How Bitcoin Works

Bitcoin's Extralegal Activities

If Bitcoin seems a bit anarchist, well, that's because it is. Bitcoin dodges the traditional paradigm in which government regulators control and manipulate the money supply.

With Bitcoin, people all over the world can engage in online gambling, which the U.S. federal government seriously disapproves of. Bitcoin was also infamously and irrevocably linked to Silk Road, a black market website where people could anonymously purchase about anything, including illegal drugs. The original Silk Road was shut down in 2013 and its founder sentenced to life in prison, but plenty of Silk Road-style marketplaces have since popped up on the dark web [source: Greenberg].

Bitcoin's reputation was soiled by these early associations with Silk Road and other criminal networks. Media reports frequently highlighted the role of Bitcoin on the dark web. Need a kidnapper or hired gun? How about some compromising pictures of your political enemy? With enough Bitcoin and some investigative work, you could potentially find the right person for any job [source: Buterin].

But as more cryptocurrencies have entered the market, criminals are relying less on Bitcoin. In fact, Bitcoin's much-heralded anonymity can be compromised by law enforcement, pushing more cybercriminals to switch to fully encrypted currencies like monero and dash [source: Cheng].

The relative anonymity of Bitcoin and other cryptocurrencies is also a boon for tax evasion. Traditionally, hiding your assets in some offshore account takes some real legwork. With Bitcoin, though, you can potentially stash millions of dollars in your digital wallet safely out of view of all tax collectors, and you could complete this process in just an afternoon.

Governments and concerned citizens obviously take issue with these sorts of underhanded internet shenanigans. Governments don't want citizens skimping on taxes, and their drug-enforcement agencies understandably aren't happy about people finding high-tech ways to skirt their laws.

In spite of these sort of legal or ethical concerns, and even though their value is crazily unpredictable, Bitcoin has endured. That leaves a lot of economists and consumers wondering just what's in store for the future of currency.