Can cryptocurrency truly provide funding for Hamas?

Is cryptocurrency a viable source of funding for Hamas?

Author: Ben Schiller, CoinDesk; Translation: Song Xue, LianGuai

Are cryptocurrencies funding Hamas and other terrorist groups?

Over the past few weeks, we’ve heard a lot of debate about this issue, but we’ve never really gotten a definitive answer.

It all started with a report in early October by the Wall Street Journal, claiming that Palestinian groups had received around $130 million in cryptocurrency to fund their warfare in Israel.

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Shortly after, over 100 US lawmakers, led by Senator Elizabeth Warren (D-MA), signed a letter to President Biden expressing concerns about cryptocurrencies funding terrorism. (Warren is leading efforts to pass the Anti-Money Laundering Act for Digital Assets.)

Since then, blockchain forensics organizations like Chainalysis and Elliptic have stated that the numbers reported by the Wall Street Journal may have been “exaggerated.” (The research initially cited by the Wall Street Journal was provided by Elliptic.) Chainalysis wrote that these estimates include funds that have “no clear link to terrorist financing.”

Experts like Chainalysis believe that blockchain helps uncover illegal money flows, which is why Hamas actually denied crypto fundraising in April. The fact that its supporters are in a bind is because they’re using public cryptocurrency networks, such as Crystal, that allow intelligence agencies to track them.

The cryptocurrency community, led by commentator Nic Carter, has called on the Wall Street Journal to retract its initial report to avoid undermining the broader debate about cryptocurrency regulation. But the Wall Street Journal has refused to do so.

In fact, this weekend it outlined why the issue of terrorist crypto funding is so complex.

This new report is based on the findings of Israel’s National Anti-Terror Financing Authority and shows that Hamas has moved away from Bitcoin and prefers stablecoins like Tether and the Tron blockchain.

According to the report: “The use of cryptocurrencies by the Gaza exchange is more complex than Hamas’ early Bitcoin fundraising activities. The vast majority of the wallets associated with these firms transfer funds in the form of stablecoins on a blockchain called Tron, which enhances user privacy.”

Israeli officials state that to obscure the money trail, exchanges frequently change the wallet addresses they use daily and send funds through mixers. Intelligence officials say hawala networks (informal money transfer systems) have moved millions of dollars from Iran to Hamas’ military faction, and wallets flagged by Israel as targets may only represent a small portion of existing wallets. (Mixers combine currency transactions to make them harder to trace.)

All of this suggests that terrorists are capable of finding new ways to cover their tracks. As the Wall Street Journal indicates, when Hamas found Bitcoin too public, it turned to an asset and blockchain that provides better anonymity.

“Terrorists are not stupid. They have studied the capabilities of blockchain intelligence companies and have started to understand, ‘Okay, they can track us.’ So we need to get smart,” said Nicholas Smart, the research director of blockchain analytics company Crystal.

In the past, it was said that terrorists used privacy coins such as Monero. But due to the relatively low liquidity of such projects in the secondary market, they are currently less popular. On the other hand, Tether has a market value of $87 billion. Smart said that there are limits to what online researchers like him can discover.

Blockchain analytics may be good at showing the aspects of “fundraising,” “storage,” and “movement” of cryptocurrency transactions, but not necessarily good at showing how the money is spent. One issue raised by The Wall Street Journal in its initial report was that the cited numbers showed the amount of cryptocurrencies raised, but did not mention the quantity that actually reached the hands of terrorists or the frontlines. “Cryptocurrencies have solved some problems for terrorists, but they have also brought other problems,” Smart said.

For example, analysis has almost not revealed private peer-to-peer transactions. “It’s a big unknown how cryptocurrencies are used in secret channels. If there are signals between members of terrorist organizations and unhosted wallets, we cannot see that. This is where intelligence agencies make money and understand the situation,” Smart said in an interview.

In other words, the inherent transparency of blockchain may help us discover more information about terrorist financing. But if we think it reveals everything and that analytics companies can provide us with the final conclusion on whether cryptocurrencies fund organizations like Hamas, then we are wrong. Smart said that we need a combination of old-fashioned human intelligence and blockchain technology to understand the truth behind these complex money flows.

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