Terrorists still raise money through crypto, but the impact is limited

We now live in the midst of an explosion of risks related to fraud, money laundering, terrorist financing and data privacy, US Treasury Secretary Janet Yellen said in February, specifically citing cryptocurrencies as a tool for terrorist financing.

Yellen appeared to mark a major new turn in the war on terror, raising some questions: Does cryptography in the hands of terrorists pose a real and present threat to governments and society? If so, should we be worried about the cryptocurrency and blockchain industry?

Recent evidence suggests that the role of cryptocurrencies as a contributing factor to terrorism remains relatively small worldwide. Cryptocurrencies have been used in several cases of terrorist financing, but they have not yet become a primary means of financing terrorism, Matthew Levitt, director of the Jeanette and Eli Reinhardt Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy, told Cointelegraph.

Gina Peters, assistant professor of economics at the University of Chicago, told Cointelegraph: Her [Yellen’s] statement is actually true – it’s a tool. But Yellen also chose her words carefully. She didn’t say it was an important tool – she specifically said it was in development. And it is also true that the more cryptocurrencies grow, the more they will be used for criminal activities.

Growing concerns about cryptocurrencies?

Dave Jevans, CEO of CipherTrace, expressed concern about the Treasury Secretary’s comments. If leaders like Janet Yellen are concerned that cryptocurrencies are linked to crime, regulators could crack down to impose stricter rules on cryptocurrency transactions that may not be justified, he told Cointelegraph : Such measures, along with a blanket ban on cryptocurrencies in India, would severely hamper mass adoption and innovation in this field.

I think she wanted to raise the issue and make it public, Levitt noted, adding that the misuse of cryptocurrencies seems to be more of a geopolitical issue in terms of nations trying to circumvent Western political sanctions, such as Russia, Iran or Venezuela, than in terms of potential terrorists.

However, it doesn’t take much money to fund a terrorist attack, so the support that bitcoin (BTC) or other cryptocurrencies provide to terrorist groups trying to hide their funding sources remains an issue. That’s why Jesse Spiro, head of government relations at Chainalysis, told Cointelegraph that Yellen wasn’t exaggerating the threat. Yet terrorist financing makes up only an incredibly small portion of cryptocurrency transactions. In 2020, a blockchain analysis identified only 37.35 bitcoins used to fund terrorism, or only 0.00324% of total illicit activity.

Is cryptography becoming more important to terrorist groups?

In August 2020, the US Department of Justice seized the cryptocurrency accounts of three terrorist financing operations in the Middle East. According to the DOJ, this is the largest seizure of cryptocurrency accounts by a terrorist organization. It is a fact that jihadist groups led by ISIS and al-Qaeda have been using cryptocurrencies for years, Steven Stalinsky, executive director of the Middle East Media Research Institute, told Cointelegraph. After the fall of the ISIS caliphate, it quickly became even more important to them.

In its daily monitoring of online jihadist groups, MEMRI sees groups and individuals discussing the use of various cryptocurrencies: But that use hasn’t reached the extreme levels it might have lately, Stalinski says. All the arrests and public information about jihadists using cryptocurrencies have so far led companies to shut down these and similar accounts, which seems to have created a balance to curb the problem.

A 2019 Rand Corporation study found that no existing cryptocurrency can meet all the financial needs of terrorist organizations – including anonymity, ease of use, security, reliability, and acceptance – but cryptocurrencies like bitcoin It is critical that these groups are able to obtain funds from donors, and out of sight of governments.

In a research note, Chainalysis notes that advertisements and messaging for BitcoinTransfer, a Syrian cryptocurrency exchange publicly described as run by jihadists, often emphasize its security and anonymity, as well as the ability to facilitate transfers from European countries without having to present identity documents or put friends or family at risk.

Bitcoin, the world’s oldest and largest blockchain network, is not anonymous, as al Qaeda and related terror groups discovered after the DOJ took control in August 2020. For example, the IRS, Homeland Security Investigations and the Federal Bureau of Investigation have tracked down and seized the 150 crypto-currency accounts where the money was laundered. B. to and from the Al-Qassam Brigades. The group announced that its bitcoin donations were untraceable and would be used for activism.

BTC reset for Monero and Zcash ?

Perhaps due to the disruption of three cyber-jihadist campaigns, there have been recent reports of terror groups switching from BTC to other cryptocurrencies, including identity-protecting currencies such as Monero (XMR) and Zcash (ZEC), which are harder to track.

BTC has always been the most popular and well-known, Stalinsky told Montelegraph, but others, including Monero and Szczasz, are also used by terrorist groups, Jevans added:

Bitcoin and other cryptocurrencies are always easier to track than cash, but private coins certainly make it harder for law enforcement.

Nonetheless, private coins, while better suited to fraudulent transactions, have not caught on to the extent one would expect, Spiro told Cointelegraph. This is mainly because they are short of cash. In 2020, several cryptocurrency exchanges began phasing out confidential coins under pressure from regulators, making accessibility problematic for would-be terrorists. Cryptocurrencies are only useful if you can buy and sell goods and services or exchange them, which is much harder with private coins, Spiro says.

Growth in western countries

Assuming the use of crypto-currency by terrorist groups doesn’t explode, is it growing? The use of cryptocurrencies is increasing everywhere, including domestic and international terrorist groups, Jevans replied, while Spiro pointed out: We have seen evidence of their use of cryptocurrencies to pay for online infrastructure that facilitates recruitment and propaganda.

Domestic terror watchdog MEMRI, which targets terror groups in the U.S. and other Western countries, has seen a spike in the use of and references to cryptocurrencies – very similar to what happened to jihadists a few years ago, Stalinsky said. He added:

Domestic terrorist groups are keeping a close eye on what jihadist groups have been doing on the Internet, whether it’s migrating to other platforms, using encryption technologies, or using and promoting cryptocurrencies.

Stalinsky continued: Since the events of 6. In January, when the US Capitol was stormed by extremist groups, these groups were pressured to raise money online. A year ago, many of these individuals, groups and organizations were openly using major banking platforms, from major credit card companies and traditional banks to Apple Pay, PayPal and other platforms.

But today they have largely been ousted from these platforms, he added, and must raise money – to raise, support or sell goods like books and clothing lines – through cryptocurrency wallets, all of which they use and promote. Bitcoin remains the preferred crypto currency for these groups, although Monero is also popular, he said.

Asked about the particular appeal of cryptocurrencies to terrorists, Peters said: These include the ability to move large amounts of money without physical transport, and the relative speed and low risk compared to other digital solutions.

Should the blockchain industry be concerned about this nefarious use of cryptocurrencies? Ultimately, this could further tarnish the industry’s image and derail the advancement of blockchain and cryptocurrency technologies into the economic and social mainstream. After Spiro:

Bad guys are often early adopters of new technologies, and cryptocurrencies are no exception. However, the difference with cryptocurrencies is that they can be used by law enforcement to track money.

Cryptocurrencies are widely considered anonymous and untraceable, but in reality they operate on a public and transparent blockchain, Spiro added. We have found that once lawmakers, regulators and law enforcement realize this, they will realize that cryptocurrencies can actually help, not hurt, their mission to combat illegal activity.

Antonio Fatas, a professor of economics at INSEAD, told Cointelegraph that many Western countries have introduced strict anti-money laundering and anti-terrorism financing rules in recent decades. Cryptocurrencies were not included in these rules, partly because they are small and partly because it is not always easy to apply this rule with decentralized forms of money. But it is now clear that this exception will not be granted for a long time, Fatas said. The players in the sector will have to comply with it.

Overall, any funds that feed terrorism financing through the blockchain network should be of concern to the government and the public, as well as the cryptocurrency and blockchain industries, even if the gross amounts are still small.

But there is a bright side to all of this. The good news is that cryptocurrencies are inherently transparent, said Spiro, whose company Chainalysis helped the DOJ disrupt the aforementioned terror financing operations in the Middle East in August 2020. With the right tools, law enforcement can detect these activities, he concluded.

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