Jamie Dimon the chairman and CEO of JPMorgan Chase lauded the latest actions of financial authorities in China to regulate the circulation of Bitcoin and the planned initiative in Japan to peg an electronic currency to the Yen. For Dimon, the use of Bitcoins encourages criminal activity such as money laundering.
During a press conference in Washington, Dimon used colourful language to highlight his strong opinion about Bitcoin:
“A fiat currency is when a government says this is your legal tender, you have to give it and accept it, and of course the central bank can misuse it and inflate it. But what is the use case for Bitcoin? You’re in Venezuela, North Korea, you’re a criminal. Great product!”
The statement drew laughter from the congregation composed of bankers who were attending the annual meeting of the Institute of International Finance.
However Marco Santori the head of the fintech practice at Cooley which is a New York law firm disagreed and shares the opinion that Dimon’s statements were irresponsible and unfounded:
“Is Bitcoin used by criminals? Of course, just like the US Dollar. There is literally zero data supporting the position that Bitcoin is especially widely used for, or especially well-suited to criminal activity.”
Santori cited a 2015 report by the United Kingdom Treasury which ranked Bitcoin last on potential vectors for money laundering.
For Santori, Dimon’s comments were typically representative of financial intermediaries who have begun to lose their grip on the currency market.
What is Bitcoin?
Bitcoin has been making waves since it was first introduced five years ago. Not too many people were familiar with Bitcoin a few years after it was launched. A 2014 survey showed 42% thought it was a new app.
In 2012, Bitcoin was trading below $4. Today Bitcoin is valued at $5,690. It was created by Satoshi Nakamoto in 2009 and is alternatively referred to as a cryptocurrency because of its use of cryptography to create and transfer money.
Bitcoin transactions are recorded in a “Block Chain” which functions like a public ledger. For example, if you send a Bitcoin to a friend, the block chain will record the transaction as a transfer of cryptocurrency from your wallet to your friend’s wallet.
Current transaction records are added to past ones to form the block chain and this process is referred to as “Bitcoin Mining”. The process invites “miners” to try and solve transaction related algorithms whereby the winning miner gets to place the next block on the chain and receive the reward usually in the form of Bitcoins.
When transacting in Bitcoins, you only need a Bitcoin address and the Internet.
What are the Risks of Dealing with Bitcoins?
The problem with Bitcoin is that use of the cryptocurrency is largely unregulated. In other words, you are at the mercy of the people who use it and the absence of any regulation makes Bitcoin trading a very volatile market.
Transactions you make using Bitcoin are irreversible; once you engage in it, there is no refund. The transaction cannot be undone. This flaw in the Bitcoin exchange process makes it very susceptible to money laundering activity and has made central banks the world over very nervous about the cryptocurrency.
Contrary to the claims of Santori, there have been incidents of money laundering using Bitcoin. In 2014, Bitcoin Foundation Vice Chairman and BitInstant CEO Charlie Shrem and other executives were charged with using Bitcoin to facilitate the sale of illegal drugs.
Cybercriminals have also found ways to hack Bitcoin wallets. In 2013, hackers were able to steal $250,000 worth of Bitcoins from BitFloor. Also in the same year, Bitcoin exchanges in the UK and Japan were victims of hacking activities.
With regards to Bitcoin mining, there are some governments which do not consider it legal. In Ukraine, its national police arrested several individuals last August 2017 for illegally mining Bitcoins using 200 computers set up in an unused swimming pool in a state-owned recreational facility in Kiev.
Ukraine’s central bank the National Bank of Ukraine does not consider Bitcoin as a legal substitute of its official currency, the Hyrvnia.
The lack of regulation and the refusal of governments to recognize Bitcoin has led Dimon to believe the cryptocurrency will eventually be “crushed” by legislation.
Despite his strong views on Bitcoin, Dimon thinks the use of block chain technology could reduce the cost of bank transactions while improving efficiency.
JPMorgan’s finance chief Marianne Lake shares the same opinion:
“Block chain could become very transformational for the financial services industry.”