable. Instead the Federal Government should focus on the worst offenders and try to weed out the outright criminal uses of the blockchain.
To do this they should set up a blacklist of crypto-wallets that can create a drag net around all illicit crypto-activity.
The blacklist would be initialised with a list of blockchain addresses that are associated with:
Wallets used for hacks, ransom demands or other crimes.
Crypto-mixers.
The former is fairly straightforward, and I am sure ASIO or the AFP would have a list of such accounts already.
Crypto-mixers generate somewhat fewer headlines but are just as bad as the illegal activities that have made crypto-currencies (im)famous. A mixer allows anyone to send cryptocurrency to a specific address (say those illegally stolen in a random attack) which is then anonymously redirected to a 3rd wallet. While the blockchain publicly shows thousands of people putting money into the mixer and thousands of people receiving money out of the mixer (usually in different amounts and at different times) it is impossible to connect the two groups together. Clearly crypto-mixers are a gift to criminals and money launderers seeking to redeem their ill-gotten gains and deserve to be blacklisted too.
Crucially if a blacklisted wallet sends any crypto-asset to any other wallet on the blockchain the receiving wallet will also be automatically and instantly blacklisted too.
Once the blacklist has been compiled and published, any wallet on the list should be instantly banned from interacting with any crypto-exchange, commercial bank or other regulated entity in Australia.
What if your slate is clean?
Simply being blacklisted for receiving tainted goods opens up an obvious avenue for abuse. What if a ransom-wallet starts sending out tainted coins to randomly selected innocent wallets simply to sow chaos with their now useless Bitcoin?
The solution to this problem is to allow any blacklisted account to cleanse themselves by sending the same amount of dirty Bitcoin they received to a public “proceeds of crime” account owned by the Government (perhaps net of transaction fees). That way any innocent account can avoid being unfairly blacklisted, while criminal wallets would have to give up their entire proceeds of crime to avoid being shut out from the real economy.
This setup creates a closed net around illicit funds in a way which cannot tarnish “innocent” users of crypto-assets. It would also effectively ban the use of crypto-mixers which will diminish the supposed privacy of the blockchain - but that is clearly a price worth paying.
Ideally the entire process should be largely automated which should not be too difficult. Websites already exist which publicly analyse various blockchains such that anyone can track high profile stolen funds in real-time.
We'll be remembered forever for this.
Realistically no one country can stop the crypto-scam on it’s own. But much like climate change, individual countries can do the right thing both to limit the problem domestically and to inspire others to act.
An Australian Blacklist in and of itself might have a small impact on crime. Most crypto-criminals do not want to cash out in Australian dollars and they could likely find foreign exchanges that would still let them exchange their ill-gotten gains. But it would certainly hinder any domestic money laundering that might occur.
More importantly it would set an example for other countries to follow, if Australia can show they can effectively eliminate the use of crypto-mixers and other criminal accounts in the domestic financial sector it could provide a template for other countries to take up. The US financial regulatory machine has a global reach and can impose lethal sanctions on all but the most roguish of financial operations. If the Australian Blacklist could prompt the Americans to take a similar approach then the global financial system could swiftly become closed to the criminal crypto element.
Cracking down on criminal and tax dodging uses of crypto currencies won’t kill the blockchain. But by eliminating the uses for crypto that actually generate (illegal) private value it help slow the flow of funds into the bubble - potentially even popping it.
