Evaluating the Utility of Cryptocurrency for Terrorist Organizations

by Hala Mounib

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Conceptual Framework

Cryptocurrencies refer to exchangeable digital units of value secured by cryptography. Associated with decentralized ledger tech, which is also widely known as blockchain, cryptocurrencies aim at achieving secure transactions guaranteed by computational tools instead of relying on a centralized authority. Examples include Ethereum, Zcash, Bitcoin, and Steem. (Pablo R. Velasco, 2018).

Blockchain is an expandable distributed computing architecture on the Internet where logs of assets and transfers are stored. It behaves as a digital cash account book.

It combines public-key cryptography and BitTorrent protocol (a protocol which allows peer-to-peer networking). First introduced as the foundational technology of Bitcoin, the original script is open source and grants access to everyone. At its core, it’s a project intended to enhance democracy. This obviously peaked the concern of transaction intermediaries, like banks, as it renders their existence useless (Verena Hermann, 2018).

Bitcoin is a blockchain-based digital currency run by a peer-to-peer network.  Proposed in a 2008 paper published under an author with the pseudonym Satoshi Nakamot, who was later revealed to be Craig Steven Wright, Bitcoin was a new paying system designed to overcome the problem of securing e-payments independently from third parties. When information is sent over the Internet, a duplicate is stored on the sender’s hard disk. If digital currency is sent, the recipient needs to be assured that the money received is not a false replica. This makes the assurance paramount that money spent is made unavailable to the payer, to prevent double spending or revocation of currency.

This process takes place while avoiding the data collection (due to the system being pseudonym based) which takes place during fiat money transactions, adding a privacy value to online transactions and e-commerce (Maria Letizia Perugini, 2018).

 

Utility for Terrorist Enterprises

While it is worth noting that cryptocurrencies aren’t as widely used as cash or other forms of payment, at the end of 2016, Bitcoin has increased its market, amassing a cap size of $12 billion worth of assets.

Bitcoin gradually gained traction from 2009 until 2011, where it was pushed to the limelight by cryptography enthusiasts – cypherpunks, and the mainstream media. Additionally, as a result of WikiLeaks being denied donations through major payment processors, Bitcoin was accepted as a form of donation by the non-profit organisation in 2011, propelling it further into fame.

The anonymity and privacy that cryptocurrencies provide are constantly exploited, however, with users utilizing the technology to obscure illicit transactions of illegal goods and services and also donations towards politically and religiously violent causes.

Such users and terrorist organizations exist on the darknet, where markets for contraband goods and illegal services are abundant. Since these entities seek a lack of regulatory centralization, as that links them to their activities and thus their identities, cryptocurrencies prove a powerful tool for their transactions and funding. The revolutionary next gen technology allows for the transfer of non-fiat currency through a public key hashing algorithm that verifies transactions without the need of a centralized authority body, bypassing regulation and maintaining the sought anonymity.

The simplicity of transactions coupled with the complex cryptographic technology means that a larger crowd of funders can be reached, supporting the criminal activities of terrorist groups. Since terrorism is expensive, it requires a lot of money to support the operations. Cryptocurrencies are a secure and private method of money transfer between the different groups involved in crimes. Brute force attempts at gaining access to other people’s crypto wallets are unfeasible, as the verification requires a “signature” or the employment of a private key to gain access.

An ISIS recruiter, Ali Shukri Amir, who writes under the penname Taqi’ul­Deen al­Munthir released a document titled Bitcoin wa Sadaqat al Jihad (Bitcoin and the Charity of Violent Physical Struggle) that instructs donators and interested parties on how to utilize the darknet and hide evidence of financial transactions in the support of jihad.

 

The following excerpts are taken from the document.

“One cannot send a bank transfer to a mujahid or suspected mujahid without the kafir governments ruling today immediately being aware. Perhaps, a few incredibly wealthy Muslims may find ways to avoid this system, especially ones in Arab countries, however the majority of Muslims are incapable of donating to those who need it most.”

“A proposed solution to this is something known as Bitcoin. It is a digital only currency created through a process called mining. A mining machine is a powerful computer that processes recent transactions sent through the Bitcoin network and validates them.”

“This instantly allows for shari’a only compliant markets that cross all borders, nation state regulations, to send money instantly, and are untrackable by kafir governments.”

 

Cryptocurrencies are not subject to legislation and have an international reach, this makes them attractive to transnational organized criminal groups. Moreover, money laundering becomes easy as no justification needs to be provided for the acquisition of huge sums of money.

On the other hand, terrorist organizations acknowledge that there are certain setbacks associated with the use of cryptocurrencies; while cryptocurrencies can hold a lot of value when their prices go up (with rates reaching up to a few 1000%), there have often been times where currency bubbles made crypto suddenly lose a lot of its worth, making it an unreliable store of value over long periods of time.

Overall, the utility of blockchain and cryptocurrency technology for transnational organized criminal groups lies in the offered discreet processing, mobility and privacy, as they effectively mitigate the trust problems that these entities have in the regulated federal banking systems of the state.

 

Hala Mounib is a Policy Research Fellow at the American Freedom Institute