10/20 - cryptocurrency

What is cryptocurrency?

A decentralized digital form of money, built on blockchain technology, designed to prevent forgery and enforce scarcity.

How is cryptocurrency created?

Through mining, which requires computational work; as more coins are created, mining becomes increasingly computationally intensive.

What is the role of blockchain in cryptocurrency?

It prevents double-spending, ensures scarcity, and records transactions across a distributed ledger that is agreed upon by the network.

Why is cryptocurrency considered decentralized?

No single entity controls issuance, transaction flow, or value; consensus is maintained through the network of participants.

What anonymity protections does cryptocurrency provide?

Wallet addresses are encrypted, user identities aren’t required for wallet creation, and transactions can be pseudonymous.

How are disputes in cryptocurrency transactions resolved?

By majority consensus of the distributed ledger; the version that most nodes agree on is considered authoritative.

What kinds of crime does cryptocurrency enable?

Tax fraud, ransomware payments, buying and selling illegal goods, and sanction evasion.

Why is cryptocurrency hard to regulate?

Transactions are pseudonymous, decentralized, globally accessible, and can be moved or mixed across wallets and exchanges, often bypassing traditional financial controls.

How can governments try to regulate or block criminal cryptocurrency use?

By sanctioning exchanges or wallets, monitoring transactions, geolocating IP addresses, and blocking access to sanctioned entities.

What are mixers in cryptocurrency?

Services that mix coins from multiple wallets to obscure the origin, used to launder stolen or illicit funds.

How did North Korea exploit cryptocurrency for sanctions evasion?

They laundered funds via mixers and bridges, updating infrastructure to circumvent wallet blocks and sanctions.

What was the Colonial Pipeline case an example of?

A ransomware attack targeting critical infrastructure, with subsequent tracing and partial recovery of cryptocurrency ransom payments.

What challenges arise when tracing cryptocurrency transactions?

Funds can be moved across multiple wallets, through mixers, and via exchanges in different jurisdictions, making attribution and enforcement difficult.

How did China regulate cryptocurrency?

By blocking all domestic and foreign cryptocurrency trading and ICO websites, aiming to eliminate risks from illegal issuance, fraud, and speculation.

What are the U.S. regulatory frameworks for cryptocurrency?

FinCEN Guidelines (2013): Virtual currency exchanges are money transmitters; subject to Know Your Customer (KYC) rules.

New York BitLicense (2015): Requires licensing, detailed record-keeping, and compliance with anti-money laundering laws.

How is cryptocurrency classified under U.S. law?

It can be considered a security (regulated by the SEC) or a commodity (regulated by the CFTC), depending on its use and characteristics.

What was the significance of the Tornado Cash sanctions?

OFAC designated the mixer for laundering stolen cryptocurrency, demonstrating that decentralized platforms still rely on centralized components vulnerable to enforcement.

What are bridge protocols in cryptocurrency?

Services that move cryptocurrency between blockchains and can disguise origins, also targeted for laundering by actors like North Korea.

How do exchanges facilitate circumvention of local restrictions?

By using VPNs, alternate domains, lax KYC procedures, and routing users to global platforms despite local bans (e.g., Binance in China).

What lesson does Silk Road and AlphaBay enforcement illustrate?

Even decentralized or anonymized cryptocurrency transactions can be traced through operational security failures, law enforcement surveillance, and seizure of private keys.