This article is provided for information and education purposes only and is not intended as investment advice. Readers are encouraged to do their own research and consult a professional before making any investment decisions.
Illegal capital outflow collectively costs nations around the world upwards of trillions in capital that is seldom recovered. Not to be confused with capital flight - which is an outflow of money that travels through the proper legal channels, illegal capital flight entails moving illicitly obtained wealth into another country in an attempt to obfuscate its origin and evade authorities. Illegal capital outflow affects both wealthy and poor nations on every continent aside from Antarctica. Cryptocurrency could either exacerbate this problem, or be the solution, depending on how it is adopted by the world.
Since the problem of illegal capital outflow is so widespread, it would be logical for those tasked with working the frontlines in protecting their nation’s economy to be well informed on developing financial trends. However, a decade after Bitcoin came into existence, most border security agencies around the world are still completely cryptocurrency illiterate and have developed no standardized training for their officers. If a border security officer has no idea what cryptocurrency is, how can they be expected to effectively profile a traveler? Information probing techniques such as high pressure interrogation do nothing if they can't grasp the simple concept of cryptocurrency; which nullifies the presence of middlemen acting as gatekeepers, allowing the free flow of capital between any two parties.
Travelers are required to declare wealth at the port of entry in their destination country. This is to ensure that they are financially capable of supporting themselves throughout the duration of their stay in the host nation. Undeclared wealth can be reason enough to be denied entry into the country, and hefty fines can be levied against the traveler. If border security officers don't even know what cryptocurrency is, how can a traveler properly declare their digital wealth, and how can officers detect crypto-smugglers if they can't identify a wallet file or private key?
Physical exchange of private keys is the easiest way to remain anonymous when transferring cryptocurrency to another party, and the same goes for moving money across borders. Since every action you make online is becoming increasingly traceable, transferring large sums of wealth to another party will likely raise suspicion among the hundreds of thousands of people who actively monitor their favorite cryptocurrency's block explorers for anomalies. But by physically moving the private key while never transferring the currency itself, an individual could move millions of dollars cross border completely undetected.
This problem is not likely to be solved by increasingly invasive searches, which could place an immense burden on border enforcement agencies and reduce their capacity to screen large numbers of travelers. Nonetheless, border security officers should ask if a traveler is carrying cryptocurrency, as they would do with any other form of currency. We are in the formative stages of industry development and it would be beneficial to all parties if a mutually respectful relationship was formed.
By perpetuating and reinforcing the stereotype of cryptocurrency at large as the outlaw's currency of choice, cryptocurrency users are at risk of having increasingly militarized enforcement efforts launched against them. When a militarized enforcement effort is launched against an identifiable group, they are typically pushed underground, and in some extreme instances of desperation they will respond in kind. This type of toxic relationship also tends to criminalize the innocent by association, and negatively impacts public opinion on law enforcement.
Training programs for border security positions is typically standardized by each nation, making the cryptocurrency illiteracy problem far from isolated; entire agencies are woefully unprepared to handle the coming cryptocurrency onslaught. This isn't to say that there aren't highly ambitious officers going out of their way to educate themselves and get up to speed, but a few superstars will not be enough to fill all the gaps.
Moving forward, standardized training programs or crash courses on cryptocurrency need to be mandatory for border security officers if nations intend to keep any level of sovereign economic integrity. Border security officers need to be able to identify a private key and wallet files, be able to use a block explorer, and know how to effectively question 'cryptocurrency hodlers' to gauge their level of involvement.
If cryptocurrency is adopted in a level-headed manner, it promises to provide unique benefits over the incumbent financial system. Arguably the greatest benefit to cryptocurrency is the unalterable trail of financial evidence, which travelers can use to corroborate their story and expedite the interrogation process. Since every transaction a user makes is irreversible, and balances are publicly verifiable in real-time by referencing the individuals address on a block explorer, information about the cryptocurrency portion of a person’s financial history will be readily accessible to border security agencies (so long as the person in question is operating above board). This process would be much simpler for both border security and travelers when compared with the incumbent system, which is highly fractionalized and forces travelers to obtain their own data from multiple third parties such as banks, employers, and various government bodies, to name a few.
Ongoing financial activity relating to a specific address can be periodically monitored by border security agencies, without fear of reprisal for invasion of privacy as that information was all publicly available through the cryptocurrency's block explorer. Since these services are maintained and funded by the participants in any given cryptocurrency network, it will not place tremendous additional resource burden on the agency, aside from the manpower required to verify that a traveler is maintaining a sufficient balance in their wallet to fund the remainder of their trip. In the future if merchants were to accept cryptocurrency, officers could also see where that money is being spent and ensure that the traveler is at the destination that they claim to be.
We need to find a middle ground between anarchy and totalitarianism; a deal that benefits all parties involved and makes their lives easier. We are at a pivotal moment in the adoption of cryptocurrency, and the decisions made now will impact the lives of many future generations. Do we want to leave mutually detrimental hostilities for future generations to inherit, or a streamlined financial system that provides increased individual financial rights, reduced personal burden, and increased efficiency in enforcement efforts?