Jack Solowey, a policy analyst at the Center for Monetary and Financial Alternatives of the Cato Institute, recently addressed the issue of illicit activity in cryptocurrency compared to that in the traditional financial system. In an interview with Federal Newswire, Solowey highlighted that transactions conducted on blockchains are openly recorded, unlike those in the traditional financial system which remain closed.
"The primary difference is that on major cryptocurrency blockchains, transactions typically are recorded on open and auditable public ledgers, whereas in the traditional financial system transactions typically are documented on closed books and records," said Solowey. "The former enables a form of open-source intelligence, whereas the latter relies on information sharing and legal process vis-à-vis traditional institutions."
A recent report from the Cato Institute, co-authored by Solowey, indicated that some U.S. policymakers have exaggerated the link between crypto and crime. The report stated: "Exaggerating the connection between crypto and crime neither helps to efficiently allocate law enforcement resources nor gives due to the great majority of crypto activity that is legitimate." The report also provided figures from blockchain analytics firm Chainalysis and from the United Nations Office on Drugs and Crime, stating that approximately $8.6 billion worth of crypto was involved in money laundering in 2021. Meanwhile, about 2.7% of global GDP is laundered each year - amounting to $2.6 trillion in 2021.
In a separate report released by Chainalysis, it was found that the percentage of crypto transactions linked to illicit activities has decreased over time. The total value of crypto transactions sent to illicit addresses fell from $39.6 billion in 2022 to $24.2 billion in 2023, according to this report. It also revealed that revenues from crimes involving crypto hacking and scamming "both fell significantly in 2023." Specifically, revenues for crypto hacks decreased by 54.3% while those for scams dropped by 29.2%.
During her testimony before the House Financial Services Committee, Treasury Secretary Janet Yellen pointed out that evading sanctions using cryptocurrency is challenging because blockchains are "regularly examined," making large transactions noticeable, as reported by CoinTelegraph. Yellen further noted that crypto exchanges are subject to anti-money laundering and Combatting the Financing of Terrorism regulations. She also stated that Russian oligarchs and government agencies had not achieved any "significant evasion" of sanctions through crypto.
According to the Cato Institute's website, Solowey's research focuses on financial technology, decentralized finance, and artificial intelligence. Before joining the Cato Institute, he served as an attorney in Hunton Andrews Kurth LLP's cybersecurity group. His insights have been featured in various outlets including Barron’s, CoinDesk, Cointelegraph, and Law360.
