Is Bitcoin the new currency of the underworld & why many think It will be
Is Bitcoin the new currency of the underworld & why many think It will be

Bitcoin is growing and had reached and surpassed the £7,500 (US$10,000) market value price point this month before dropping back, yet another milestone in Bitcoin's triumphant rise. With so much capital locked away in this digital currency and its value continuing to grow by leaps and bounds, many have begun to ask about legislating Bitcoin. Another aspect of Bitcoin is that its critics argue it is fueling the underworld and black-markets, making it easier for criminals to hide, launder and move their money.  Bitcoinplay recently divulged information that shows even the FBI, with nearly 1.5 percent of all Bitcoin in circulation, is very interested in Bitcoin, to say the least. Furthermore, with many of the world's governments outright banning the currency, and others moving to regulate it, the question remains - is Bitcoin fueling the underworld? Why do so many think it is and/or it will?

 
Bitcoin is anonymous
 
Since no government or organisation regulates Bitcoin, there is no regulatory body that has access to its transaction history and paper trail. Also, as the capital held and traded in Bitcoin is not a part of the current monetary system, it becomes impossible to know just who, for what or how much Bitcoin is being exchanged. This means the criminal element of society can use it to receive payment anonymously and without a trace to the police and security apparatus.
 
Bitcoin & tax evasion
 

In truth, one of the main concerns of governments is the potential tax revenue loss of anyone using it as a currency. Taxes and tax evasion is a crime in every country, and not paying your fair share of taxes can result in stiff penalties. Accepting payments in Bitcoin, for one, makes VAT or sales taxes impossible to track, as Bitcoin is not a recognised currency, making it free from taxation in this manner. Many have suggested it is more like a commodity, and that a transaction would simply be a barter trade of services or goods for the commodity. Consequently, many governments, including Belgium, Sweden and Switzerland, have all classified Bitcoin as VAT free and treat it as a commodity.

When it comes to personal income tax, the fear is even greater. In the past, high net worth individuals and corporations would use offshore accounts to avoid taxes. With Bitcoin, it is possible to hide profits and taxable income simply by keeping that capital in Bitcoin and thus online. Furthermore, as Bitcoin's value is skyrocketing, the capital gains of Bitcoin holders is very difficult to assess and, in turn, tax. A great representation of this is the fact that only 802 Americans filed Bitcoin income on their taxes in 2015, though market penetration would suggest many, many more are using and profiting from Bitcoin.
 
Bitcoin Fraud
 
Though many would suggest Bitcoin is largely adopted by the underworld, no proof of that exists and most criminals still prefer cash. A more prevalent issue with Bitcoin rising so sharply in price is Bitcoin fraud, hacks or theft of Bitcoin itself. With Bitcoin wallets and exchanges the target of hackers, a very serious concern arises from the fact that, in the event of a hack, there is very little to nothing that can be done to reverse the transactions. In 2016, a Bitcoiner accidentally sent £102,000 instead of £3.70, with no way of retrieving it. Furthermore, in the event of a person paying for goods or services, if the merchant was to simply not to fulfil their end of the bargain, there are no conflict resolution channels to resolve any issues.
 
Bitcoin hacks
 
Other major hacks have been attempted, though few have been successful. Alphabay Phiser and Phishkingz made £750,000 in 14 months stealing Bitcoins. A few exchanges and Bitcoin wallets have been hacked, proving they are still vulnerable. With Bitcoin existing in the space of the Internet, and its value being a potential goldmine to hackers and digital thieves, many more hack attempts can be expected.
 
Securities fraud
 
With the recent introduction of ICO (initial coin offerings), another form of Bitcoin fraud is possible and very probable. In effect, a company can raise capital from the public with little to no oversight and due diligence. This, in effect, means a company can commit securities fraud by issuing a security that is not regulated and likely illegal.
 
With all these potential drawbacks to Bitcoin, it will be interesting to see how its future plays out. With the criminal potential use for tax evasion, securities fraud and Bitcoin theft, either through hacks or scams, it's easy to see why detractors consider it the currency of the underworld and why one day it might just be. 

Contributed by Josh Wardini, community manager, Bitcoinplay.net

*Note: The views expressed in this blog are those of the author and do not necessarily reflect the views of SC Media or Haymarket Media.