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Does crypto fund Hamas and other terrorists?
Does crypto fund Hamas and other terrorists?
In recent weeks, we have heard numerous discussions on this issue, without ever really reaching a definitive conclusion.
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It all started with an article in the Wall Street Journal in early October claiming that Palestinian groups had received around $130 million in crypto to finance their war in Israel.
Shortly after, more than 100 US lawmakers, led by Senator Elizabeth Warren (D-MA), signed a letter to President Biden raising concerns about crypto’s role in financing terrorism. (Warren is leading efforts to pass anti-money laundering legislation on digital assets.)
After that, blockchain forensic groups, such as Chainalysis and Elliptic, said the numbers reported by the WSJ were likely “exaggerated”. (The research originally cited by the WSJ was provided by Elliptic.) The estimates, Chainalysis wrote, included funds “not explicitly linked to terrorist financing.”
Experts like Chainalysis say blockchains help expose illicit funding flows, which is why Hamas effectively disavowed crypto fundraising in April. His supporters were being framed precisely because they used public cryptocurrency networks, like Crystal, allowing intelligence agencies to track them.
The crypto community, led by commentator Nic Carter, called on the WSJ to disavow his original report, lest this poison the broader debate over crypto regulation. But the WSJ refused to do so.
And, in fact, this weekend showed why the issue of crypto terrorist financing is so complicated.
THE new reportbased on the findings of Israel’s National Office for Counterterrorism Financing, shows that Hamas has abandoned the use of bitcoin, instead preferring the stablecoin Tether and the Tron blockchain.
According to the report: “Gaza money exchanges’ use of crypto was more sophisticated than Hamas’s previous bitcoin fundraising efforts. Digital wallets connected to businesses were massively moving funds in the form of the stablecoin link on a blockchain system called Tron, which has enhanced user privacy.
To hide the money trail, exchanges often changed the wallet addresses they used each day and sent the funds through mixers, Israeli officials said. and that the portfolios identified and targeted by Israel likely represent only a fraction of those that exist. (Mixers combine currency transactions, making them harder to trace.)
All this shows the adaptability of terrorists to find new ways to cover their tracks. As the WSJ shows, when Hamas discovered that bitcoin was too public, it opted for an asset and chain that offered better secrecy.
“Terrorists are not stupid. They’re looking at the capabilities of blockchain intelligence companies and starting to understand “okay, well, they can track us.” So we have to be smart,” said Nicholas Smart, head of research at Crystal, another blockchain analytics company.
In the past, terrorists have reportedly used private coins like monero. But due to the relatively low liquidity of these projects in secondary markets, they are now less popular. Tether, on the other hand, has a market capitalization of $87 billion. Smart said there are limits to what online researchers like him can discover.
Blockchain analysis can be good at showing the “raise,” “store,” and “move” aspects of crypto transactions, but not necessarily how the money was spent. One problem with the original WSJ report was that it cited figures showing the quantities of cryptocurrencies collected, but not the amount that actually reached terrorists or the front lines. “Crypto solves some problems for terrorists but creates others,” Smart said.
The analysis reveals little about private peer-to-peer transactions, for example. “It’s a big unknown how [crypto] is used in secret channels. If there is a Signal group between members of a terrorist group and unhosted wallets, we cannot see it. That’s where the intelligence services make their money and figure out what’s going on,” Smart said in an interview.
In other words, the transparency inherent in blockchains could help us learn more about terrorist financing. But it’s a mistake to think that this reveals everything and that analytics companies can give us the final word on whether cryptocurrencies fund groups like Hamas. Smart said we need old-fashioned human intelligence allied with the blockchain type to uncover the truth about these complex funding flows.