Former Chair of the Federal Reserve Janet Yellen criticized Bitcoin and doubted its utility at a Canada Fintech forum recently.
At the 2018 Canada Fintech Forum held in Montreal, Yellen used a series of misinformed claims to detail why she is “not a fan” of Bitcoin.
Yellen opened her argument saying that very few transactions are handled by Bitcoin and many of those that do take place in Bitcoin are illegal and illicit.
“I worry about the implications of use of cryptocurrencies for terrorist financing, for money laundering, and the like,” she said.
While it’s true that Bitcoin currently processes an average of 250,000 transactions a day (compared to Visa’s 150 million a day), Bitcoin’s daily transactions continue to grow year after year. Bitcoin is in voraciously active stages of growth, and to compare the transactions of a 10 year-old technology to those of a 50 year-old one is irresponsible and misguided.
Furthermore, several recent studies have debunked the claim that a large percentage of digital currency transactions are used for illicit or illegal activities. A 2015 HM Treasury National Risk Assessment from the United Kingdom found the risk of digital currency use for money laundering to be relatively low.
“There is little evidence to indicate that the use of digital currencies has been adopted by criminals involved in terrorist financing, whether as a means by which to raise funds (crowd funding etc.), to pay for infrastructure (e.g. server rental), or to transfer funds,” the report said.
Another 2018 study from the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance (CSIF) reported that less than 1 percent of Bitcoin transactions are used for illicit activities.
Yellen went on to criticize the speed of processing payments. “It’s very slow in handling payments. It has difficulties because of its very decentralized nature in achieving essentially the level of trust needed to achieve finality of transactions,” she said.
Compared to legacy banking systems, Bitcoin is actually magnitudes faster in handling payments. Wire transfers, bank-to-bank transfers, and international transfers all take many days to settle. Bitcoin achieves finality in about 10 minutes. And with secondary infrastructure (Layer 2) payment solutions, Bitcoin will be able to achieve finality nearly instantly without compromising trust, being able to compete with leading credit card companies such as Visa and Mastercard.
Many of Yellen’s comments were based on surface-level criticisms of Bitcoin, leveraging regurgitated arguments to dismiss Bitcoin, how far it has come, and the promising developments to come in the future.
A cursory glance into how Bitcoin works and what’s in store for it in the coming months and years are enough to counter Yellen’s claims. Yellen’s inability to infer and extrapolate on Bitcoin’s potential reflects a myopic understanding of digital currencies.