We considered Bitcoin and other cryptocurrencies (which Operational risk is disconnected from a physical presence use cryptography for security and anti-counterfeiting
and established governance. More, and often small firms, measures) in the context of the long history of
are also coming under the eye of anti-money
complementary currencies – from recent schemes such as laundering/counter-terrorism financing (AML/CTF)
Bartercard through the demurrage currency from the
regulators in the online marketplace. Online businesses Austrian town of Wörgl in the 1930s, and back into history.
are finding their services used for laundering money.
We viewed with scepticism claims that cryptocurrencies Examples range from the prosaic, such as fraudsters
were unique and unprecedented and would result in a
washing money from stolen credit cards though myki (the huge shift of value from traditional state-sponsored
Victorian transit pass) and eBay2
commodity and fiat currencies to stateless
, through to more innovative solutions such as
cryptocurrencies. We expected cryptocurrencies to have a thieves crowdfunding themselves3. Even pubs and
role, as the idea of a virtual, digital currency is a good one, clubs with pokie machines and ATMs are coming
but we saw nothing inherently different from the more
under the wary eye of the regulator. An extreme
traditional complementary currencies.
example of this is Bitcoin mixers4, which were
All complementary currencies have since been brought
developed to industrialise the process of mingling
into existing regulatory frameworks once they threatened legitimate and illegitimate transactions, rendering
the tax base. The same is true for Bitcoin and the other illegitimate transactions untraceable and facilitating recent cryptocurrencies, which are being pulled gradually money laundering on a large scale at a fairly low
into established regulatory frameworks.
cost. Participating in the digital economy means
being exposed to new and unfamiliar risks.
We also highlighted how moving the exchange of value
from the physical to the digital – and the creation of virtual In this report, we explore the pros and cons of the
(borderless) currencies – would create new opportunities proliferation of new payments solutions,
for fraud and crime. Digital networks have fundamentally technologies and currencies, and how they are
different threat and risk profiles than the physical
shaping the way we exchange value.
environment, and organisations that choose to transact via digital technology can easily be caught unawares. The root of this difference is that
in the physical world – the defender has a significant advantage, while in the virtual world, the attacker has the upper hand. In the physical world, the attacker
must struggle with the challenge of marshalling the
necessary resources to attack the defender’s heavily
fortified castle. In the virtual world, this is no longer true, attackers can co-opt resources and marshal them
to attack from the dark corners of the Internet.
The Future of Exchanging Value Cryptocurrencies and the trust economy 9
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Technology-driven change
