Lawmakers were up in arms this month about whether Libra,
’s proposed new cryptocurrency, would be a haven for money launderers and other criminal activities.
Facebook, though, says Libra could be a valuable tool for law enforcement, partly because of the vast amounts of information that will be generated about its users. That was the message Facebook executive David Marcus took to Congress during hearings this month.
The conversation represents how some portions of the crypto world are trying to move beyond the industry’s Wild West heyday and become a viable payments option.
The ability to use crypto to help catch criminals is ingrained in its structure. Cash is valuable to criminals because there is no transaction or ownership record. Bitcoins carry an unalterable transaction record with them, but not always an ownership record. With Libra, both the transactions made and who made them will be recorded.
“You’re going to see an expansion of exchanges and wallet services that have stronger (anti-money-laundering) protocols and restrictions,” said Yaya Fanusie, a former CIA analyst and security consultant. “That would be good for law enforcement.”
Mr. Marcus implied in his testimony on June 17 that law enforcement could have access to that information when needed.
Facebook and the nonprofit group that will govern Libra, the Libra Association, will impose rules on the companies that use the network. Companies like exchanges and wallet providers that want to use the Libra network will have to comply with regulations around money laundering. That is something that can’t be forced on the bitcoin network, where there is no one party or group controlling access.
“I believe that we can improve on the current system,” Mr. Marcus told Congress in his recent testimony. “I think this system might be potentially better.”
Facebook declined to comment beyond the testimony given by Mr. Marcus. The Libra Association also declined to comment.
Law enforcement has previously used bitcoin to its advantage. Federal officers used the bitcoin transaction history of Ross Ulbricht to help convict him in 2015 of running the online drug site Silk Road.
The crypto sector has been moving in this direction for several years. Many prominent businesses adhere to standard banking rules, and several nations, notably Japan and Switzerland, have crafted laws specifically for digital currencies.
In the U.S., Attorney General William Barrdiscussed in a speech last Tuesday how encryption was “enabling dangerous criminals to cloak their communications and activities,” reviving a debate over whether technology companies should be required to provide law enforcement a way to unlock some communications.
The software than runs blockchain-based digital currencies, including bitcoin, maintains a public ledger that records every transaction. That ledger is maintained by groups whose work is publicly reviewable. That means any attempt at altering the record should be visible for everyone to see, making voiding or counterfeiting difficult.
For bitcoin, so-called “miners” process the transactions, and “nodes” broadcast them publicly. Anybody can download the software to run either process. That means there is no central authority to force compliance with the law. Bitcoin service providers that submit to regulations do so voluntarily.
On Libra, the members of the Libra Association would determine who gets to perform those tasks. That would give the association significant control over the network, and could allow it to force companies on the network to maintain data on the identities of all its users and make it available to regulators.
Mr. Fanusie said the eventual outcome will be two worlds of cryptocurrencies: one regulated and one unregulated.
Mr. Fanusie said law enforcement’s job will be easier because officials will know where to look for crime: at the point where the unregulated space mixes with the regulated space. Eventually, even drug smugglers need to cash out.
“The unregulated space will be there,” he said, “but it will be smaller.”
Write to Paul Vigna at firstname.lastname@example.org
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