Cryptocurrency Is the Future, So Let's Do It Right

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There is much debate about cryptocurrency. Is it a scam, or the finance method of the 21st century? Is it a new way to financial security, or the biggest fraud since Charles Ponzi did his thing in the 1920’s? The answer to all those queries could actually be “yes”. The key will be the regulatory scheme that is built to control it.

The financial issues alone are enough of a problem to warrant action and proper regulation.  Unfortunately, this is not the only issue.  It seems that terrorist organizations are now ripe to take advantage of the regulatory loopholes that exist in many countries.  They can leverage the systemic weaknesses to benefit their dangerous and deadly schemes.

Terrorists and hackers have long exploited the Internet through actions that augment their operations while staying below the threshold of true digital terrorism.  They have raised money by reaching out to sponsors. They incited otherwise innocent individuals to take deadly action by online radicalization. Lastly, they have used search engines to gather intelligence on potential targets.  Weak cryptocurrency regimens now give them a new opportunity.  

The recent crypto crash shows us that there must be proper safeguards in place, functioning fully and flexible enough to accommodate fast moving changes if investors are to be protected.  The way to effectively mitigate consumer risk is if safeguards are implemented by the biggest industry players.  Currently, this is not happening.

A key example of this is FTX, the world’s second largest cryptocurrency exchange.  The global crypto platform is presently not allowed to legally operate in North America – the only option being a more limited version named FTX.US – but it still has many American users, due to its lax verification protocols.  Users can simply use a virtual private network (VPN) to bypass this verification process which not only impacts legitimate users, but also allows for bad actors to join the platform while hiding their location and identity, leading to potential money-laundering and other criminal transactions.  There are numerous examples of posted tutorials for bypassing the legal methodologies.  Links to these have been purposely omitted so as to not encourage illegal behavior.

The current actions being allowed by FTX present financial risks to American crypto users for many reasons. FTX has allowed them to take advantage of a loophole in its Know Your Customer (KYC) protocol to trade on its global platform. By allowing them to simply use a VPN to fake their location and identity, FTX dishonestly bypasses regulations set by not only the US government but around the world to garner more users. Its loose KYC protocols expose crypto consumers to potential money-laundering and other criminal transactions on FTX’s platform.

The crypto industry is certainly not new to the suffering caused by irresponsible actors. Reckless behaviors of now-bankrupt crypto lenders like Voyager and Celsius have caused terrible losses for investors and destabilized the entire global crypto market. Sensible regulations must be installed to protect Americans in this volatile industry, especially in today’s economy in distress.

Such uncertainty in crypto has served as a safe haven for terrorists. When you combine the modern cryptocurrency format with highly motivated terrorists, desperate to finance their operations, the potential for dire results goes way up.  Despite highly effective counterterror intel and operations, cryptocurrency gives the bad guys ways of raising levels of funds they never dreamed of. 

It does not matter if your goal is to just protect customers from hackers, or to stop the ability of the world’s worst terrorists to fund their evil plans, we need to “do” cryptocurrency correctly.  Modern nations must take every step to ensure they know who is accessing these tools, and that they are using them legally.  This is more than just money; it is the nexus of critical national security interests that will either enable or hamstring terrorists.

We must – in the U.S. and across the modern economies of the world – decide for the latter.  The choice is clear, the goal is worth the effort.  These technologies can benefit us all; do not allow them to be highjacked to fund terrorism or any other crime.  We must do crypto right.

Dr. Steven Bucci is a fellow at the Heritage Foundation in Washington D.C., focusing on cybersecurity matters.

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