Using Cryptocurrency and Blockchain to Combat Money Laundering and Terrorism Financing

Cryptocurrency and Blockchain are both important tools in the fight against money laundering and terrorism financing. Both can be used as a form of currency, and both are also useful as a store of value.

Bitcoin is the first decentralised digital currency

Bitcoin is a decentralized digital currency that allows users to send and receive payments from one another. It uses a peer-to-peer network and encryption to facilitate transactions.

When used correctly, bitcoin is a highly secure system. However, it is important to remember that bitcoin does not come with a guarantee of safety. There are numerous potential risks, especially when used in conjunction with other financial services.

Bitcoin is designed to make money more secure, including against theft and fraud. This is accomplished through the use of encryption and multiple signatures. The network is so secure that it is impossible to fake a transaction. Moreover, the proof of the transaction is baked into the system.

Blockchain technology is a digital, secure and tamper-evident ledger

A blockchain is a digitized ledger that contains records of transactions. It is maintained by a distributed network of computers. Each computer in the network has a copy of the ledger and is responsible for checking its authenticity.

This distributed nature of a blockchain allows for fraud to be impossible. If someone wanted to edit a record, they would have to hack the system to achieve their goal. Unlike centralized databases, nodes of a blockchain are not regulated by any authority.

In order to make payments, a user must obtain a private key. These keys are used to encrypt information. They are also used to sign messages.

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It can be used as a store of value

A store of value is a financial asset that retains its value over time. These assets usually have low risk and produce lower returns.

Stores of value can be physical or digital. For example, real estate or gold are commonly used as a store of value. However, they can also be speculative assets. Speculative assets tend to be riskier and can produce great returns.

Physical objects such as real estate can be a good store of value, especially if the demand for the property is relatively steady. The downside to this is that the market can be volatile.

Precious metals such as gold are also a store of value. They are often scarce and durable. Also, they are divisible. This makes them portable.

It can be used for money laundering and terrorist financing

A paper from Chainalysis, a cryptographic auditing firm, identified a number of money laundering and terrorist financing uses for cryptocurrency. The study identifies the technology, the criminal methods, and the enablers.

Cryptocurrency is used for laundering funds from real world crimes and digital fraud. This is facilitated by its anonymity. Illegal funds are transferred in a series of transactions disguised as extortionate transaction fees.

Another use is the smart contract. In this scenario, offenders would use a decentralised autonomous organisation to transfer funds. They can then exchange them for real goods and services. If the transactions are recorded correctly, this would be a legitimate business transaction.