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Tags: blockchain | nsadaq | south korean

Hidden Bitcoin Risks, Dangers Ignored at Our Peril

Hidden Bitcoin Risks, Dangers Ignored at Our Peril
Bitcoin and network switch connection. (Jan Lievens /Dreamstime) 

Bruce Abramson By and Monday, 04 December 2017 02:52 PM EST Current | Bio | Archive

Two important news stories have graced recent front pages. One began with North Korea’s missile launch and President Trump’s call for increased sanctions against the rogue regime. The other involved the gold-rush mentality beginning to attract both small investors and prominent financial institutions — to Bitcoin.

At first blush, these stories are unrelated. But they are indeed connected, and if the U.S. does not act quickly to defuse their interaction, large numbers of innocent people stand to get hurt. A second — deeper — look is critical. Now.

Start with a more in-depth look at Bitcoin. Bitcoin was born as a coalescence of technology and politics. The technology at its heart is called a blockchain, which is a significant leap forward in data security. Blockchains are "distributed," meaning each participating computer contains only a small part of the relevant information. Blockchains are also "redundant," meaning that every bit of relevant information appears on multiple computers.

Distributed redundant databases are very hard to hack, making blockchains a very secure technology. But distributed redundant databases also possess another important property: They can function without a single, centralized controller. That second property has enormous political significance. Many people distrust all forms of centralized control. Blockchain technology provides a way to keep information secure not only from criminal hackers, but also from governments.

The idea of keeping financial and commercial information out of government hands has significant appeal to at least three groups. The first two are largely benign. People who believe that governments manipulate currency values, and thus cannot be trusted to manage the money supply.

And, people who believe that governments are too powerful and too intrusive, and that restricting government access to financial and commercial information is a good way to limit that power. Plenty of decent people hold these views.

The third group is deadly. It includes criminals, human traffickers, drug cartels, warlords, terrorists, black marketers, and rogue regimes seeking to operate commercial enterprises so harmful that the world’s governments are eager to shut them down.

Bitcoin’s initial, primary appeal was to people possessing one of those three political motivations, and to technologists interested in the development of blockchains. To these groups of primary users, Bitcoin was not merely an alternative currency. It was a solution to a pressing problem.

Once these primary users created a Bitcoin market, however, broader appeal became possible. Bitcoin became just one more thing that people exchange — like equity shares, commodity futures, or baseball cards.

One more thing that speculators with zero interest in the underlying market might try to buy low and sell high. This secondary market has driven Bitcoin values into the stratosphere — hence yesterday’s announcement that NASDAQ will commence trading Bitcoin futures in 2018.

That’s where the two big stories come together. While critics of Bitcoin have long pointed to its potential for money laundering, its recent rise has brought rogue regimes — including North Korea — to the fore.

In the September of this year alone, Bloomberg, CNN, CNBC, Vice, and other sources reported on North Korea’s successes in both mining and stealing sizable swaths of Bitcoins (for obvious reasons, the actual number is unknown). Business Insider quoted a senior official at a leading South Korean cybersecurity firm claiming that these North Korean efforts date back at least as far as 2012 — when Bitcoin held about 1 percent of its current value.

If these reports are even close to true, American speculators, investors, and financial institutions are undercutting U.S. sanctions by bidding up the value of an asset that rogue regimes, terror organizations, and criminal syndicates are stockpiling. Early proponents of Bitcoin were rarely bashful about their goal of disempowering governments who wield economic and monetary control as weapons.

What they failed to note was that anything that blunts America’s ability to deploy economic weapons against North Korea — or the various other organizations seeking to kill Americans — makes military weapons more likely.

If the U.S. is to preserve its ability to wage economic warfare, it must block anything capable of channeling wealth to its enemies. That means either finding a technical hack capable of monitoring and blocking Bitcoin transactions, or criminalizing them and driving the entire Bitcoin economy underground.

The first approach, if technologically possible, will deflate the value of Bitcoin significantly.

The second will cause it to evaporate for all but the criminal class. The rise of mom-and-pop Bitcoin speculators will pose a political problem in the U.S., potentially even making it impossible to wage economic warfare against America’s enemies without also waging economic warfare against America’s citizens.

President Trump and Congress need to act now, before we reach that point, to preserve America’s ability to deploy economic warfare — even in an age of decentralized digital currency. Blockchain incorporating anti-money laundering (AML) provisions and other safeguards have begun appearing, and more are just over the horizon.

Legislation requiring such safeguards — at least for exchange-traded digital currencies, if not for all commerce in them — would retain most of Bitcoin’s benign appeal while severely limiting its potential for abuse.

In late 2017, it is still possible to treat Bitcoin speculation and North Korean missiles as unrelated stories. The U.S. government must think seriously about Bitcoin before their interconnection becomes obvious.

Bruce Abramson is the President of Informationism, Inc., Vice President and Director of Policy at the Iron Dome Alliance, and a Senior Fellow at the London Center for Policy Research. Jeff Ballabon is CEO of B2 Strategic, Chairman of the Iron Dome Alliance, and a Senior Fellow at the American Conservative Union's Center for Statesmanship and Diplomacy. To read more of their reports — Click Here Now.

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In late 2017, it is still possible to treat Bitcoin speculation and North Korean missiles as unrelated stories. The U.S. government must think seriously about Bitcoin before their interconnection becomes obvious.
blockchain, nsadaq, south korean
Monday, 04 December 2017 02:52 PM
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