The Breakdown - Terrorism, Sanctions & Global Opioid Rings: The Return of the Crypto Crime FUD Narrative

Episode Date: August 22, 2019

What do Palestinian bitcoin brokers, bitcoin rewards via hangover deliveries and a Russian spy scandal have to do with one another? It's all on today's 3@3. First, we look at the return of the crypto crime FUD narrative, with the specter of terrorism and US OFAC action against Chinese opioid kingpins. Then, we look at whether reports of legitimate use by Palestinians, legitimate use by US consumers, or chain analysis tools for law enforcement can counteract that narrative. Finally, we look at Patrick Byrne's resignation from Overstock and its blockchain initiatives after his embroilment in a Russian spy scandal.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. All right. So today, one and two are kind of parallels of each other. So first we're going to look at the return of crime fud. It's obviously been a major category of fud throughout the history of crypto. Tons of people first came into crypto because they heard of the Silk Road or something like that. But it's back in it and I think a big way in a way that's worth noting and observing. So that's our start. Second, we're going to look at how we combat that fud, particularly looking at whether adoption

and legitimate adoption can actually be a salve and an answer to that. And then third, we're going to look at news that just came out that Patrick Byrne, the CEO of Overstock, had set down and what it means for crypto. So let's start with number one, the return of crime fud. So there were a bunch of things that were noticeable, obviously, about or notable, about Donald Trump tweeting about Bitcoin. The first was that Donald Trump was tweeting about Bitcoin in cryptocurrencies. The second was that as much as it was about Bitcoin, it seemed even more to be about Libra.

The third is that he kind of plied and plummed for this older narrative of crime, right? So when he was saying, I am not a fan of Bitcoin and other cryptocurrencies, which are not money and whose value is highly volatile and based on thin air, that's kind of like the whatever part. But then he says unregulated crypto assets can facilitate unlawful behavior, including drug trade and other illegal activity. So again, this has been a part of the Bitcoin narrative, or at least the kind of the FUD narrative, for pretty much as long as most mainstream outlets, politicians, et cetera, have heard of Bitcoin, right? This is kind of part and parcel of new technologies.

They're often adopted on the margins first by people who are looking for alternatives to the regulated mainstream system. It is just kind of a byproduct of the nature of what these technologies can do. The challenge comes in how what they do or what these narratives do, what these fudges, narratives do in terms of building legitimate support for this in kind of those existing mainstream institutions and how that matters. So we saw this kind of return in a major way with Donald Trump's speech or his tweet rather. And then we saw a couple weeks later when there were hearings on Congress about Libra and about Bitcoin and cryptocurrencies more broadly, but particularly about Libra, we're this sort of radical statement from Brad Sherman, who has been historically

extremely antagonistic towards Bitcoin, that Facebook's Libra cryptocurrency will be worse than 9-11. And he went on to very vociferously defend this. He says Libra will enable tax evaders, terrorist, sanctions evaders, and drug dealers. It will make it more difficult for the federal government to fund cancer research or prevent Iran and North Korea from developing nuclear weapons. So, you know, when he had his allotted five minutes at the congressional hearing about Libra, he didn't actually spend his time asking questions to David Marcus, who was there representing Facebook. He just talked about how bad this was going to be for the world with obviously these extreme and sort of in very poor taste comparisons, as anyone from New York can tell you. And the way that he ended it was basically an assertion that just wait for the first terrorist cell that uses Bitcoin to fund itself. and see how much support there is for cryptocurrencies among the American people.

So again, aggressive return to the crime narrative, and in fact, sort of a new level of it with this idea of evoking the specter of terrorism. This was kind of echoed last weekend. Nathaniel Popper wrote a very long form piece for The New York Times about how terrorist organizations, and he focused on the Hamas and the Qasan brigades as an example, but he talked about how terrorist organizations are increasingly using Bitcoin and cryptocurrencies to fundraise. You know, and he referenced in that he referenced a larger piece by memory, which is, I'm trying to remember, the Middle East Media Research Institute that is arguing that

this is kind of a phenomenon on the rise, that there is an increase that they're seeing in terrorist organizations using cryptocurrencies to finance themselves. Now, I think one thing that's really important and I really encourage you to do is anytime you see something that is research reference from a think tank, particularly a quote unquote nonpartisan, non-political think tank, go do just a quick search, Wikipedia. media level even to find out what the reports of that particular organization's biased are. Because there are basically no unbiased think tanks in the world. That's really not their purpose. Their purpose is to advance narratives and political agendas under the guise of nonpartisanship.

Even nonpartisanship in the context of think tanks becomes its own political narrative that is an agenda that they're trying to push. Which again, doesn't mean that it's a, it's illegitimate or delegitimate anything they have to say, but it is worth figuring out what grain of salt you're supposed to take it with. Memory in this case is an organization that has been long accused since its founding in 1998 of working really hard to paint the Arab world in as poor light as possible, to be very selective about which media they reference. Again, this doesn't mean that this is ignorable necessarily, but it means that there is a context for this particular terrorist fight. It's part of a larger agenda of kind of fight against the entire Arab world.

make of that what you will. So we saw that rise in this terrorist narrative. I particularly and personally believe that if there are, depending on how conversations go and how the narrative shifts in terms of Bitcoin and cryptocurrencies in the U.S., to the extent that powerful actors oppose it, it will be on the basis of this narrative. That's my belief. I think it's worked historically ever since 9-11 and particularly and even before that. So watch out for that. It's kind of a narrative watch that I've got my eye on, but it's not just terrorism, right? So yesterday, two days ago maybe, no, yesterday, the OFAC Office of Foreign Assets Control updated the specially designated nationals list. So these are basically people that Americans are not allowed to do business with. They added 11 new

Bitcoin addresses and one like coin address. These are three, basically these are Chinese drug kingpins, they said. So they named a number of Chinese nationals alleging that they violated money laundering and drug smuggling laws. This isn't the first that we've seen these addresses be added to lists like this, right? We saw a number of Bitcoin addresses controlled by Iranians added to the sanctions list a few months ago. So again, this is clearly in that. this is just the job of these organizations, right? They're not necessarily out to fud Bitcoin or cryptocurrency. However, when taken in the context of, you know, larger terrorism narrative rising and all the sort of stuff, it becomes part of, again, a larger crime, fud narrative rising. Add to this, the White House

saying basically that cryptocurrencies have been used for fentanyl purchases. Obviously, in the U.S., There's few issues as hot button and important right now in the crime enforcement and social world, really, as opiate abuse. And so, again, this just contributes to this idea of cryptocurrencies only being used by criminals, right? This is something even recently I got into a bit of a conversation with, I think, an Ars Technica writer who had gone to the Bitcoin Embassy in Mexico City. and said it wasn't possible to use Bitcoin to buy a beer or whatever it was, whatever he was trying to do. And he came back with basically it's only used for criminals. So this is a narrative that's never gone away, but it's on the rise again. And so the question is, what can we do to combat it?

So the question is, can you build legitimacy? Can you combat the crime-fud narrative by through adoption, right? legitimacy through adoption. It really should have a question mark here as the second theme for today. And so it's an interesting question, right? So one effort with that regard comes from Lee over at CoinDesk who's been looking, she keeps track of how Bitcoin is being used around the world. She's written about Bitcoin being used in Gaza before. And she wrote another piece, this just released today, that argues that the legitimate use of Bitcoin, in Gaza and in the Palestinian territories has gone up significantly and in fact dwarfs that

elicit kind of Islamist use for fundraising. So the quote here is there are some offices that do five that now do five million to six million dollars a month. I've seen an office send 100 Bitcoin and one transaction. There are also lots of small clients that send 200 or 1,000. So this is a freelance web developer in Gaza who says this. And what Lee points out is that that $5 million figure would absolutely dwarf the tens of thousands of dollars that were reported in Popper's article earlier or against last week. She goes on, she writes, or last year she's kind of referencing herself. She pointed to one cryptocurrency dealer that served 50 clients a month, purchasing or liquidating an average of 500 each. And it goes on to say that two sources with knowledge of the matter estimate they're up to 20 Bitcoin dealers,

operating in Gaza. Since PayPal and other online services exclude the Palestinian territories, this is one of the only ways for freelancers to easily receive international payments. So again, this is an example of how this technology is not just being used by the criminal underclass. It's being used by people who don't have other options. And interestingly, in this case, it's being used by people who don't have other options because there is a criminal class that they get swept up with. Like part of the challenge and part of the problem with sanctions as useful a tool as they are for governments, and the U.S. government in particular, is that they tend to disproportionately hurt people at the bottom of the socioeconomic period. In this case,

Bitcoin is being used both by the people that they're trying to target with those sanctions, as well as the people who are being most affected by those sanctions, despite the fact that they are just trying to live their lives and go about their daily business and actually provide for their families and all that good stuff. So will this sort of of adoption narrative change things? Maybe, maybe not. You know, for a lot of people, they're going to read this and they've already written off Gaza, they've written the Palestinian territories as a monolithic sort of supporter of terrorism. And it gets swept up, basically, in larger political issues. So maybe let's look at another form of mass adoption. Maybe the alliances

that we should be looking for as a Bitcoin community, as a crypto community, are less about, you know, it being used to get around sanctions, even if legitimately, and more around adoption kind of from a mainstream, you know, U.S. Western consumer use. So Lolly just turned a year old this week. And for those who don't know, Lollie is a company that allows you, they do partnerships with retailers and allow you to get Bitcoin back. So it's kind of like a classic cashback thing, but instead of getting cash back, you're stacking stats. And so their idea and kind of the whole push here is like to give people a chance to get introduced to Bitcoin and crypto by actually getting it, by putting it in their hands just for doing the normal things that they're

already doing. And so Lolly has been really good and on a tear kind of at with their announcements of who they worked with. So they just their most recent announcement is that they had partnered with Postmates, which is obviously one of the kind of biggest on-demand delivery services around the U.S. And I think, you know, in other parts as well. But that is potentially, you know, Brecki also kind of referenced this. How do we spread Bitcoin adoption, especially when people are scared away by volatility. TryLolly is currently my favorite way because consumers don't have to buy Bitcoin directly.

So this is, again, maybe this is sort of a path where the more people that you have using Bitcoin or getting Bitcoin for doing the things that they normally do and discovering what they can do with it, the better. Now, I think that realistically, the challenge is to fight that particular crime narrative, it's going to take more than just adoption from U.S. consumers, particularly when the adoption is actually not a behavior shift. It's just getting some Bitcoin for the thing that you already do, as much as I admire what Lali is. And I don't think, unfortunately, that showing that Palestinians are using Bitcoin legitimately or to sort of help them,

outside and around terrorism is likely to get kind of hawks away from the crime narrative who are worried about how it's going to fund terrorism. I'm just skeptical as much as I would like that to be the case. I think that there is some promise in the fact that realistically, there are a lot of benefits that crypto assets offer to law enforcement over and above traditional cash, which has up until now been the preferred system for money laundering and for terrorist financing and for every other sort of nefarious activity than you can imagine. So, Yaya, when OFAC was announced, Yaya Fennusi, who is a former CIA analyst and looks a lot about kind of the larger global context for crypto from that sort of state craft point of view, says,

here are the designated cryptocurrency addresses, OFAC just designated that belong to members of a Chinese opioid ring. Let the blockchain analysis begin. And so again, what I mean is that there are obviously like the fact that these addresses are showing up on these lists is representative, I think, in some ways of the fact that cryptocurrencies create a trail of breadcrumbs for law enforcement that is in a lot of ways more powerful than even what cash can do. Now, this is holding aside entirely the extreme end of this argument, which is central bank digital currencies and completely surveillable money. But, you know, you also have chain analysis launching real-time alerts for suspicious transactions across 15 cryptocurrencies. These are tools that law enforcement is going to use. And I think that, you know, to the extent that there is a desire to see the protection of these assets of Bitcoin enshrined at high governmental levels, education around how it can be and is being used by law enforcement is probably a part of this.

Now, again, at the end of the day, this all gets to the question of what the purpose of these technologies are. There is a huge and legitimate argument that even the fact that they are so traceable and surveillable is a problem, and that's part of the justification for and the motivation for, you know, default private transactions. But either way, I think that the reality is that we haven't necessarily reached escape velocity yet for Bitcoin as, acceptable by the U.S. government. We have right now an interesting window in which almost all of the heat is on Facebook and Libra, but it wouldn't be surprising to me that that is only a relatively short window. Now, there are some who will say that it doesn't matter that Bitcoin is the honey badger and a ban would actually just increase people's interest in it, but I'm not sure.

And I think it's worth debating. I think it's worth discussing. But for now, I think that the important thing to note is that one, there is a rise in this crime fud narrative again. And two, it's worth having the conversation about how we combat that more than just kind of these glib, you know, well, cash is worse kind of analyses that seem to be very popular on Twitter. But with that, I think we'll leave that there for today and move on to our third and final piece for the day. So Patrick Byrne, CEO of Overstock, is both a colorful character and one of the most kind of notable Bitcoin advocates in mainstream finance. He, or not mainstream finance, but I guess in public company life is a better way to put it. So Pomp today tweeted out, breaking. Patrick Byrne, CEO of Overstock and one of Bitcoin's only verbal supporters at the helm of a public company, just announced his resignation effective immediately from the company. Thankfully, we still have Jack and others to continue onwards in the public market.

So this was breaking news today. This is CNBC. Overstock CEO Patrick Byrne resigns following deep state comments and the stock rises at the announcement. So the markets like this. So basically, this actually was not so much about Bitcoin or about cryptocurrency. In fact, it wasn't at all. Patrick Byrne has been a vocal advocate for these technologies and in fact has made huge moves to shift overstock's model into the blockchain space in a really significant way.

However, he also has been involved with kind of a lot of political machinations right now. So this is a quote from him. In July, came forward to a small set of journalists regarding my involvement in certain governmental affairs. Doing so was not my first choice, but I was reminded of the damage done to our nation for three years and felt my duty as a citizen prevented, precluded me from staying silent any longer. Basically, long story short, Patrick Byrne was romantically involved with Maria Butina, who was later revealed to be a Russian operative who used NRA activism to infiltrate American politics and was later sentenced to prison.

So he made a bunch of comments about this publicly, yada, yada, yada. If you're the board of a major company, if you're the stockholder of a company, it's one thing when your CEO wants to shift the business model in fundamental ways. It's another thing when you get involved in Russian political spy scandals, right? And so I don't think that this necessarily has that much to do with Bitcoin or with crypto or anything. However, it is notable that in his resignation letter, he shares what his key takeaways are. And I want to read the passage just about blockchain and cryptocurrencies. So he says, I think the blockchain revolution will reshape key social institutions.

We have designed and breathed life into perhaps the most significant blockchain kuretsu in the world, a network of blockchain firms seeking to revolutionize identity, land, and governance, equaling the rule of law, equalling, equaling potential, equalling, capital, central markets, supply chains, and voting. In three of those fields, land governance, central banking, and capital markets, the word trillions comes to mind when calculating the disruptive opportunity of blockchains. In those three fields are blockchain progeny, Medici land governance, bit and T0, respectively, arguably the leading blockchain disruptors in existence.

Whether you think that a particular hyperbole is true, it is true that he's been a vocal advocate for the space, as I mentioned at the beginning. So the question is, what's the bad and the good of this? Well, the bad is that, you know, we did have, in this space, had an advocate as a CEO of a major public company that was always going to be able to make news,

always going to be able to get headlines, and was going to, by virtue of their position, be able to advocate for this space as a whole. The good is that we've got plenty of colorful folks who are making the argument for Bitcoin, who are making the argument for blockchain and cryptocurrencies more broadly. And there's a lot to be said for having new blood step in,

not just kind of this grab bag of kind of old tech guys being the leading voices. There's a reason that these folks can make news. So I think that there's at least an argument that the more that we can bring new, new voices and new advocates into the fold and have them be the folks who are appearing, you know, on CNBC and talking about Bitcoin and crypto, the better. So, you know, I think there's a lot to feel about it.

And I'm interested in what you think. Is this a net positive, a net negative, or just kind of ultimately neutral? Because the crypto industry and Bitcoin, the Honey Badger itself is not going to stop, no matter who steps down from what company. Let me know in the comments. Let me know as you're watching. And I will see you tomorrow, guys. Thanks for hanging out.