For this article, cryptocurrencies will generally be referred to as Bitcoin to avoid confusion.
Bitcoin was supposed to change the world of finance. Created by the reclusive and possibly imaginary Satoshi Nakamoto, it offered a purely digital currency that all of the people loved. Libertarians championed its unregulated free market aspect. Anarchists liked that it undercut the multinational corporate banks. Hipsters, of course, go to brag about being on the cutting edge of a new trend. Unfortunately, criminals quickly latched on to Bitcoin as well.
Touted for its anonymity, Bitcoin became the chief currency of online criminals and hackers. Wikileaks started accepting it in 2010 after PayPal and credit card companies stopped processing payments for the website. The “dark web” criminal bazaars like the Silk Road and its successors took payment exclusively in Cryptocurrency. When launching malware to hold a company ransom, hackers naturally demanded payment in Bitcoin.
Given the seemingly certified criminal approval, Bitcoin seems like the natural choice for funding terrorism. Groups like ISIS proved adept at using social media platforms like Facebook and Twitter. Videographers and graphic artists regularly create videos with the quality of an Army recruiting commercial. Therefore, the obvious next step would be to start trading Bitcoin to enrich the new caliphate. Despite the widespread criminal usage and stories publicizing the potential of a terror funding mechanism, Bitcoin remains low on the list of the go-to assets for terrorist financiers.
Bitcoin has an increasing appeal among younger jihadists who grew up in the digital age. Nonetheless, the efforts to use Bitcoin primarily revolve around low-level activities like crowdfunding sites. Multiple reasons exist for the lack of usage with terror groups. One likely reason comes from the fact that high-ranking terrorists are old school. As younger members take control (or the current leaders are killed off), the dynamic may change. Additionally, multiple technical issues make Bitcoin a lousy option for terror funding.
The idea of an untraceable currency sounds too good to be true. For that reason, claims of Bitcoin’s invisible nature are overblown. Certain aspects, like user identities and Bitcoin wallets, are anonymous. However, a ledger called the blockchain records all transactions. The blockchain lists the date, time and parties involved in a trade. Some people even name the items sold. Another weak spot comes from IP addresses. IP addresses let internet service providers know a user’s identity and location. Without scrambling technology, law enforcement agencies regularly track the IP addresses of Bitcoin purchasers.
The anonymity aspect of Bitcoin for criminal use comes from a shared sense of secrecy. People buying drugs or companies paying to erase ransomware generally do not announce their activity. Therefore, the risk of detection stays low. Conversely, terrorist acts purposefully draw attention. Combined with the recorded blockchain ledger and undisguised IP addresses, Bitcoin provides a path for investigators to follow and possibly uncover critical members of a network.
Bitcoin only exists on the internet as pieces of code. To earn Bitcoins users solve algorithms with computers, in a process called mining. This sounds simple, but mining requires more computing power than the average PC. Mining computers range from $5,000.00 to $35,000.00. Even with one of these computers, the process still takes over a year to complete. Linking computers increases the mining power, but it takes up large amounts of energy.
Conducting this type of operation from a base in a third world country is difficult at best. Even in a developed nation, the amounts of energy needed will stand out and possibly draw attention. Police agencies already often look for excessive energy use when searching for marijuana grow houses.
Since waiting a year to mine Bitcoins sounds too labor intensive, most people buy their currency using an exchange. These online platforms offer users the ability to buy and sell in an open marketplace. The major downside comes from the success of these markets. To avoid being shut down by the very governments that Bitcoin initially intended to avoid, exchanges are agreeing to undergo anti-money laundering regulations — so analysts scour the transactions to look for money laundering and terrorist financing, sending suspicious activity reports to the federal government.
Lack of use
Another major issue concerning Bitcoin funding terrorism comes from the lack of places where digital currency is accepted. If an individual wants to buy a gun, multiple vendors on the dark web offer security services. But what happens when a group needs many high-capacity weapons? Digital currency advocates point to the fact that the online sellers cannot support the heavy demand or will not risk the exposure. According to…