by Cynthia Dion-Schwarz, David Manheim, Patrick B. Johnston
Are terrorist groups currently using cryptocurrencies to support their activities? If not, why?
What properties of new and potential future cryptocurrencies would make them more viable for terrorist use?
Given the key role of funding in supporting terrorist operations, counterterrorism finance (CTF) efforts often focus on tracking money and preventing financial transactions that might be used to support attacks and other terrorist activities. However, the success of these strategies in reducing terrorist access to official currencies has raised concerns that terrorist organizations might increase their use of such digital cryptocurrencies as Bitcoin to support their activities.
Current cryptocurrencies are not well matched with the totality of features that would be needed and desirable to terrorist groups but might be employed for selected financial activities. The authors' research shows that, should a single cryptocurrency emerge that provides widespread adoption, better anonymity, improved security, and that is subject to lax or inconsistent regulation, then the potential utility of this cryptocurrency, as well as the potential for its use by terrorist organizations, would increase. Regulation and oversight of cryptocurrencies, along with international cooperation between law enforcement and the intelligence community, would be important steps to prevent terrorist organizations from using cryptocurrencies to support their activities.
Key Findings
Factors that will increase cryptocurrency viability for terrorist organizations
A growing market presumably will require increased reliability and more-widespread usage. As use becomes more common across the world, the current lack of acceptance of these systems — especially in areas where terrorist organizations operate — could disappear.
Widespread adoption of second-generation cryptocurrencies with advanced privacy features will enable more illicit use of these systems.
Regulatory oversight in the United States, Europe, and China makes it difficult to obtain bitcoin anonymously on an exchange. However, if trading occurs on a decentralized exchange or in a country without regulatory oversight, the transactions could become much harder to trace.
Increased use of cryptocurrencies in complementary and adjacent markets could indicate increased viability among terrorist organizations. Some counterfeiting operations have begun to use darknet markets, and there is a significant trade in illicit drugs and stolen identities in these markets.
Factors that will decrease cryptocurrency viability for terrorist organizations
Uncertainty and infighting have plagued many cryptocurrencies as they grow. This could decrease wider adoption, making cryptocurrency less viable for terrorist groups.
Law enforcement cooperation in cybersecurity domains and cryptocurrency markets will be a critical enabler for deanonymization and tracking of funds.
If the cryptocurrency systems that are most widely used are incorporated into the regulatory system and those that are incompatible are abandoned or remain marginal because of lack of support, then terrorist groups and other illicit actors may find that the digital world is less, not more, hospitable.
A series of fraudulent exchanges and theft of improperly secured monies have plagued cryptocurrency since it became valuable. If similar issues continue to be discovered and exploited, trust in cryptocurrency systems will remain low.
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