The ghastly events of this past month raise again some troubling questions: Does crypto have a terrorist fundraising problem? Are its networks really<\/em> being exploited by terrorists to wreak global havoc? If so, what must it do better?<\/em><\/p>\n On the other hand, maybe the problem is one of perception \u2014 more appearance than reality \u2014 because public blockchains, after all, are transparent and traceable. In that event, how does the industry turn around a less-than-sterling reputation?<\/p>\n Cryptocurrencies like Bitcoin (BTC<\/a>) have been associated with illicit activities almost from their inception. This image has been difficult to shake, even as analytical groups like Chainalysis assert<\/a> that \u201cterrorism financing is a very small portion of the already very small portion<\/a> of cryptocurrency transaction volume that is illicit.\u201d<\/p>\n But in early October, the world awoke to Hamas\u2019 incursion into southern Israel, and shortly after, Israeli police announced it had frozen<\/a> cryptocurrency accounts used by Hamas as part of its ongoing efforts to locate the \u201cfinancial infrastructure in cryptocurrencies used by terror entities to fund their activities.\u201d<\/p>\n A week later, a group of 28 United States senators and 76 Congressional representatives \u2014 led by Senator Elizabeth Warren \u2014 sent a letter<\/a> to high-level Biden administration officials asking what steps are being taken \u201cto address the use of cryptocurrency by terrorist organizations.\u201d<\/p>\n So once again, the industry finds itself on the defensive as governments, legislators and even asset managers are asking: Are crypto\u2019s networks again being exploited by the worst of the worst?<\/p>\n \u201cIf any terrorist organization is using crypto for fundraising, then I\u2019d argue it\u2019s a problem,\u201d Cody Carbone, vice president, policy at the Chamber of Digital Commerce, told Cointelegraph. But recent reports, including those appearing<\/a> in The Wall Street Journal and later cited in the Warren coalition\u2019s letter, were inaccurate. Carbone said:\u00a0<\/p>\n \u201cI believe the numbers being used by WSJ and Senator Warren\u2019s coalition are skewed or downright incorrect. According to Chainalysis, of the roughly $82 million in cryptocurrency received by the WSJ posted address, about $450,000 worth of funds were transferred from the known terror-affiliated wallet.\u201d\u00a0<\/p><\/blockquote>\n Kristin Smith, CEO of the Blockchain Association, told Cointelegraph: \u201cWe view the hysteria around the links between crypto and Hamas as out of proportion to the facts.\u201d Like Carbone, Smith said any funding of terrorist organizations \u201cis too much,\u201d but she also asked why the focus of some legislators and policymakers was so narrow.\u00a0<\/p>\n \u201cWhy not ask the [Biden] administration for details on ALL sources of Hamas funding? We want the entire picture, which would put the role of digital assets into proper perspective.\u201d<\/p><\/blockquote>\n One often hears this argument from industry supporters. Crypto\u2019s contribution to terrorist coffers \u2014 whether those groups are based in North Korea, Iran, Lebanon or Gaza \u2014 is trivial compared to the volumes raised via fiat currencies that use more traditional means of transfer.\u00a0<\/p>\n \u201cTerrorist organizations have historically used and will likely continue to use traditional, fiat-based methods such as financial institutions, hawalas<\/a>, and shell companies as their primary financing vehicles,\u201d said<\/a> Chainalysis in an Oct. 18 blog. <\/p>\n \u201cThe reality is that this [crypto] is just a tiny piece of the larger terror financing puzzle,\u201d Ari Redbord, global head of policy and government affairs at TRM Labs, told Cointelegraph. What about nation-states like Iran? Or global mega-donors? Or Hamas raising millions through taxing Gaza residents? \u201cCrypto plays a tiny part in all this.\u201d<\/p>\n There\u2019s an irony at play here, too. Raising illicit funds via public blockchains like Bitcoin or Ethereum is actually a boon for law enforcement agencies. Modern analytic techniques employed by specialty firms like Chainalysis, Elliptic and others often make it easier to identify and seize funds bound for designated terrorist groups.<\/p>\n Magazine:\u00a0Beyond crypto: Zero-knowledge proofs show potential from voting to finance<\/a><\/em><\/strong><\/p>\n \u201cWhat\u2019s missing from the conversation is that our ability to track and trace on open blockchain has far better than anything we are able to do with fiat,\u201d said Redbord. Tracing illicit funds through shell companies or stolen art is much more problematic. By comparison, \u201cblockchain allows for tracking.\u201d <\/p>\n \u201cPrevious efforts of law enforcement and private industry […] have been successful in detecting Hamas\u2019s terrorist financing activity on the blockchain \u2014 leveraging the transparency of crypto assets to freeze and confiscate related funds,\u201d Elliptic\u2019s David Carlisle wrote<\/a> in an October 11 blog. <\/p>\n In fact, Hamas said in April that it was giving up crypto-related fundraising and would no longer receive funds via Bitcoin, \u201cciting an increase in \u2018hostile\u2019 activity against donors,\u201d reported<\/a> Reuters.<\/p>\n But even a relatively small amount of crypto usage by Hamas, Palestinian Islamic Jihad (PIJ), et al. appears to be enough to stir the waters.\u00a0<\/p>\n \u201cThere is an opportunity to address this issue constructively,\u201d Carbone told Cointelegraph, \u201cbut I fear that some anti-crypto policymakers in Washington are using the crisis to push their agenda and significantly restrict crypto use in the U.S. or eradicate it completely.\u201d<\/p>\n How does one set the record right then? More education and more data answered Carbone. \u201cMore education on how blockchain technology is a terrible tool for terrorists because of its public nature, but also identify the pain points.\u201d<\/p>\n Some steps need to be taken. The industry still has to deal better with the dangerous use of mixers and tumblers that can hide wallet addresses from law enforcement agencies by developing better cybersecurity controls and operational risk procedures, said Carbone. \u201cEveryone in the industry needs to be more vigilant. We also need more data to identify how serious the problem really is.\u201d <\/p>\n There are signs that some of these things are already happening, added Redbord. Binance has recently been working<\/a> with Israeli authorities to freeze the crypto accounts of a number of terror-designated groups, including PIJ and Hamas, for instance. <\/p>\n It wouldn\u2019t hurt to be more assertive in the court of public opinion, too. <\/p>\n \u201cWe believe crypto is here for good,\u201d said Smith. \u201cThe technology is neutral, the protocols are open and can be used by anyone, just like the internet itself. As time goes on, given its ability to lower financial barriers, protect Constitutional rights to privacy, and finally provide an opportunity for users to claw back power from Big Tech and its monopoly over our digital lives, the value of crypto to humanity will become self-evident.\u201d<\/p>\n But the conflagration in the Middle East may have already torpedoed prospects for comprehensive crypto reform legislation in the U.S. \u2014 at least for now.<\/p>\n\u201cOut of proportion to the facts\u201d<\/h2>\n
\u201cThe industry needs to be more vigilant\u201d<\/h2>\n
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Is reform crypto legislation in the U.S. dead for now?<\/h2>\n