Terrorists. Cryptocurrency haters have been using the excuse of terrorists for years now. They argue that cryptocurrencies, particularly those with privacy features, will inevitably be used to fund terrorism and launder money.
Is there any truth to this claim? Are terrorist groups using crypto to fund their operations? According to a report by the nonprofit RAND Corp., the group famous for producing research documents for the US military, terrorists are not generally using crypto. The reason? Crypto just isn’t widely accepted enough.
The Realistic Fear of Crypto-Funded Terrorism
While crypto bashers love to cite terrorism as a reason for putting a leash on cryptocurrency, there is some degree of truth to this concern. Terrorism is real. These groups need funding in order to bankroll their operations. For instance, the report states that terrorist groups need money to “purchase of weapons, payrolls, supporting attacks, and other operational activities.”
Traditionally, terrorists have funded their operations through black-market activities such as making and selling drugs, human trafficking, and a plethora of other deplorable practices. This money then needs to be laundered and moved around the globe securely. This need presents a serious problem. The international banking system has safeguards in place to restrict this type of activity. While there are ways to get around these restrictions, the potential for the nefarious use of cryptocurrency is definitely there.
With cryptocurrency offering instantaneous anonymous global transfers of value with no potential for interference from governments or banks, shouldn’t terrorists be flocking to crypto? Apparently, they aren’t.
Not Developed Enough
According to the report titled Terrorist Use of Cryptocurrencies released by RAND Corp., cryptocurrencies are simply too undeveloped to be of much use to terrorists.
One issue is that cryptocurrencies are still not very widely accepted. This means if a terrorist is sitting on a pile of any given cryptocurrency, it’s not particularly easy to directly spend those coins or tokens for the supplies or services they need. Compared to the iconic briefcase full of cash, an electronic wallet full of crypto is just not as versatile for terrorists. The report describes this issue as follows:
The limited reach of cryptocurrencies at present is a significant challenge, especially in the regions where terrorist groups operate. For example, despite the large network of bitcoin-accepting vendors and services, there are few bitcoin ATMs in the Middle East; outside of Israel, the only such ATM operating as of January 2018 was a deposit-only ATM in Jubail, Saudi Arabia, with a deposit limit of $500-$600.
A lack of ATMs isn’t the only hurdle, either. The report also stated that: “Generally…the conditions needed to allow terrorist groups to establish themselves and flourish…might make the technological infrastructure needed for cryptocurrencies infeasible.” In other words, limited access to the internet or wallet devices could be a problem.
The small size of cryptocurrency markets (in comparison to traditional markets) also hinders the ability of terrorists to hide their activities. According to the report: “Large transactions have impacts on price; demand increases are reflected in publicly visible prices, making the transaction non-anonymous.”
Black-market activities can be big business. Terrorist groups can put together millions of dollars from their illicit activities. Such large amounts of money are simply too difficult or nearly impossible to hide on low-volume markets. This is particularly true for smaller privacy cryptocurrencies like Monero, which the RAND report mentions specifically.
The Uncertain Future
One obvious concern that can be drawn from the report is that the restrictions facing terrorists today could become moot in the coming years. If cryptocurrencies continue to see greater adoption, then the need to have a direct link to fiat currencies through an exchange may become unnecessary.
If terrorists are able to engage in high-volume transactions among each other directly using privacy-centric cryptocurrencies, then their need for money laundering and transmission services will essentially be met.
This kind of acceptance will also preclude the need for services like bitcoin ATMs because again a fiat link would be mostly unnecessary. Further, the type of failed states where terrorism flourishes could see greater connectivity to the Internet as technology develops, even if regional infrastructure is mostly nonexistent. For example, mobile wallets connected through satellite connections could easily provide the needed connectivity to conduct cryptocurrency transactions anywhere on the face of the planet, even in the middle of the ocean on top of a dilapidated black-market freighter.
Money Isn’t Everything
The issue of terrorists using cryptocurrency is in some ways a red herring. Any group that is bent on causing violence, fear, and mayhem will likely find a way to do so regardless of convenient monetary tools. Terrorism is still an issue today, despite decades of harsh bank and government imposed controls. Clearly, the terrorists have found ways to fund their goals already. If they adopt crypto en masse, will that make any difference?