Cryptocurrency market capitalization skyrocketed in 2017 and early 2018 before its major plunge. Bitcoin and other cryptocurrencies were largely being used by nerds and hackers before this mega bull run.
But now it has captured the interest of mainstream media and Wall Street. The underlying technology, blockchain, is slated to be a game-changer.
But like every piece of technology, it is being used for both legal and illegal purposes. Here are some of the most popular uses of Bitcoin and cryptocurrencies in general.
Speculation and Trading
Since most of the “believers” of Bitcoin see it as the future of global currency and trade, the obvious way of profiting out of it is trading or speculating.
Apart from Bitcoin, there are various projects and loyal supporters who see their token becoming the global denomination for payments, storage of value or unit of accounting.
All of these traders and hodlers are not using their choice of token for any of these purposes as yet. It is mostly being traded on markets for speculation.
Speculation is, by far, the biggest reason for the popularity of crypto as well as the biggest usage of these tokens.
Most amount of these tokens are stored on exchange wallets and cold storage.
However, this is not a bad sign of crypto growth. Speculation and investment by large players mean there is a bullish case for adoption of Bitcoin and crypto.
NYSE’s parent company launching the Bakkt trading platform for cryptocurrencies is a big validation of the legitimacy of this market and the mainstream interest.
Many new technologies are first adopted and spread by illegal businesses. It is no different with cryptocurrencies.
The infamous Silk Road was the biggest darknet market that was powered by Bitcoin before it was shut down by the law enforcement agencies.
The dark web has been in existence for at least a decade now and has been a platform for trade of all sorts of illegal exchange of goods and services right from drugs to computer crimes like hacking to pirated software to abusive content to hiring of hitmen.
All of these transactions use Bitcoin or some other cryptocurrency as a method of payment.
Even to today, the dark web continues to contribute to the growth of cryptocurrency.
One of the prominent uses of cryptocurrencies in the last few years have been for ransomware attacks.
Ransomware attacks are conducted by hackers who design malicious software that targets devices and gets a user’s personal information, such as photos, contacts, passwords, credit card details and other sensitive data.
This data is then used to blackmail the user into paying a “ransom,” which is usually paid in Bitcoin or altcoins like Monero.
This method proves effective because cryptocurrency transactions are irreversible and pseudonymous.
These attackers also ask for small amounts from numerous victims, thereby making it counterproductive for them to report it to law enforcement or invest the effort required to hunt the attackers down.
Cryptocurrency acts an easy and effective tool for laundering money gained via criminal/illegal activities.
The regulation for money laundering when it comes to fiat currency is pretty clear and the enforcement is strict.
But anti-money laundering laws are yet to catch up with the new era of cryptocurrencies.
Weak AML regulation means many people try to sneak out their profits to tax havens easily.
An easy way to launder money is to set up a crypto exchange in a country with weaker AML laws and then deposit the crypto tokens to that exchange directly.
This is quickly changing as AML regulation framework crystalizes and is adopted by most developed countries globally.
Countries like North Korea have been consistently using cryptocurrencies to evade sanctions by the U.S.
While most cryptocurrency supporters wish for an open market and a world with Austrian economics and free trade, no one appreciates a country with lethal nuclear power gaining more power by circumventing the rules and sanctions imposed on them.
According to financial experts, nations including Iran, North Korea, Russia and Venezuela have been using cryptocurrencies to counter economic pressure from the U.S.
This kind of usage of cryptocurrencies can be curbed when all the countries have their AML laws in place and enforced as strictly as they are for fiat currencies.
Contrary to the popular belief that Bitcoin’s transactions are anonymous, they actually can be tracked and there will evolve better ways to deal with such actions.
Although much of what has been mentioned above is true today, an increasing number of businesses are now accepting cryptocurrencies as a mode of payment for their legitimate businesses.
Numerous payment gateways have cropped up helping businesses integrate crypto payments in their systems.
The website 99bitcoins.com noted a list of companies that accept Bitcoin.
The list includes names like KFC, Microsoft, Subway, Playboy, Virgin Galactic, Expedia, Wikipedia, Mint.com and several other major businesses.
This list is anything but growing. If we were to chart a trend, were there enough credible data, one would be able to see that legacy and small businesses are increasingly capturing a larger share of the pie and reducing the illegal uses of cryptocurrencies to a small percentage.
A study in the U.K. also suggests that 75 percent of crypto holders want to pay in crypto at point of sale if there were more options. This is also driving adoption amongst the merchants. There is now an incentive to have a crypto payment option for businesses.
Cryptocurrencies can now be purchased with credit cards through certain exchange platforms, making them a more accessible investment opportunity. Unfortunately, many cards don’t have this capability.
Governments have realized the power of cryptocurrencies and want a share of profit as taxes—thereby treating it like any other asset. One of the ways to recover these taxes is to accept cryptocurrencies as a method of payment themselves.
In the U.S., Ohio paved the way by becoming the first state to accept crypto payments for taxes.
Businesses are able to pay 23 different taxes using crypto tokens. These payments are facilitated by a BitPay payment gateway.
The welcome move by the Ohio treasurer was meant to signal other states in the U.S. and the rest of the world that Ohio is a pioneer in adopting emerging technologies.
Now many U.S. states have started accepting crypto payments for taxes.
Supporters argue that every illegal activity conducted using Bitcoin was already being done with fiat. So it is not surprising that the bad actors have adopted the technology faster than everyone else.
That does not mean the utility stops there. It has proven benefits against fiat and other assets of trade, like gold.
We are in the early stages of the adoption of Bitcoin as a payment method. It has several roadblocks that need to be crossed to become the largest digital payment method of choice for users and businesses alike.
But we see more mainstream adoption and with regulation, a sharp decline in criminal usage of Bitcoin and cryptocurrencies.
If this trend were to continue, it will not take much time for cryptocurrencies to have “real” usage.