In a Reddit AMA, technology visionary Bill Gates lost a lot of fans when he gave his opinion on Bitcoin, honing in on a pretty weak argument for its use. It’s “used for buying fentanyl and other drugs, so it is a rare technology that has caused deaths in a fairly direct way,” Gates expressed.
But, Bill, drugs have been around for much longer than Bitcoin has, and people have been buying them for centuries, so how ever did they manage before this digital currency came along?
Blaming a tool for its unintended use is quite foolish. Yes, drugs can be bought with Bitcoin, as can life-saving medical procedures. You see, this digital currency is just that, a currency, like US Dollars, Nigerian Naira, Thai Baht and Russian Ruble, all which are equally adept at buying drugs.
There was a time where because of circumstances, Bitcoin was used often for buying of illegal substances, from drugs to guns and even hitmen. This all resulted from dark web marketplaces such as the infamous Silk Road.
Bitcoin was the currency choice on the Dark web, as it had many attributes that suited this shady underworld. It was decentralized, anonymous and digital. Bitcoin was thus the only way people could buy these illegal substances – on this marketplace.
Bitcoin was still quite unknown, and a very small fish in terms of its market cap and in comparison to any other currency, asset or market. But during this period, its primary use was probably for illegal activities.
But, as Bitcoin has organically grown and been adopted into more mainstream markets, the use of the digital currency as a Darknet staple has been declining. There is empirical evidence that Bitcoin, itself, is falling out of favor as a currency on the darknet, but statistically, mainstream adoption means less “criminals” are holding and spending Bitcoin.
What the numbers say
In a recent paper published in January this year at the University of Sydney Business School, some numbers were quantified when it comes to Bitcoin buying and illegal activities.
“We find that illegal activity accounts for a substantial proportion of the users and trading activity
in Bitcoin,” the paper reads. “For example, approximately one-quarter of all users, 25 percent, and close to one-half of Bitcoin transactions, 44 percent, are associated with illegal activity.”
“Furthermore, approximately one-fifth, 20 percent, of the total dollar value of transactions and approximately one-half of Bitcoin holdings, 51 percent, through time are associated with illegal activity.”
“These users annually conduct around 36 mln transactions, with a value of around $72 bln, and collectively hold around $8 bln worth of Bitcoin.”
Looking at these numbers, currently, there are almost 28.5 mln Bitcoin wallets that hold more than 0.001 BTC according to data compiled by Bitinfocharts.com.
However, most Bitcoin users have several wallets and use multiple wallet addresses to increase their financial privacy when transacting. Hence, the number of users is likely less than that number.
But to counter that, there will be a lot of inactive wallets, and a number of other factors that shift this number around. Therefore, it really comes down to an estimate, and hence, around 20 mln Bitcoin users globally can be considered as a fair estimate.
So, the numbers stand at five million users of Bitcoin have bought illegal goods with it. And 10 million illegal transactions happen annually. Additionally, just over half of the Bitcoin in circulation has been used for illegal activities.
These are big numbers, but when it comes to comparisons to other payment options, it starts to shine a light on just how small the Bitcoin drug trade is.
What about guns and murder?
Part of the fear that whirls around Bitcoin is that it was not only used for buying drugs but, especially when it came to the Silk Road, it was apparently a tool for purchasing weapons as well as hitmen.
However, the truth of the matter is that while guns could be purchased on the Silk Road, and with Bitcoin, they account for a very small portion of sales.
Nicolas Christin, assistant research professor of electrical and computer engineering at Carnegie Mellon University, is one of the researchers behind a recent deep-dive analysis of sales on 35 marketplaces from 2013 to early 2015…