Working Paper
Does the design of payment systems cause real welfare consequences? Despite the rapid growth of cryptocurrency, the welfare effects of anonymous digital payments remain empirically unknown.
The author studies the staggered rollout of over 30,000 Bitcoin ATMs across U.S. counties, kiosks that convert cash to cryptocurrency with minimal identification, as a laboratory for estimating these consequences. BTM entry increases total crime by 6.9 percent, with effects concentrated in offenses that exploit anonymity, irreversibility, and cash-to-crypto conversion, while crimes unrelated to payment design barely respond.
Tracing the causal chain further, BTM entry fuels local drug markets and raises overdose mortality. Crime-induced losses erode household balance sheets, raising credit delinquency in affected neighborhoods. These harms are regressive. Minority and Hispanic communities, young adults, and areas with weaker financial infrastructure absorb the largest increases in victimization and the steepest declines in financial health, simultaneously widening pre-existing inequality in safety, public health, and credit access.
To scale these local effects to the aggregate level, the author first uses on-chain forensic analysis to trace BTM-originated funds along their downstream paths, identifying the routing intermediaries each transaction passes through and the share that terminates at illicit endpoints.
The author then builds an informational model in which anonymity at each stage weakens transaction traceability and raises social harm. Calibrated to these on-chain flow shares, the model translates the local causal estimates into aggregate welfare statements, yielding a national-level measure of the cost generated by anonymous payment infrastructure.
