New analysis by Lilita Infante at the U.S. Drug Enforcement Administration has shown that the dynamic between illegal activities and speculation on the Bitcoin blockchain has flipped over the past five years from being predominantly illicit activities to now predominantly speculative activities.
“The volume has grown tremendously, the amount of transactions and the dollar value has grown tremendously over the years in criminal activity, but the ratio has decreased. The majority of transactions are used for price speculation.’’
The article discussed that when Infante first started Bitcoin cases around five years ago that “her analysis of blockchain data showed criminal activity was behind about 90 percent of transactions in the cryptocurrency”. Since then, “illegal activity has shrunk to about 10 percent and speculation has become the dominant driver”.
Infante went on to discuss how Bitcoin is only pseudo-anonymous since all wallet address are stored on a public blockchain and new software is emerging to discover patterns to link anonymous addresses to real world identities. The article also went on to discuss how Monero and Zcash are also being used for illicit activities as an alternative to Bitcoin, but Infante claimed that they still have ways of tracking these actors.
Speculation without everyday usage is not conducive to long-run growth
The first point to draw attention to is that even DEA agents admit that the majority of Bitcoin usage is no longer primarily for illicit activities, even if their estimates are higher than other studies that put illicit use closer to 1%. The second point is that speculation is what ended up replacing these other activities to become the major transaction base of the Bitcoin network. There have also been other studies that support this claim that the majority of Bitcoin transactions are not individuals using Bitcoin as currency for buying and selling goods and services.
Speculation is key to any new technology since speculators recognize the importance and future potential of the technology and assign it a derived price based on predicted future value. Speculation only becomes bad and leads to market crashes when there is insufficient underlying usage or stability to back up the speculation. Underlying usage allows those speculators to better base their valuation off of tangible attributes, which soon turns into a more stable value and exchange price. Cryptocurrencies, being a new technological sector, is prone to heavy speculation, but without creating underlying uses, these speculations can run amok from the true underlying or fair value.
Dash reinforces speculative prices with real world usage
Dash is able to create significant real world usage to back up its relatively little speculation since Dash is seeing very rapid adoption across the world. Examples in Venezuela and New Hampshire show how individuals are using Dash to make everyday purchases. There are over 800 Dash accepting merchants in Venezuela and over 2000 merchants that accept Dash worldwide. There are numerous new use cases for Dash emerging everyday. Further proof is seen in analyses like CoinFairValue, which ranks Dash near the top when usability in everyday purchases is factored into price calculations. This daily usage for everyday items provides a foundation for Dash’s valuation and exchange price, which limits the ability of speculators to over-inflate the exchange price of Dash.
This significant real world usage has been possible because of Dash’s unique structure that allows it to fund professional development to maintain consistently low transaction costs and the ability to scale with its rapid growth. In addition, Dash’s ability to fund professional community outreach groups to educate the public about Dash also further increases adoption. Both make Dash more consumer friendly and eliminate barriers to entry into Dash. Unlike other cryptocurrencies, Dash has been steadily focusing on becoming an everyday decentralized peer-to-peer digital currency, which has been key to its rapid adoption. As Dash continues to focus on payments and adoption, its daily transaction levels will continue to increase from real world usage, and speculators will adjust their estimates accordingly. Dash will then have an even more stable exchange price and growth because there will be an even sturdier foundation of everyday usage to support the price estimates.