Cryptocurrencies are a natural payments option for terrorists—just ask the mainstream media. “The cryptocurrency-terrorism connection is too big to ignore,” reads one Washington Post op-ed headline from December 2018. “Criminals and terrorists are using unregulated cryptocurrency exchanges to move cash anonymously,” wrote a Fox News reporter in October.
But a new book from the RAND Corporation, Terrorist Use of Cryptocurrencies: Technical and Organizational Barriers and Future Threats, questions this prevalence. Are terrorist groups really using cryptocurrencies, the authors ask, and if not what would make cryptocurrencies better suited to terrorists’ aims?
The book’s authors, Cynthia Dion-Schwarz, David Manheim, and Patrick Johnston, looked at things like fundraising, remittances, and drugs and arms trafficking among groups including al-Qaeda, ISIS, Hezbollah, and some “lone-wolf attackers.” They ultimately found that no single cryptocurrency offers the six features terrorist groups need most in a currency: “anonymity, usability, security, acceptance, reliability, and volume.” There is “little indication,” according to the report, that terrorist groups are making use of cryptocurrency in any “extensive or systematic way.”
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The authors determine that an ideal cryptocurrency for these organizations would look something like a cross between bitcoin and Zcash. It would ideally have bitcoin’s transaction volume and adoption for two reasons. Higher transaction volume makes for cheaper transactions, and wider adoption means a series of large transactions will arouse less suspicion, as they would potentially blend in with other big money transfers on the blockchain. As for Zcash, its appeal is in its anonymity.
So how are these terrorist groups funding their operations and transferring money? Funding for al-Qaeda, reports the authors, has come largely from banks, cash, and hawala networks—groups of brokers who transfer money from one individual to another without actually moving any money. (It’s complicated, but it’s basically a money-lending honor system that can obscure the origin and recipient of funds.) ISIS has relied a lot on self-funding, but it’s also acquired large stores of cash, which the report’s authors say could be an impetus for them to start looking for cash alternatives.
One of the most likely terrorist candidates for crypto adoption is Hezbollah, according to the report. Besides state funding from Iran, Hezbollah has reportedly relied on drug trafficking, money-laundering, relationships with other criminal organizations, and online crowdfunding to raise money. These crowdfunding campaigns “do not necessarily use cryptocurrency,” write the authors, but it would be a sensible application of the technology.
Terrorist Use of Cryptocurrencies would read a little like a guidebook for terrorists—pointing out the pros of their organizations adopting private, digital currencies—if it weren’t for the publisher. The RAND Corporation is a nonprofit that conducts research and analysis on a variety of topics, including security, education, health, and sustainability. This particular book came out of the RAND National Security Research Division, which does work for multiple U.S. defense agencies. It makes sense for a deep study of terrorists’ payment habits to explore why they do or don’t use a certain method; getting insight into their possible motives for future crypto use can set counter-terrorism efforts one step ahead.
The report ends up citing multiple reasons why cryptocurrency isn’t right for terrorist groups—yet. “In particular, factors that tend to discourage use include continued instability and infighting in the cryptocurrency community, cooperation between international law enforcement and the intelligence community, and developments in regulation and enforcement,” write Dion-Schwarz, Manheim, and Johnston.
But they don’t rule out terrorist organizations widely adopting cryptocurrency eventually. As the technology improves, they write, it will “likely have a significant long-term effect on terrorism finance.”