Following Hamas’s brutal surprise attack and massacre of Israeli civilians, policymakers are searching for the most effective ways to fight terrorist organizations. They can take an important lesson from what happened recently with Hamas when it tried to use Bitcoin to finance its operations.Thank you for reading this post, don't forget to subscribe!
Hamas thought it could circumvent Western surveillance and international sanctions by owning the world’s leading digital asset. This felt wrong, and this story is enlightening for those who mistakenly believe that Bitcoin provides a safe haven for criminals, money launderers, and terror financiers.
Earlier this month, Israeli law enforcement successfully located and froze several cryptocurrency accounts that were used by Hamas to solicit donations. Israel then deposited the assets into its own treasury – the same treasury that is financing the war to “wipe Hamas off the face of the earth.”
A terrorist organization’s crypto plan failed miserably, and it wasn’t the first time this year either. In April, Hamas urged supporters to stop sending donations exclusively via Bitcoin. In a surprise press statement, it announced that it was suspending Bitcoin donations “to ensure the safety of donors and protect them from any harm.” The terrorist network cited “the intensity of prosecution and the doubling of hostile efforts against anyone trying to support the resistance through this posture” as the reasoning behind this decision.
So what? Is Bitcoin not ideal for money laundering? Is it not the preferred currency of terrorists and criminals across the world?
Quite the opposite. Hamas learned too late that making illegal transactions in Bitcoin was a financial suicide mission. This is because the open, transparent nature of blockchain is a panopticon for intelligence agencies, allowing them to track transactions in real time with a speed and accuracy that would be unimaginable in the world of fiat currency.
Unlike paper money or computer files, the Bitcoin blockchain is permanent, transparent, and immutable. This means that every network transaction, whether worth a few cents or millions of dollars, becomes fossilized on the blockchain like a prehistoric bug in digital amber.
These fossil transactions include every donation made to Hamas through this medium. Law enforcement simply has to link transactions to a wallet and a wallet to an identity – a task it has had little difficulty doing in practice.
This is why illicit activity makes up such a small portion of transactions in the cryptocurrency sector – about a quarter percent, according to a study by analytics firm Chainalysis. This is a notably small amount compared to the 2 to 5 percent of fiat currency transactions that are involved in money laundering and similar transactions, according to UN data.
In other words, if you don’t like what some people do with Bitcoin, you will start hating the US dollar.
It’s an important lesson that some Washington lawmakers have yet to learn. And unfortunately, some of them are unwilling to learn facts that contradict their preconceived ideas.
Senator Elizabeth Warren (D-Mass.), who openly claims to be creating an “anti-crypto army,” talks about cryptocurrency as if it were terrorists’ blood money. He is unaware of the countless examples where Western intelligence has taken advantage of the public nature of blockchain to disrupt illicit financing. This includes not only the most recent example of Hamas, but also the 300 crypto accounts seized by the Justice Department to stop the funding of terrorist groups like al-Qaeda and ISIS. She may also shed light on the recent high-profile criminal trial of a Manhattan rapper and her husband, who were conveniently caught trying to launder billions of dollars in stolen Bitcoin. Again, it was the transparency of blockchain that exposed them.
Warren’s bill, the Digital Asset Anti-Money Laundering Act, aims to solve a problem that no one has. It would classify nearly all crypto industry participants – from wallet providers to miners to validators – as financial institutions, subjecting them to the Bank Secrecy Act’s tougher compliance regime. Under this bill, a teenager running a Bitcoin mining rig in his basement could be subject to the same compliance burden as JPMorgan Chase and Goldman Sachs.
But wallet providers, miners, and validators are not banks. They do not keep custody of the properties. They should definitely not collect or store sensitive personal financial information of individual users of an asset. They simply provide the infrastructure – open-source software and computing power to help secure the network. Like Microsoft, which also supplies a lot of software and cybersecurity products to financial institutions, they are not financial institutions.
It would be impossible for the industry to comply with Warren’s requirements, and she knows it. The purpose of his bill is not to improve national security or prevent money laundering, but to stifle digital asset innovation.
Instead of participating in Warren’s farce, Congress should seriously figure out how to help federal law enforcement crack down on real illicit finance. The Financial Technology Protection Act – a bipartisan bill introduced by Senators Ted Budd (R-N.C.) and Kirsten Gillibrand (D-N.Y.) – is an important first step in that direction. It creates a working group to study and report on how terrorists actually use new financial technologies to pursue their missions and how Congress and regulatory agencies can deal with them. Congress could adopt its findings and create a regulatory regime that addresses real risks, not imaginary risks.
This will help prevent criminal activities such as money laundering, while also preserving the ethos of individual freedom that has long defined the digital asset industry.
Terrorists and criminals – from Hamas and al-Qaeda to the early drug traffickers of the Silk Road – learned the hard way that Bitcoin is not ideal for illicit finance. MPs across the country have not yet received the memorandum. So we’re airing it today and asking that they adjust their policymaking accordingly.
Jason Less, CEO of Riot Platforms, Inc., the largest publicly traded Bitcoin mining enterprise in North America by market cap. Is the CEO of. Brian Morgenstern is Riot’s head of public policy and was a senior advisor and deputy assistant secretary of the Treasury from 2017 to 2020.
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