Editor ’ s note : This article is the first in a two-part series by the author on cryptocurrency and fraud .
Many people are both compelled and confused by crypto . This is understandable as it is difficult to aurally reconcile the cacophony from critics , the Muzak from adherents and white noise generated by industry buzz and coin offerings , which are estimated at upwards of 20,000 . 1 U2 ’ s Bono summed it up fittingly in the prelude to “ Sunday Bloody Sunday ,” when he stated , “ There has been a lot of talk , probably too much talk .” 2 Granted he was talking about a song regarding a seminal event in Northern Ireland ’ s Troubles , but once his evocation is stripped of history and emotion , it transfers quite nicely to crypto .
It is no secret that crypto has an image problem . In a layperson ’ s imagination , it lies somewhere between a credit default swap and Jesse James ; they may not know what a credit default swap is , but reflexively they feel that it might be illegal , or they may become victims of fraud if they get involved in one . This mixture of bewilderment and intimidation is consistently reinforced by the repetitive beat of thefts and losses akin to the collapses of Mt . Gox , TerraUSD and , most recently , FTX . 3 The catcalls have been echoed by many commentators who have charged that crypto is “ the biggest Ponzi scheme in human history .” 4
Crypto crisis
Crypto is not a Ponzi or pyramid scheme , an advance fee ( 419 ) fraud or other type of fraud . 5 The touted expectation and service — i . e ., the investment opportunity that exists in a fraud scheme — is either fake or materially misrepresented . Admittedly , the speculative energy that envelops it makes it appear as a pump-and-dump sleight of hand where a stock or commodity is falsely hyped to drive the price higher , allowing the fraudsters that bought low to sell high . Concomitantly , the seemingly duplicitous capitalization of FTX — purportedly an industry standard bearer — has caused a reputational dent to the industry approaching , but not quite reaching , what would happen to Christmas if it were discovered that the North Pole was a den of forced labor . Unsurprisingly , it seems in a juridical rhythm that Sam Bankman-Fried , the brainchild and guru behind FTX , has found himself on the U . S . Department of Justice ’ s and the Securities and Exchange Commission ’ s naughty list .
While fraud and other crimes are perpetrated using cryptocurrency — such as on the dark web at vendors like the now-defunct Silk Road ; in ransomware attacks , typified by the Colonial Pipeline incident ; or all too frequent business email compromise ( BEC ) schemes — crypto ’ s association is noncausal . 6 Unlike fraud , crypto offers a productive service to those looking for rapid global pseudo-anonymous value transfer , executed digitally and verified by a distributed ledger .
The bigger challenge for crypto lies in utility . To gain utility , it needs to overcome the schizophrenia of its persona . Is it a speculative commodity , a tool of criminality or a reliable medium of exchange ? Foreclosing the speculative investment nature to a basic , boring transactive tool is a big hurdle . Nobel Laureate economist Paul Krugman has articulately dissected crypto ’ s shortcomings in many fora and publications . Tellingly , he has noted that its worth will lie in its economic uses . Unfortunately , its economic uses are “ more easily and cheaply achieved through other means — debit cards , Venmo , etc . … Just try paying for your groceries or other everyday goods using [ crypto ]. It ’ s nearly impossible .” 7
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