Bitcoin may be seen in some quarters as the answer to too much bureaucracy, red tape, and creaking, antiquated, legacy banking systems, but it can’t escape being regulated, according to IMF chief Christine Lagarde, who gave an interview to CNN Money last week.

Lack of regulation is often referred to as one of the crypto economy’s biggest selling points. After all, the blockchain works in a decentralised and trustless way, with every hash, block and timestamp ensuring that transactions are made permanent, irreversible, and impossible to delete.

But Lagarde told CNN that “It’s clearly a domain where we need international regulation and proper supervision”, and expressed concern that “there is probably quite a bit of dark activity” within the world of crypto.

The use of bitcoin and other popular cyrptocurrencies such as Lite Coin, Dash, and bitcoin cash to disguise criminal activities such as money laundering has been an issue for the crypto industry ever since it first rose to prominence. Many observers believe that criminal activity is what causes crypto to be so volatile, driving wild price swings and making it an unpredictable and dangerous way to hold and move money.

Already in 2018, we have seen credit card companies outlaw the purchase of crypto, and a global crackdown on cryptocurrency trading exchanges, most notably in South Korea, China and the US, which has mainly focused on combating illicit fundraising activities using crypto.

But proponents of digital currencies have responded by arguing that it is not the underlying technology that is to blame, and that criminal activity is still more likely to be found within the existing fiat currency financial system, which is all too easily exploited by criminals and terrorists.

Lagarde is certainly right about one thing; that it is not so much the “entities” that need to be regulated, but the “activities”, i.e. whilst the technology may not be to blame, catching the criminals responsible for carrying out illicit activities is the major concern.

The CNN article also carries a quote from US Treasury Secretary Steve Mnuchin, who told the World Economic Forum in Davos last month that “We encourage fintech, we encourage innovation, but we want to make sure that all of our financial markets are safe and aren’t being used for illicit activities.”

At a distance from the controversy surrounding bitcoin, major financial institutions have turned their attentions to leveraging the potential of blockchain technology through entities such as Ripple, R3, and Ethereum – cryptocurrencies that have been specifically built with major financial institutions, and their activities in mind.

Ripple, for example, is seen as an alternative to the SWIFT messaging and payments system, which can be slow and expensive by comparison with its more agile, technologically advanced new rival.

Mario Draghi, the president of the European Central Bank, caused a surge in the price of bitcoin, Ripple, and Ethereum this morning when he responded to rumours that the ECB might ban all cryptocurrencies, saying that “many of you posted questions about whether the ECB is going to ban Bitcoins or it’s going to regulate Bitcoins. I have to say it’s not the ECB’s responsibility to do that.”

The debate surrounding bitcoin, the most popular cryptocurrency with a current market cap of $156 billion dollars, seems set to rage for some time yet, but in the case of Ripple and Ethereum, as major banks continue to successfully trial activities such as international money transfer on these, to date, scandal free platforms, genuine progress is being made towards a faster, more efficient, and quite possibly more secure system.

Many people have expressed the view that the real question the authorities need to be answering is how best to police financial crime at source, most likely, through better KYC and AML checks. Arguably, there is no obvious reason why this cannot be done equally effectively whether the criminal chooses to use a fiat, or a crypto currency.

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