The NCB’s destruction of the “Ketamelon” drug syndicate. Unfortunately, this act acts as a jarring reminder that the darknet continues to flourish as a refuge for all things illicit. The seizure of LSD, Ketamine and ₹1 crore in Cryptocurrency is substantial. But before we rush to demonize crypto as the villain, let's take a step back and ask a crucial question: Are we blaming the tool, or the user? Is it crypto’s fault, or the criminals that are circumventing its use with illicit intent?

Crypto's Traceability? A Double-Edged Sword

So, of course, the knee-jerk reaction after any darknet bust involving crypto is to demand the stuff to be regulated even more—perhaps even banned entirely. That’s understandable—fear is a strong motivator. But is it logical? Here's a surprising connection: blaming crypto for drug trafficking is a bit like blaming the postal service for drug trafficking. Both are simply conduits.

The beauty (and y’all, I’m emphasizing curse here) of blockchain is that it’s completely transparent. Each and every transaction is stored on a public ledger. While this does not identify people outright, it establishes a much more traceable trail. Moreover, law enforcement agencies are becoming more sophisticated in their ability to trace these networks. Like an algorithm’s shiny spectacle, consider it a digital breadcrumb trail.

The NCB’s capacity to trace custodial wallets on exchanges such as Binance for follow-up investigation illustrates this. After all, if crypto was really untraceable, they’d have no way of doing this. It makes it easy for authorities to trace these transactions. This is the beauty of blockchain technology’s innate traceability. That’s not something to be scared of, it’s something to be emboldened by.

Anonymity's Illusion: The Fiat Bottleneck

That’s because the darknet does promise anonymity and the crypto space does appear to offer a bit of a cloak of invisibility. But that anonymity is often an illusion. Over time, criminals need to turn their crypto into fiat. This final piece lets these crooks cash out on all the dirty work they’re doing. This is where the system breaks down.

Think about it. Even the most advanced darknet vendor needs to pay their suppliers at some point. They need to launder their profits or order a pizza, for example. These activities all necessitate a high degree of direct engagement in the real world, and it’s here that the risk of exposure multiplies exponentially. Stronger KYC/AML regulations for crypto exchanges are a better answer, and one that’s within Congress’ power to impose rather than bans. Why? This is because they hone in on the point of conversion, where crypto intersects with the traditional financial system.

Banning crypto outright would be burning down the house to roast a few termites. Not only is it a harsh overreach, it would quash innovation and valid use cases. Rather, we should aim for more targeted, tailored interventions that seek to minimize the specific risks from crypto’s use in crime and illicit finance.

Real Risk? Proportion Matters

Let's inject some reality into the discussion. Now, while no level of illegal activity is acceptable, much less laundromat levels, it’s important to keep things in perspective. As Chair Brown noted, the overwhelming majority of crypto transactions have nothing to do with crime. Though estimates can range widely, studies have found over and over that illicit transactions make up a small fraction of total crypto volume.

We’ve all heard the estimates being bandied about, asserting that the overwhelming majority of crypto is being used for criminal purposes. That's simply not true. The reality is far more nuanced. Crypto is used for many innocuous purposes, from providing more effective instruments for international remittances to fostering new financial technologies.

Here's a thought-provoking question: If we banned everything that could be used for illicit purposes, what would be left? It turns them, in some instances, into getaway vehicles. Smartphones allow criminals to plan their operations, while the web creates a safe haven for sex traffickers, domestic abusers and other predators. Should we ban them all? Of course not. We have a security-freedom balance to strike, a regulation-innovation balancing act to perform.

Instead of calling out “ban crypto!”, it’s time for common sense collaborations to help uncover real solutions. How do we minimize the risks while capturing the upside that comes from this emerging technology? At the same time, how do we make it easier for the good guys in law enforcement to track and apprehend criminals who use crypto for bad things. What’s the best way to inform consumers of the potential risks and benefits associated with investing in crypto?

The “Ketamelon” bust News like these are a wake-up call, not a call to panic. All told, this is a remarkably powerful call to action. It invites us to come up with intelligent, equitable, evidence-based solutions that address true risks but still encourage innovation. Banning crypto is a lazy answer. Let’s aim for something better.