When a UK parliamentary committee proposed last month that cryptocurrency be regulated as gambling, it didn’t take long for the Treasury to reject the idea.
But the fact that it was suggested at all is revealing, says Gavin Brown, associate professor in financial technology at the University of Liverpool.
“[The committee] didn’t really understand the technology,” he says.
And in this, they aren’t alone— despite cryptocurrencies, digital currency designed to offer an alternative payment method to traditional money, now being over a decade old.
“I see that all the time. I’ll get a taxi in London and the taxi driver will know ten times more [about cryptocurrency] than the CEO of a multinational bank I’m about to visit,” Brown says.
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“We still see that disparity of knowledge, and not just from people on the street, but also from people who are actually making the policies who should know better.”
That’s because crypto is “powerful stuff”, he says.
The largest ever Bitcoin transaction was for just over $US1 billion ($1.5 billion), which, to move without a bank, carried a transaction fee of $US3.56 ($5.35).
“And it cleared and settled in minutes,” Brown says.
He argues that ignorance of cryptocurrency is risky.
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“Western Anglo-Saxon economies are stuck between a rock and a hard place, because it’s not going away — and it’s a constant threat.”
‘Deliberate’ targeting and ‘nefarious use’
There are thousands of different cryptocurrencies — Bitcoin is the biggest — and trying to regulate them is anything but simple.
Larger crypto companies are centralised, meaning they are traditional companies with shareholders or a board of directors.
But the same is not true of cryptocurrencies, which are decentralised.
“The problem we have with things like … Bitcoin, is that it’s not really controllable or ban-able in a traditional sense because … [it] doesn’t have a CEO, a head office, any employees, an email address, doesn’t file any accounts, doesn’t have any buildings, has no AGM, has no shareholders,” Brown says.
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“Literally, Bitcoin is an idea. It’s a computer program that’s being run globally all over the world at the same time.”
In some senses, that elusiveness is exactly the point.
“[Cryptocurrency] has been deliberately constructed in a way that is anti-state, and almost naturally beyond the reach of regulators,” Brown says.
It’s one of “a ton of downsides [associated with it], like nefarious use by criminals”, he says.
John Reed Stark, a lawyer in Washington DC specialising in the intersection of law and technology, told ABC’s Four Corners last year that “horrific crimes from ransomware attacks, and terrorism, and evading sanctions during war time … drug dealing [and] sex trafficking” are crimes that are “now a lot easier to do because of cryptocurrency”.
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Natasha Gillezeau, SXSW Sydney production lead and former Australian Financial Review tech journalist, says “people need to understand how serious [cryptocurrency] is”.
“We have to understand how much of a marketing and advertising push that crypto [companies have] done in the last few years,” she tells ABC RN’s Download This Show.
“We’re talking sports stadiums [sponsored by] crypto.com, we’re talking outreach to influencers … We’re actually in a different point in the cycle of how much the marketing and advertising industry has legitimised it.
“I’ve been in conversations with people who have said, ‘We target people deliberately on Facebook and Instagram, that we know have gambling problems, with crypto ads because they’re more likely to flip than others’.”
‘Very different to gambling’
While Gillezeau doesn’t see the UK’s gambling regulation proposal as the best solution to the problem, she believes it does recognise “the human effects of cryptocurrency”.
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“Probably what these British MPs [who raised the proposal] are speaking to is that there are certain segments of society that have been affected and blasted the last few years with crypto-specific advertising, they’ve lost a lot of money … and this is a response,” she says.
If crypto trading was designated as gambling, platforms could face additional licensing rules, requirements to protect vulnerable users, stake limits and closer control of advertising.
Brown can also appreciate some of the motivation to align cryptocurrency use with gambling regulations such as these.
“[Cryptocurrency] has the power to defraud, it has the power for people to lose significant amounts of wealth, it kind of feels a bit like gambling as well. And therefore, by taking that kind of ultra prudent label of gambling and just pinning it on it, it’s quick and it plays to that downside risk agenda.”
It also allows regulators to dip in to, and “just repurpose” ready-made law.
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“But that misses a trick,” Brown says.
“These new types of technology are not gambling, they’re very different to gambling, actually. There is no house and punter. In fact, it’s much more nuanced than that.”
‘Can’t afford to get left behind’
Here in Australia, in mid-2022 around one million people owned cryptocurrency. In the UK, 5.2 million people — or one in nine — have either used or owned cryptocurrency.
“It’s come that far in 13 years,” Brown says.
“Go forward another 10 years. What happens if that number [in the UK] is 30 million or 40 million?
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“What happens if every British person or every Australian person wakes up and says, ‘I’m a bit sick of … inflation, I’m sick of interest rates, I’m sick of my government or whoever controlling money in a certain way. I want a different type of money’.
“Well, guess what? There is this alternative type of money … and all you need is an internet connection to access it.”
Cryptocurrency risks destabilising the economy if there aren’t policies to manage it, Brown says.(Unsplash: Daria Nepriakhina)
The more a population uses alternative currency, the more difficult it becomes to control its economy, Brown says.
“If people aren’t using that [traditional] currency, you’re completely emasculated. That right hand of your two-handed approach is gone.”
After presenting on cryptocurrencies to the UK Treasury six years ago, Brown was asked, “If people start using this [cryptocurrency], who pays for schools? Who pays for roads? Who pays for defence?”
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“This is dangerous”, the person said.
And Brown agrees.
“For so long cryptocurrencies and digital assets have been kept at arm’s length … our fingers in the ears, ‘let’s hope it’ll go away, let’s hope it’ll disappear’.
“Nation states would like it to go away, but it’s just not going away.
“The challenge we have, especially for countries like the UK and Australia, is because financial services are such an important part of the economy, we can’t afford to get left behind.”
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Governments must have an effective digital strategy, he says. And while crypto itself might be extremely difficult to regulate, the same is not true of the people and companies who interact with it.
“If someone says, ‘Hey, we’re a cryptocurrency bank’, well, guess what? I can regulate you as a bank of a digital asset.
“If someone says, ‘I’m a prime broker’, or ‘I want to be a custodian of Bitcoin’, or ‘I want to be a financial adviser of digital assets’, we can regulate those people because they are companies and individuals in a traditional sense.
“And that’s a much more pragmatic thing to do.”
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The Justice Department said on Friday that it arrested two alleged scammers for laundering “at least” $73 million through shell companies connected to “pig butchering” cryptocurrency investment schemes.
Nvidia stock has all-time closing high in its crosshairs
In a pig butchering scam, scammers contact victims online and gain their trust before manipulating them into investing in a fake cryptocurrency.
Daren Li, a 41-year-old dual citizen of China and St. Kitts and Nevis — and resides in China, Cambodia, and the United Arab Emirates, was arrested on April 12 at Hartsfield-Jackson Atlanta International Airport. According to a Justice Department statement, he was subsequently transported to the Central District of California. Yicheng Zhang, 38, a Chinese national and resident of Temple City, California, was arrested on Thursday in Los Angeles, California, the statement said.
The DOJ accused the individuals of having lured victims into depositing money into U.S. accounts. From there, the two allegedly utilized co-conspirators to launder the money through U.S. financial institutions to Bahamas bank accounts, before converting the funds into the stablecoin Tether, also known as USDT.
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“Cryptocurrency investment scams exploit the borderless nature of virtual currency and online communications to defraud victims,” said U.S. Deputy Attorney General Lisa Monaco. “While fraud in the crypto markets takes on many forms and hides in many far-off places, its perpetrators aren’t beyond the law’s reach,” the
Li and Zhang face charges of conspiracy to commit money laundering and six counts of international money laundering. According to the Justice Department, if found guilty, they could be sentenced to a maximum of 20 years in prison for each count.
Two days before announcing the arrests, the Justice Department said it arrested two brothers for allegedly stealing roughly “$25 million worth of cryptocurrency within approximately 12 seconds.” And earlier this month, the department charged ‘Bitcoin Jesus’, a.k.a. Roger Ver, with evading nearly $50 million in taxes.
In what U.S. prosecutors are calling the first case of its kind, a pair of brothers have been charged with stealing $25 million worth of cryptocurrency in just 12 seconds. They’re now charged with wire fraud and money laundering for the April 2023 heist.
Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, were reportedly educated at the Massachusetts Institute of Technology (MIT) in mathematics and computer science. Using the skills they learned at MIT, prosecutors say the duo found a way to exploit the Ethereum transaction validation process.
The brothers allegedly used that exploit to gain fraudulent access to pending transactions on the Ethereum blockchain, a public ledger that records and validates cryptocurrency payments.
The pair was arrested on May 14 on the indictment handed down from the United States District Court of the Southern District of New York. The indictment against the brothers was unsealed (PDF) on Wednesday, May 15, 2024.
Investigators say the brothers altered enough transactions in 12 seconds to redirect $25 million in cryptocurrency to themselves instead of the intended recipients.
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In a press release, U.S. Deputy Attorney General Lisa Monaco stated that the brothers used “a technologically sophisticated, cutting-edge scheme they plotted for months and executed in seconds.” She also explained that agents from the Internal Revenue Service (IRS) played a crucial role in solving the riddle of where the cryptocurrency went.
A representative for Ethereum confronted the Peraire-Bueno brothers, but they refused to return the funds. Instead, they worked to launder and hide their ill-gotten gains, prosecutors allege.
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U.S. Attorney Damian Williams stated the exploit “calls the very integrity of the blockchain into question.” Even though this theft was the first of its kind, prosecutors are prepared to uncover any other new forms of cybercrime. “As cryptocurrency markets continue to evolve, the Department will continue to root out fraud, support victims, and restore confidence to these markets,” Monaco pledged.
The Peraire-Bueno brothers face one count each of conspiracy to commit wire fraud and conspiracy to commit money laundering. If convicted, they each face more than 20 years in prison.
