Evidence indicates crypto's role in terrorism stays relatively minor:"It's not yet become a primary means of terror financing."
We're living now"amidst an explosion of risk linked to fraud, money laundering, terrorist financing, and data confidentiality," stated United States Treasury Secretary Janet Yellen in February -- and she especially mentioned cryptocurrencies as a"instrument to fund terrorism."
Yellen appeared to be flagging an important new turn in the war against terror, and it flew a few concerns: Why Is crypto in the hands of terrorists an actual, current threat to governments and society? In that case, if the cryptocurrency and blockchain industry worry?
Recent evidence suggests that crypto's function as an enabler of terrorism internationally remains relatively minor.
Gina Pieters, assistant teaching professor in the Department of Economics at the University of Chicago, told Cointelegraph:"Her [Yellen's] statement is factually accurate -- it's a tool" "She did not say it was a major instrument -- she specifically said it was an increasing one. And that's even true, as cryptocurrencies grow they'll be used in more criminal actions."
"If leaders like Janet Yellen put a fearful mindset toward cryptocurrencies connected with criminality, authorities could take harsh action to impose stricter rules on cryptocurrency trades that might not be warranted," he told Cointelegraph, adding:"This actions, like the blanket cryptocurrency ban in India, could greatly impair mass adoption and innovation in the distance."
"I believe she wished to raise the issue and set it on people's radar," commented Levitt, who included that abuse of cryptocurrencies looms as more of a geopolitical dilemma with regard to states trying to bypass Western political sanctions -- like Russia, Iran or Venezuela -- than with prospective terrorists.
Still, it doesn't take much cash to fund a terrorist action, so any aid which Bitcoin (BTC) or alternative cryptocurrencies supply to terrorist groups that are attempting to obscure their financing sources remains a worry. Because of this, Jesse Spiro, chief of government affairs at Chainalysis, advised Cointelegraph that Yellen wasn't exactly exaggerating the danger. Nevertheless,"Terrorism funding represents a remarkably small part of cryptocurrency transactions." In 2020, Chainalysis followed only 37.35 Bitcoin that proceeded toward terrorism funding, or"a mere 0.00324 per cent of their general illegal action," he said.
Crypto becoming more significant for terror groups?
In August 2020, the U.S. Department of Justice seized the cryptocurrency accounts of three Middle East-based terrorist financing operations. This was the"biggest ever seizure of terrorist associations' cryptocurrency accounts," according to the DoJ. "It is a simple fact that jihadi groups, headed by ISIS and Al-Qaeda, happen to be using cryptocurrency for decades," Steven Stalinsky, executive director at the Middle East Media Research Institute, told Cointelegraph. "Following the collapse of ISIS's caliphate, it quickly became even more important for them."
In its everyday monitoring of jihadi groups online, MEMRI sees groups and people discussing the usage of distinct cryptocurrencies,"However, this use has not recently developed to the extreme proportions that it could have and might," explained Stalinsky. "Any arrests and public information of jihadis using cryptocurrency has so far resulted in the companies acting to shut these down and associated accounts, and this appears to be developing a balance to suppress the problem."
A 2019 Rand Corporation research noted that"No current cryptocurrency can address each of the terrorist organizations' financial needs" -- that include anonymity, usability, security, reliability and acceptance -- but cryptocurrencies like Bitcoin,"particularly with enhanced usability, could be attractive to use in fundraising, along with some evidence is emerging that terrorist organizations might use cryptocurrencies for this intention." It's crucial for these groups to be able to receive money from donors, beyond the gaze of authorities.
Within an intelligence brief, Chainalysis noted that messages and advertisements from BitcoinTransfer, a Syrian-based cryptocurrency exchange that has been publicly mentioned as being run by jihadis,"frequently emphasize anonymity and security, as well as its capacity to ease transfers from European countries without submitting identification records or'exposing your friend or family to danger. '''
Bitcoin, the planet's oldest and biggest blockchain network, isn't really anonymous, as Al-Qaeda and affiliated terrorist groups discovered with all the DoJ's August 2020 takedown. Internal Revenue Service, Homeland Security Investigations and Federal Bureau of Investigation agents monitored and seized all 150 crypto accounts which laundered funds to and by the al-Qassam Brigades' accounts, for instance. The group had advertised that its Bitcoin contributions were untraceable and would be used for militant actions.
Ditching BTC for Monero and Zcash?
Perhaps as a result of the disruption to the 3 cyber-enabled jihadi campaigns, reports have surfaced recently that terrorist groups are moving from BTC to additional cryptocurrencies, such as privacy coins such as Monero (XMR) and Zcash (ZEC), which are more challenging to trace.
"BTC has always been the most popular and is the very well understood," Stalinsky informed Cointelegraph, but other people, including Monero and Zcash, are also being used by terror groups. Jevans added:
"Bitcoin and other cryptocurrencies are still easier to trace than cash, but solitude coins [...] surely make the tasks of law enforcement harder."
However, privacy coinsif they're better at obfuscating trades,"haven't been adopted to the extent that one may anticipate," Spiro told Cointelegraph. This is principally because they lack liquidity. In 2020, many crypto exchanges, under pressure from regulators, started delisting solitude coins, so availability has become an issue for aspiring terrorists. "Cryptocurrency is only helpful in case it is possible to purchase and sell goods and services or cash out into fiat, and that is significantly more difficult with solitude coins," explained Spiro.
Upsurge in Western Nations
If a person accepts that crypto use is not bursting among terrorist groups, is it at least growing? "Cryptocurrency adoption is growing everywhere, such as among national and international terrorist groups," replied Jevans, while Spiro emphasized:"We've seen evidence of them using cryptocurrency to cover internet infrastructure which facilitates recruitment and propaganda."
The MEMRI Domestic Terrorism Threat Monitor, that concentrates on terrorist groups in the U.S. and other Western countries, has seen an upsurge in the use of and references to cryptocurrencies --"very much like what occurred with jihadis a couple of decades ago," said Stalinsky. He added:
"[U.S.] Domestic terrorist groups follow what jihadi groups have done on line, whether in migrating to other platforms, using encryption technology, or using and promoting cryptocurrency."
Stalinsky continued:"Following the events of January 6, when the U.S. Capitol building was stormed by extremist groups, there is more pressure to care for these groups' fundraising online. A year ago it was common to see many of these individuals, groups, and associations publicly using mainstream banking platforms, from leading credit card companies to regular banks, Apple Pay, PayPal, and other programs ."
But they've now been largely pushed off those platforms, he added, and will need to raise funds --"whether for recruitment, solicitation of service, or earnings of merchandise like books and clothing lines -- through cryptocurrency wallets, they are all utilizing and encouraging." Bitcoin is still the favorite cryptocurrency among these bands, although Monero is also famous, he explained.
When asked regarding the particular attraction that cryptocurrencies hold for terrorists, Pieters replied:"It is the capability to move a huge value of capital without physical transportation, in addition to the relative speed and low risk in comparison to other digital alternatives."
Should the blockchain industry itself be concerned about these nefarious uses of cryptocurrencies? In the end, it might further blacken the industry's image, undoing progress toward bringing blockchain engineering and cryptocurrencies into the economic and social mainstream. According to Spiro:
The difference with crypto, though, is that it may really be exploited by law enforcement to follow the money"
Cryptocurrencies are frequently regarded as anonymous and untraceable, however they actually"function on public, transparent blockchains," Spiro continued. "We have discovered that after lawmakers, regulators, and law enforcement agencies know this, they discover that crypto can really help, not harm, their assignments to weed out illegal activity."
Antonio Fatás, professor of economics at INSEAD, told Cointelegraph that in recent years, many Western nations have put in place strict regulations to combat money laundering and terrorism financing. "Cryptocurrencies are left from those regulations partly because they were small, partly as it is not always simple to implement this law to decentralized forms of cash." But it's clear that this exclusion will not be allowed much longer, '' said Fatás. Industry players will need to comply.
Overall, any funds which go toward funding terrorism onto a blockchain network should be of concern to government and society, as well as the cryptocurrency and blockchain industry, even if the gross amounts still are not large.
There's a silver lining in this, though. "The fantastic news is that cryptocurrency is inherently transparent," said Spiro, whose company, Chainalysis, assisted the DoJ in disrupting the formerly mentioned Middle Eastern terror-financing surgeries in August 2020. "With the ideal tools, law enforcement could trace that action," he concluded.