During a recent interview with Freemit CEO John Biggs at SXSW Interactive 2016, the Winklevoss Twins were asked about the use of bitcoin by criminals. While many in the general public still see bitcoin as some sort of anonymous digital currency that can be used for money laundering, the reality is that every on-chain transaction is posted on the public ledger. For this reason, the Winklevoss Twins do not think it would be wise for anyone to use bitcoin for illicit activity.
Bitcoin Transactions are Public Forever
Tyler Winklevoss was rather blunt when asked whether or not bitcoin may be useful for criminals. He stated, “I think [Bitcoin] is a haven for really stupid criminals because the blockchain is an immutable record for the rest of time.”
The Gemini co-founder then explained his point in further detail:
“If I send you a bitcoin, the whole world sees that movement. They may not know the identities, but at some point, you cash that bitcoin into the real world for whatever illicit thing, someone catches you, and they can trace the trail of breadcrumbs back to you and the person you bought [from].”
To Tyler Winklevoss’s point, some regulators have touted blockchain technology’s ability to improve transparency in the traditional financial system. This increase in transparency occurs because, in a blockchain-powered world, the ledger of all transactions is distributed to multiple parties rather than being held by a single bank or financial institution.
Tyler Winklevoss also compared using Bitcoin for drug-related payments to using Venmo to pay a drug dealer. He added, “It’s a really stupid idea.”
The Drug Testing Analogy
Cameron Winklevoss also chimed in on the topic of criminal use cases for Bitcoin. The other co-founder of Gemini used an analogy of drug testing at the Olympics to make his point. First, he talked about how samples taken at the Olympics for drug testing purposes are held for ten years. He explained, “They know that the drugging technology is far ahead of the testing technology. The testing will always lag by some period of time.”
Cameron Winklevoss then applied this same line of thinking to Bitcoin. He stated:
“Imagine holding a sample forever . . . It’s just a really bad place to [engage in illicit trade], and people are figuring that out.”
Criminals are Better Off with Cash
While the potential use of bitcoin by criminals has been seen as a negative aspect of the digital currency in the past, Tyler Winklevoss pointed out that cash is a much better option for anyone who wishes to conduct anonymous trade. He noted:
“Cash is truly anonymous. If I give you cash, no one sees that happen unless there’s a video camera or something . . . It’s untraceable. There is no ledger record.”
Tyler Winklevoss also hinted that bitcoin’s market cap would be much higher if a large number of criminals were involved with the digital currency. He stated:
“If criminals were in bitcoin, I think the price and the market cap would be a lot different. It would be a lot bigger, and I really don’t think [criminals are involved].”
Privacy Improvements on the Way
While it’s true that the Bitcoin blockchain is mostly transparent right now, it’s important to note that privacy-related improvements are currently in the works. JoinMarket is essentially a market for mixing bitcoin transactions. Holders of bitcoin can earn a return on their savings -- in a manner similar to a traditional savings account at a bank -- for allowing other users to mix their outputs together.
Confidential Transactions is another privacy-enhancing feature that could soon be found on the Bitcoin blockchain. This privacy improvement is currently under development by Blockstream, and it allows users to hide the amounts associated with their bitcoin transactions.
The combination of JoinMarket with Confidential Transactions could be one of the first major steps forward in obscuring all of the publicly available data that is currently found on the blockchain.