It’s this very feature that has made bitcoin popular with drug traders and tax avoiders, who have been able to shift money without revealing their names or locations.
But the fact that US authorities were able to track the Colonial Pipeline ransom as it ricocheted through different accounts belonging to DarkSide, the hacking collective, has punctured that belief.
It’s clear evidence that law-enforcement agencies are themselves getting much more adept at tracking and seizing illicit funds sitting in virtual wallets.
But that’s not the only challenge cryptocurrencies are facing.
There’s growing evidence that financial regulators are becoming increasingly conscious of the need to ring-fence traditional financial institutions from cryptocurrencies.
Major global financial institutions are facing increased pressure to provide cryptocurrency services after a surge in client requests, and some are offering a limited suite of crypto services.
But banking regulators appear to be taking a jaundiced view of this development.
Last week the Basel Committee on Banking Supervision, which consists of representatives from the US Federal Reserve and the European Central Bank and other major central banks, proposed new rules which would see cryptocurrencies being hit with the toughest bank capital rules of any asset.
The Basel committee acknowledged that banks’ exposure to cryptocurrencies was limited at this stage, but warned that “the growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks faced by banks”.
It proposed a new “conservative” prudential regime for crypto assets such as bitcoin and ethereum, with a risk weight of 1250 per cent.
This would essentially force banks to set aside a dollar in capital for every dollar of bitcoin they own.
The tougher stance taken by the global banking regulator comes amid growing national scrutiny of cryptocurrencies.
Last month, the Biden administration proposed new rules that would require cryptocurrency transfers of more than $US10,000 to be reported to US tax authorities.
The move came shortly after China’s central bank instructed financial institutions not to accept cryptocurrencies as payment or offer services related to them.