Can you launder black money using bitcoins?

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The rise of digital currency bitcoin has led to an air of mystery surrounding it, thanks to its complex nature. After the government’s landmark decision to demonetise Rs 500 and Rs 1,000 currency notes, those hoarding black money have tried their hand at various ways through which to convert their ill-gotten stash. In fact, in the immediate wake of the decision, prices of alternate asset classes such as gold or real estate shot up in the gray market to the extent of which unscrupulous jewellers or developers could back-date purchasers and pass off old notes having being used to buy assets in the past. Recent reports have mentioned bitcoin as a possible vehicle to launder money. A decentralised digital currency that is created by computers using a technology called blockchain, bitcoin has achieved both fame for its potential to revolutionise global finance and some notoriety, thanks to its anonymous nature. Media reports have sometimes caricatured the currency as being used by money-launderers and criminals for extortion and drugs etc, even as practically, the currency has applications wider than that. So can you use bitcoins to launder money? A recent investigative report showed “bitcoin brokers” who claimed they could convert illegal cash to legal bitcoins at a 20 percent premium. The exact mechanism of how such a conversion would take place is unclear, more so because bitcoin exchanges claim they do not allow for cash transactions. Below is a screenshot from the app of Zebpay, India’s leading bitcoin exchange. When we spoke to Sandeep Goenka, COO and co-founder of Zebpay, he said that because the exchange only accepts transactions electronically, such “brokers” offering to launder money using bitcoins must first be converting the cash into white money. Once the money is brought into the banking system and turned into white, “they can buy iPhones, bitcoins, gold or anything for that matter,” Goenka says. Goenka adds that immediately in the wake of the demonetisation decision, the exchange got calls from customers asking if they accept old notes. “For a day or two, we got calls but when word spread that exchanges don’t accept cash the calls died out.”