Former CIA Director: Illegal Activity With Bitcoin Is Exaggerated, Blockchain Analysis Effective In Countering?Ǫ

Former CIA director Michael Morrell argues in a paper that illegal activity in the Bitcoin ecosystem is exaggerated and in reality is minimal. According to him, blockchain analysis is extremely effective in combating crime. If the US continues to hunt ghosts, Morrell warns, it risks falling behind China.

Bitcoin recently received support from an unexpected quarter. Former CIA director Michael Morrell argued in the paper An Analysis of Bitcoin’s Use in Illicit Finance that the use of bitcoin for illegal or criminal purposes is “significantly exaggerated.” According to him, blockchain analysis is “extremely effective in fighting crime and for gathering intelligence”.


Those conclusions came as a surprise to the former CIA director, who began his research with some skepticism. After all, the prevailing conventional wisdom is that bitcoin is mainly used by criminals and fraudsters. That image is repeatedly painted in the media and by policymakers and politicians.

Recently, the US Secretary of the Treasury Janet Yellen spoke out about it and the President of the European Central Bank Christine Lagarde also expressed her concerns earlier.

Morrell told Forbes that he assumed that Yellen and Lagarde are among the most informed people on the planet and that they base themselves on facts. However, he found, ?ǣQuite the opposite, that [Bitcoin] is not permeated with illicit activity. In fact, there is probably less illicit activity going on in the Bitcoin ecosystem than in the traditional financial system ,?ǥ said Morrell.

In the Bitcoin ecosystem, the percentage of illegal activity would be less than one percent, while in the traditional financial system it is between 2% and 4%. Most of the illegal activity that takes place via Bitcoin, according to the paper, has to do with “simple” scams, ransomware or purchases on the dark web.

According to the paper, cryptocurrencies are hardly used to circumvent sanctions and offer few opportunities for terrorist groups. In a small number of cases, terrorists were able to raise funds via bitcoin through crowdfunding campaigns, but that usually amounted to a few thousand dollars at the most before being stopped.

Effective crime fighting with blockchain analysis

According to Morrell, blockchain analysis is extremely effective in fighting crime. Since every transaction is publicly visible on the blockchain, it provides intelligence agencies with unparalleled surveillance capabilities. Compared to the anonymity of a cash transaction in a dark alley, on the blockchain it is ‘as if the whole world is witnessing’.

Morrell therefore expects that criminals will soon have enough of Bitcoin. As more arrests follow, reality will eventually sink in. According to him, this leads to a situation “similar to Osama Bin Laden who never used a telephone again for the rest of his life after he found out that the government in the US could listen in” .

New privacy technologies are indeed a challenge and although the means of investigation are still limited, according to Morrell they are becoming increasingly sophisticated. In some cases, blockchain analysis would even have been able to track transactions using privacycoins and coin mixers . He also sees opportunities to analyze illegal activity using artificial intelligence, in order to identify other illegal activity on that basis.

To allay concerns about illegal activity in the Bitcoin ecosystem, the paper proposes broader enforcement of Know-Your-Customer (KYC) and anti-money laundering laws. About half of the exchanges and service providers would use no or insufficient KYC measures. Decentralized exchanges note the paper as a point of attention because of its anonymity, especially when using its own wallet.


According to Morrell, the misconceptions about illegal activity in the Bitcoin ecosystem stem from the fact that most people are still unfamiliar with the technology.

According to him, much is also due to the media, which prefers to publish sensational and high-profile stories rather than dry articles about solved crimes. He points out that much of the crime highlighted by the media has been solved precisely thanks to blockchain analysis.

He warns not to lose sight of developments in China. Pilots are already being carried out there with digital central bank money. If the US continues to ‘ghost-hunt’ because of over-anxiety, thereby stifling financial innovation, Morrell emphasizes, it risks falling behind China.

“Throughout my 33-year career with the CIA, I have been driven by one overriding mission – to present objective facts and analysis to policymakers so that they can make the best possible decision for the country. Such facts and analysis help to see beyond fears, misperceptions and narrow interests (as opposed to national interests) My hope is that this paper is not the last word on the subject of Bitcoin and illicit activity but, as I mentioned in the introduction, that it leads to a more factual based discussion.” – Michael Morrell, Senior Counselor, Beacon Global Strategies

Crypto Council for Innovation

The paper is published by Beacon Global Strategies, a Washington, D.C.-based strategic consulting firm. It was sponsored by the Crypto Council for Innovation (CCI), a newly formed pro-Bitcoin advocacy and political lobbying group. Members include Coinbase, Fidelity Digital Assets, and Square, among others.

Read the paper yourself? You can do that on the website of the Crypto Center for Innovation.

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