SmartBrief on Cybersecurity recently covered an intriguing story: A hacking group has announced it is switching to Monero, a form of cryptocurrency that can be impossible to trace. No longer content merely to steal from ordinary people at random, the group wants to reduce its risk by hiding completely from law enforcement.
As of December 2019, Monero was sometimes impossible to trace. Europol couldn’t always trace it, the UK government was trying to pay someone to develop a way to trace it, and most countries aren’t particularly close to being prepared for its use: Reuters reported last year that “few [countries] have set out comprehensive strategies for dealing with digital coins.”
Because transactions are so hard to trace, cryptocurrency is used for a lot of illegal activity, such as hacking and buying the proceeds of that hacking. Consequently, it enjoys a less-than-stellar reputation in the eyes of many powerful people.
As Federal Reserve Governor Lael Brainard noted in a speech last year, “One study estimated that more than a quarter of bitcoin users and roughly half of bitcoin transactions, for example, are associated with illegal activity.” That study was based on data from no later than May 2017, so if you’re betting that cybercriminals have increased bitcoin use in scamming, theft and other nefarious behavior, you’re probably not wrong.
The other big barrier to cryptocurrency legitimacy is that their values can fluctuate severely. But that can be true of nearly anything of monetary value, which isn’t innately a reason to dismiss it.
Nonetheless, many investors seeking a reliable return on their investment rather than a roller coaster ride are going to find their safe haven in a moderately performing mutual fund. That might be part of the reason why most bitcoin investors are fairly young. They have the time to sit around and wait for periods of volatility to even themselves out while buying into the latest exciting digital trend.
With that background established, what might happen if hackers embraced Monero and bitcoin itself became more accepted by the commercial banking and business establishment?
What exactly is bitcoin? And why do people want it?
Bitcoin was created in the shadow of the Great Recession. It’s a digital currency, and it follows the ideas put forth in the white paper of Satoshi Nakamoto.
Bitcoin offers lower transaction fees, a decentralized authority as operator and the lack of a need to deal with a physical bank. It also offers anonymous transactions and robust investment opportunities.
But the cryptocurrency also has two big cons: volatility and guilt by association. However, the prevailing issues here lie in bitcoin’s public perception and its reputation with the broader financial industry.
Why is the SEC going after cryptocurrencies?
Just over a year ago, the United States Securities and Exchange Commission settled cases with two companies that had undergone initial coin offerings, the crypto world’s name for the analogous initial public offering (IPO).
Initial offerings are regulated to protect investors, and SEC Chairman Jay Clayton said last year that aside from bitcoin and ether, the commission considers cryptocurrencies (including Monero) securities. Clayton also noted that “if it’s a security, we’re regulating it.”
SEC Co-Director of Enforcement Stephanie Avakian noted in a news release discussing those two settled cases, “We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities. … [W]e continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”
Most of us likely want powerful entities looking out for our financial safety. And far from positioning themselves as enemies of a new financial product, regulators are extending a hand to cryptocurrency markets.
As Cointelegraph’s Kyle White writes: “It is clear that the Financial Crimes Enforcement Network and other federal entities will hold all companies to the same high standard. Treasury Secretary Steven Mnunchin has further confirmed this by informing all entities transacting in Bitcoin, the pending Libra stablecoin or other cryptocurrencies will need to comply with federal guidelines.”
White also noted SEC Commissioner Hester Peirce’s helpful words: She said she’s there to “provide useful information into the cryptocurrency space,” adding, “If you are not sure about where your business stands, come talk to us at the SEC.”
Put more simply, cryptocurrency offerers must obey the same laws as everyone else, and it appears the SEC is here to aid in compliance. If bitcoin and other cryptocurrencies play by the rules, their perception within the financial industry is likely to improve.
The future of bitcoin: Will bitcoin hit 20K in 2020?
It could. If it does, a few concrete factors might help it get there.
First, let’s recognize that the coronavirus has, as Digital Commerce 360 predicted would happen, increased e-commerce by more than 50%. Stay-at-home orders and fear have contributed to sharp increases in online buying of food, electronics and other goods.
However, some consumers still feel unease regarding digital payments. In the 2017 American Express Digital Payments Survey, 37% of respondents said they’d “abandoned an online purchase due to security concerns,” and “58% of merchants who experienced an increase in online sales said that enhanced security features played a very significant role.”
American Express’ 2019 survey offered further insights: “68% of consumers are concerned with maintaining the privacy of their personal information when making purchases online.”
Bitcoin and its anonymous transactions might address these long-standing security concerns. This Cryptonews article discusses several bitcoin wallets, and this Cryptonews article lays out how you can make online purchases with bitcoin securely.
While you might be worried that such a relatively new form of currency won’t be accepted by your retailer of choice, this site explains how to use bitcoin to buy things from Amazon sellers. This article outlines even more products and services you can buy with bitcoin.
It’s easy to see bitcoin legitimacy growing as word spreads that criminals are abandoning it and investing in cryptocurrencies becomes more common. If that happens, asset management firms might offer more bitcoin-focused mutual funds. This could be of particular interest to young people, whom Yahoo has reported are a plurality of bitcoin owners.
While the number of cryptocurrency investors is still fairly modest, a December 2019 Charles Schwab news release offered a surprising nugget: Among the company’s young investors, more had money in bitcoin than in Berkshire Hathaway, Disney, Netflix, Microsoft or Alibaba.
Far from being merely the focus of younger investors (plus a couple of older and bigger names), though, bitcoin is a pop culture phenomenon. The Halving (or Halvening, if you prefer) is next month. This event is another step toward reducing the available supply of bitcoin, and it may increase bitcoin’s price.
Bitcoin also presents two bigger, policy-based options for growth. First, its anonymous transactions can help people send money to relatives or friends in other countries while avoiding trouble for doing so -- a problem this Vox article discusses. Second, it is a big opportunity for the part of the world divorced most from billionaire investors, such as people who don’t have a bank account or whose bank has no local location.
Those without banks might find use in the words of bitcoin evangelist Nick Spanos, who wrote for The Hill that bitcoin’s low barrier to entry makes it an attractive way to buy things online, as well as to get a truly small business loan (microlending).
With those potential avenues of growth, with millennials and some older people investing in bitcoin, and with bad actors moving away from bitcoin and toward Monero, the price of bitcoin could increase rapidly.
If you found this article interesting, sign up for SmartBrief on Cybersecurity or SmartBrief for CFOs to receive more quality news content. For even more informative coverage, subscribe to any of SmartBrief’s 275+ free newsletters.
Patrick Hopkins writes about transportation and public technology and copy edits technology news. He has been copy editing professionally for more than a decade and reading technology news for longer.