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Draft Law Hopes to Fight Illicit Use of Cryptocurrency, but Will It Have an Impact?

The Fight Illicit Networks and Detect (FIND) Trafficking Act, a proposed law designed to deter the use of cryptocurrencies for illegal activity, has passed the U.S. House of Representatives.

But without a deeper understanding of the technology behind cryptocurrencies or foresight about how these assets will actually be used, any law stemming from this draft is not likely to have much of an impact.

What Is FIND?

Introduced in June 2018 by Representative Juan Vargas, Democrat of California, the FIND Act orders the U.S. Comptroller General's office to "carry out a study on how virtual currencies and online marketplaces are used to buy, sell, or facilitate the financing of goods or services associated with sex trafficking or drug trafficking."

By "virtual currencies," the law means cryptocurrencies.

The law would also order the office to make recommendations on actions that the federal government could take to combat the use of cryptocurrencies in association with these illicit activities.

The House of Representatives passed the FIND Trafficking Act on January 28 by a vote of 412 to 3. That clears the way for the senate to vote on the proposed law. For now, it is unclear if or when the senate might do that.

Problems With the FIND Act

In many ways, the FIND Act is exactly how you'd expect politicians without a deep understanding of the crypto industry to react to mainstream media reports about the use of cryptocurrency for illegal activity.

Since Bitcoin's early days, journalists have been keen to point out that bitcoin and other cryptocurrencies are sometimes used for illicit activities. Such articles have accounted for a wide portion of mainstream reporting about the crypto industry. In the absence of frequent reporting in mainstream publications about other applications of crypto, these reports have perhaps given general readers (and the politicians who represent them) a skewed impression of cryptocurrency as being used primarily by criminals.

There's a lot of resonance between the FIND Act and the way politicians reacted to the internet in the early 1990s, when the public at large suddenly realized that some people were doing bad things on the web. Those fears spawned a spate of relatively ineffectual legislation, such as the Child Online Protection Act, that reflected a lack of understanding of the technical realities of the new technology.

The FIND Act is similar in that it presumes that legislative or regulatory action by centralized government agencies can effectively mitigate the use of cryptocurrency by criminals whose operations are highly decentralized — not to mention that those criminals operate beyond the geographic jurisdiction of the United States in many cases.

The FIND Act also takes it as a given that cryptocurrency is popular among criminals largely because crypto transactions are anonymous. That, of course, is not at all true; many cryptocurrency transactions, including those that involve bitcoin, are quite easy to trace in many cases. In this sense, the FIND Act appears to reflect a misunderstanding of some of the core fundamentals of how cryptocurrency actually works.

A more forward-thinking law might instead aim to develop resources to help law enforcement agencies identify criminals by tracing crypto transactions. After all, given how widely misunderstood the relationship between crypto and anonymity is, it's likely that many criminals who do use crypto fail to cover their tracks effectively, thereby making it easier for law enforcement to catch them than it would be if the criminals conducted transactions in cash.

Instead, by reaffirming the flawed idea that crypto payments are anonymous, the FIND Act will only encourage more people who want to remain anonymous to use crypto.

Why the FIND Act Probably Doesn't Matter

Whatever one thinks of the potential effectiveness of the FIND Act, it's probably not worth spending too much time worrying about how the proposed law, if it is ever passed, could impact the crypto industry. The law's only direct effect would be to produce a report; it would take more government action to translate the report's findings into intervention within the crypto industry. And it's hard to imagine what concrete actions could emerge from the report.

The bottom line: We're not going to spend much time thinking about the FIND Act, because it probably will never have a real-world impact. Still, if you want evidence that the public at large continues to misunderstand crypto, the proposed law is a great place to look.

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Source: FinCEN

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Source: Gemini

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