Combating Bitcoin Use by Terrorists?
We Need More Education, Not Halting Innovation
As always, we start off the new year full of hope and promise, but there is unmistakably a shadow of fear that blankets many parts of the world. The threat of terrorism, both across the globe and around the corner, is real, and anxieties are high. In the wake of recent attacks, there is an increased focus by governments and the media on the ways that terrorists communicate and move money. That is a good thing. Unfortunately, some of that attention has been directed at bitcoin and other digital currencies and it is often uninformed, with headlines going so far as to predict a government “crackdown” on this technology. (“EU Clamps Down on Bitcoin, Anonymous Payments to Curb Terrorism Funding.”)
In evaluating assertions about the bitcoin blockchain’s use as a means of terrorist financing, it’s important to separate the rhetoric from the reality. While the press and some politicians have indulged in hyperbole about digital currencies, authorities in the U.S. and UK have recognized that the traditional financial system presents at least as high, if not a much higher, risk. Indeed, the UK Treasury recently released a risk assessment of money laundering and terrorist financing, finding that digital currencies present the lowest risk for money laundering. At the top of that list? Traditional banks. As for terrorist financing, the report found “little evidence to indicate that the use of digital currencies has been adopted by criminals involved in terrorist financing, whether as a means by which to raise funds (crowd funding etc.), to pay for infrastructure (e.g. server rental), or to transfer funds.” The report cited money service businesses, cash couriering, and even abuse of charitable organizations as higher risks for terrorist financing than digital currencies. On the other hand, the report noted, “Cash is attractive for money laundering and terrorist financing because it is relatively untraceable, readily exchangeable, and anonymous.”
Having said that, the reality is that terrorists and criminals are using all sorts of technology — like Tor and encrypted messaging platforms — in an effort to hide their unlawful activities over the Internet. And there is unquestionably a risk that they could seek to use digital currencies to help finance their operations. But the reality is that if criminals and terrorists seek to use bitcoin as part of an effort to remain anonymous, they are making a big mistake. In fact, any criminals or terrorists who try to use the bitcoin blockchain to facilitate their activities are foolish. That’s because reports of bitcoin’s anonymity are greatly exaggerated. The blockchain technology that makes bitcoin work uses cryptography to verify and confirm all bitcoin transactions and then records those transactions on a searchable — and unalterable — public ledger. That technology has significant benefits for law enforcement. Having a traceable ledger of every bitcoin transaction ever conducted allows law enforcement to “follow the money” in a way that would never be possible with cash. In addition, because this ledger of bitcoin transactions is permanent, law enforcement does not have to worry that the data will be unavailable months or even years down the road. Because the ledger is publicly accessible, law enforcement does not have to worry about what type of legal process — subpoena or search warrant — is required to access the data. And because the ledger is borderless, law enforcement can get the data without having to go through a foreign government.
We need to make sure that law enforcement and national security authorities have all of the tools they need to identify, investigate, and disrupt terrorist plots. The bitcoin blockchain can be just such a tool. The key is educating law enforcement and national security authorities about how the technology works, so they can enhance their ability to use it to follow the money and protect public safety, reaping the full benefits of this innovative technology. The UK Treasury report made a similar observation, calling for capacity building work among industry and law enforcement.
Late last year, a broad coalition of bitcoin and blockchain companies and organizations joined forces to create the Blockchain Alliance, a public-private forum where law enforcement and national security authorities can learn directly from some of the brightest minds in the industry as they seek to combat criminal activity involving bitcoin and the blockchain. The Blockchain Alliance is a resource to help law enforcement and national security authorities improve their capacity to go after criminals and terrorists who may seek to use bitcoin or blockchain technology.
Bitcoin and its underlying blockchain technology are not the problem, and a “crackdown” is not the solution. Indeed, a “crackdown” could harm law-abiding companies and users and drive bad actors underground. Instead, we need more education and cooperation between industry and government. This type of engagement will help the government better understand what the risks are, and how best to mitigate those risks. And it will lead to smarter, better decisions by policymakers that protect public safety without stifling innovation.
Jason Weinstein is a partner at Steptoe & Johnson LLP and a former deputy assistant attorney general in the Department of Justice in charge of cybercrime and organized crime. He is the Director of the Blockchain Alliance and a member of the advisory boards of the Chamber of Digital Commerce, Coin Center, and BitFury.
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