Terrorism financing is primarily conducted in fiat, according to the latest findings from Chainalysis. This goes against the arguments often spouted by anti-crypto politicians and media regarding the role of cryptocurrencies in the activity.
On October 18, blockchain analytics firm Chainalysis released a report detailing the role of cryptocurrency in terrorism financing—and data shows that it is miniscule.
Crypto Not Favored by Terror Organizations
The report titled “Correcting the Record” aims to address inaccurate methodologies for estimating cryptocurrency’s role in terrorism financing.
Chainalysts stated it had “seen overstated metrics and flawed analyses of these terrorist groups’ use of cryptocurrency.”
Moreover, it noted that crypto plays a small role in terrorism financing. However, some groups like Hamas, Hezbollah, and Palestinian Islamic Jihad do raise and transfer some funds using crypto.
“Terrorism financing is a very small portion of the already very small portion of cryptocurrency transaction volume that is illicit.”
It added that terrorist organizations have historically used and will likely continue to use traditional, fiat-based methods. These include financial institutions, hawala, and shell companies as their primary financing vehicles.
Furthermore, cryptocurrency is actually less suitable for terrorism financing due to its transparency on blockchains. This allows government agencies and blockchain analysis firms to collaborate to identify and disrupt terror funding flows.
The analysts said this was not easily achievable with traditional transfer methods such as cash.
The report also identified flaws in the analysis of terrorist flows. Estimates of crypto terror financing are often inflated by including all funds received by intermediary service providers, not just the portions explicitly tied to terrorists.
Tracing funds through these service providers can also lead to inaccurate conclusions, it noted.
Mainstream Media FUD and Inaccuracies
“Behold the pure, unadulterated evil that is Bitcoin: Treasury Sanctions “Hamas Operatives and Financial Facilitators” and reveals the historic fund flow via Bitcoin to the tune of – drumroll – $2,000.”
“Just ignore the hundreds of millions in cold hard USD cash used to fund Hamas,” it added.
Moreover, mainstream media have also used terrorism financing as a weapon in their anti-crypto crusades. Notorious industry antagonists such as the WSJ have demonized crypto by running inaccurate headlines regarding its role in funding terrorism.
The bottom line is that cash is king when it comes to terrorism financing, but it doesn’t make for such salacious headlines.