{"id":103344,"date":"2022-10-24T17:56:35","date_gmt":"2022-10-24T17:56:35","guid":{"rendered":"https:\/\/www.dash.org\/?p=103344"},"modified":"2022-10-25T08:30:16","modified_gmt":"2022-10-25T08:30:16","slug":"searching-for-the-balance","status":"publish","type":"post","link":"https:\/\/www.dash.org\/blog\/searching-for-the-balance\/","title":{"rendered":"Searching for the Balance"},"content":{"rendered":"

There is an epic struggle going on today regarding privacy, governments, regulators, the banking industry and cryptocurrencies.<\/span><\/p>\n

The right to privacy in your conversations, your papers and possessions, and your financial activities is a fundamental human right. Most countries recognize this right and most make some effort to protect that right. Of course, some do better than others. In the digital age, few would disagree that the rank and file people of the world have lost a lot of privacy. Many governments justify this intrusion by expressing concerns about the security of the country, our safety from terrorists and so on.<\/span><\/p>\n

While terrorism is a legitimate concern, if the ordinary people of the world do not restrain their public servants to some degree, it is not a big leap to think our world could end up like George Orwell\u2019s book, 1984. Cryptography and cryptocurrencies will play a role in this struggle for some reasonable balance between security and privacy.<\/span><\/p>\n

One of the biggest lies ever is the statement<\/a> that, \u201cIf you\u2019ve got nothing to hide, you\u2019ve got nothing to fear.\u201d While this idea has been around for centuries, it is often attributed to<\/span> Nazi propagandist <\/span>Joseph Goebbels in 1933.<\/span> Upton Sinclair complained bitterly about the grotesque violation of his privacy, and the privacy of his extended family and friends. This was in 1918. The idea that we should not object to the invasion of our privacy (if we are innocent) was categorically wrong then and it is still wrong today.<\/span><\/p>\n

\u201c<\/span><\/em>Not merely was my own mail opened, but the mail of all my relatives and friends\u2014people residing in places as far apart as California and Florida. I recall the bland smile of a government official to whom I complained about this matter: \u201cIf you have nothing to hide you have nothing to fear.\u201d My answer was that a study of many labor cases had taught me the methods of the (Pg. 146\u2014ed.) agent provocateur. He is quite willing to take real evidence if he can find it; but if not, he has familiarized himself with the affairs of his victim, and can make evidence which will be convincing when exploited by the yellow press.\u201d<\/em> -Upton Sinclair<\/span><\/p>\n

There are three key points to make regarding this epic struggle.<\/span><\/p>\n

First, The risk to the unbanked.<\/em><\/p>\n

Are we willing to punish the poorest and most vulnerable segment of the population to get a theoretical small improvement in the security of our nation? I am referring to the 1.4 billion people who live (mostly) in developing countries and have little or no access to banking services that you and I take for granted. We refer to them as the unbanked.<\/span><\/p>\n

Second, Would it work?<\/em><\/p>\n

If we did heavily regulate cryptocurrencies (like we do the legacy banking industry), would it actually prevent money laundering?<\/span><\/p>\n

Third, the Genie is out of the bottle.<\/em><\/p>\n

The cryptographic genie is out of the bottle. Everyone in the world now has access to powerful cryptography that cannot be broken, even by powerful governments. At this point, trying to prevent cryptographic privacy from spreading to financial transactions and other activities is like trying to stop the sun from coming up tomorrow.<\/span><\/p>\n

The Risk to the Unbanked<\/h3>\n

For those who live in developed countries, it is hard to imagine being unable to open a bank account. But for 1.2-1.7 billion people, it is their everyday reality. This produces a terrible economic handicap on both individuals and countries. Without modern banking services it is difficult or impossible to save money, borrow money, send money, start or run a business, or have investments without predatory interest rates and impossible repayment options.\u00a0<\/span><\/p>\n

Anything the legacy banking industry does to strengthen AML\/KYC (Anti Money Laundering\/Know Your Customer) will make it even more difficult for people in developing countries to get access to banking services.\u00a0<\/span><\/p>\n

This will hurt people who are refugees. This will hurt people who are poor, underage, those who have no access to a computer or smart phone, those who are not literate enough, those who lack the documents such as a driver\u2019s license, a passport or birth certificate. These are the people who will pay a terrible price to \u201ckeep us safe\u201d in our prosperous and developed countries.\u00a0<\/span><\/p>\n

Similarly, there are often minimum balance requirements, monthly fees and transaction fees that are an impossible barrier for many millions of people.<\/span><\/p>\n

Imagine how limited you would be if your checks, credit cards and online banking services stopped working today. <\/span>Your entire life would get put on hold until you resolved the problem.<\/span><\/i>\u00a0<\/span><\/p>\n

But imagine further, you<\/span> can\u2019t<\/span><\/i> resolve the problem. The barriers are too high.Your life as you know it\u2026is over. The world wide problem of unbanked people produces an enormous economic penalty. The cost to the world\u2019s economy is difficult to estimate, but is likely trillions of dollars.<\/span><\/p>\n

Being unbanked disproportionately affects women and people of color. There is a compelling argument to be made that the legacy banking system is the fundamental barrier to solving this problem. (watch for a future article on this.) I will give you one compelling resource<\/a> for further study: an interview between Laura Shin and Fereshteh Forough.<\/span><\/p>\n

Even in the US, just over 5% of households have little or no access<\/a> to banking services. This translates to 7+ million households.\u00a0<\/span><\/p>\n

Would it even work?<\/h3>\n

A parallel problem exists in the drive to impose more regulations and supervision and AML\/KYC on the cryptocurrency industry. The world has heard frequent calls from governments and the legacy banking industry itself declaring that, \u201cThe cryptocurrency industry MUST BE REGULATED to prevent organized crime, terrorists, drug cartels, evil countries like N. Korea, human trafficking groups, child pornography groups, and all the other bad people from getting easy access to money laundering services by using cryptocurrencies.\u201d<\/em><\/span><\/p>\n

I find it illuminating to examine the most regulated industry in the world, the legacy banking industry. How effective have they been at eliminating or at least reducing the problem of money laundering and financial scams? After all, they have been working on it for 50-100 years. Every single country in the world expends enormous resources in the form of time, money and staff to fight money laundering and other financial scams. How successful have those efforts been?\u00a0<\/span><\/p>\n

Let\u2019s be totally honest, the results are terrible. Let\u2019s look at a few numbers, quotes and resources.<\/span><\/p>\n

Q:<\/span> How much money is laundered every year?<\/span><\/p>\n

A:<\/span> Money laundering statistics from the United Nations show that about 2% to 5% of the world\u2019s GDP is laundered every year. That\u2019s approximately $800 billion to $2 trillion.<\/span><\/p>\n

Q:<\/span> How much of the laundered money is recovered?<\/span><\/p>\n

A:<\/span> Anti-money laundering activities <\/span>recover only 0.1% of criminal funds<\/a><\/em>.<\/span>
\nAccording to money laundering statistics of 2020, 90% of laundered money remains undetected<\/a>.<\/span>
\nThe United Nations Office on Drugs and Crime estimates that as much as $2 trillion is illegally laundered around the world each year \u2014 <\/span>while law enforcement reportedly catches less than 1%<\/a> of that.\u00a0<\/span><\/i><\/p>\n

How much money, tax evasion and money laundering was exposed by the Panama Papers<\/a>? At least 1.24 billion dollars in tax revenue was collected by various countries after the expose. Unless you assume every affected government had 100% success at recovering the money, the actual amount of money laundering was much higher.\u00a0<\/span><\/p>\n

Some have described the Libor scandal in 2012 as the crime of the century. The Libor, or London Interbank Offered Rate is used to derive interest rates on a range of financial transactions worth an estimated 800 <\/span>trillion<\/span><\/i> dollars. This is roughly 12 times the total global GDP. It is estimated that the manipulation of Libor<\/a> cost cities and municipalities alone at least $6 billion.<\/span><\/p>\n

A number of the biggest banks in the world colluded to manipulate the Libor value and got caught in 2012<\/a>.\u00a0<\/span><\/p>\n

Rather than list 100 more examples of bank fraud and money laundering to further illustrate the point, I would encourage everyone to do the following google searches:<\/span><\/p>\n