Is crypto really responsible?

The tragic events of this past month raise some serious questions: Does crypto have a terrorist fundraising problem? Are the networks really being exploited by terrorists to wreak global havoc? If so, what is better?

On the other hand, perhaps the problem is one of perception – more appearance than reality – because public restrictions are, after all, clear and visible. In that event, how does the industry turn out to be less than stellar?

Cryptocurrencies like Bitcoin (BTC) have been associated with illegal activities since their inception. Analytical groups such as Chainalysis have found it difficult to shake this picture, saying that “terrorist financing is already a very small fraction of the amount of cryptocurrency transactions that are illegal.”

But in early October, the world woke up to Hamas' incursion into southern Israel, and soon after, the Israeli police announced that it had banned cryptocurrencies used by Hamas. Fund their activities.

A week later, a group of 28 US senators and 76 congressional representatives – led by Senator Elizabeth Warren – sent a letter to top Biden administration officials asking “what steps are being taken to address the use of cryptocurrency by terrorist organizations.”

The industry is finding itself on the defensive as governments, regulators and even asset managers ask: Are crypto networks being exploited in the worst possible way again?

“Unrealistic”

“I would argue that any terrorist organization using crypto for fundraising is a problem,” said Cody Carbone, vice president of policy at the Digital Chamber of Commerce. But recent reports, including those published in the Wall Street Journal and later cited in the Warren Coalition letter, are wrong. Carbon said:

“I believe the numbers being used by the WSJ and Senator Warren's coalition are either skewed or inaccurate. According to Chinalysis, of the nearly $82 million in cryptocurrency received by the WSJ at the posted address, about $450,000 was transferred from a wallet known to be linked to terrorism.

Christine Smith, CEO of the Blockchain Association, told Cointelegraph: “We view the hysteria surrounding the relationship between crypto and Hamas as unrealistic. Like Carbone, Smith said any funding of terrorist organizations is “too much,” but questioned why the focus of some lawmakers and policymakers is so narrow.

“Why don't you ask. [Biden] Administration for detailed information on all sources of funding for Hamas? We need a holistic picture that puts the role of digital assets into perspective.

One often hears this argument from industry proponents. Crypto's contribution to terrorist coffers — whether those groups are in North Korea, Iran, Lebanon, or Gaza — pales in comparison to the volumes amassed by fiat currencies that use traditional conduits.

“Terrorist organizations have historically used traditional, fiat-based methods such as finance, remittances, and shell companies as financial institutions, and shell companies as their primary means of financing,” Chinalysis wrote in an Oct. 18 blog.

“This is the truth. [crypto] Ari Redbord, head of global policy and government affairs at TRM Labs, told Cointelegraph that it's a small piece of the larger terror financing puzzle. What about nations like Iran? Or international mega-donors? Or will Hamas collect millions in taxes from Gazans? “Crypto plays a small role in all of this.”

There is a funny thing here too. Collecting illegal funds through public blockchains like Bitcoin or Ethereum is actually beneficial for law enforcement agencies. Modern analytical techniques employed by specialized companies such as Chinalysis, Elliptic and others often make it easier for terrorist groups to identify and seize funds tied to them.

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“What's missing from the conversation is our ability to track and trace an open blockchain is much better than anything we do with fiat,” Redbord said. Tracing illicit funds through shell companies or stolen art is even more problematic. In comparison, “Blockchain enables traceability.

“Prior to the efforts of law enforcement and private industry […] They have succeeded in detecting Hamas terrorist financing activity on the blockchain – to block the transparency of crypto assets and seize related funds,” Elliptic's David Carlyle wrote in an Oct. 11 blog post.

In fact, in April, Hamas abandoned crypto-related fundraising and said it would no longer accept funds through Bitcoin, “citing an increase in ‘hostile' activity against donors,” according to Reuters.

“The industry needs to be more proactive.”

But relatively little use of crypto by Hamas, Palestinian Islamic Jihad (PIJ) and others. It appears that it is enough to stir the water.

“There is an opportunity to address this issue constructively,” Carbone told Cointelegraph, “but I fear that some anti-crypto policy makers in Washington are using the crisis to push their agenda and severely limit or eliminate crypto use in the US.”

How does he set the record then? More education and more data have responded to carbon. “Learn more about how blockchain technology is a formidable tool for terrorists because of its public nature, but identify the pain points.”

Some steps need to be taken. The industry still needs to develop better cybersecurity controls and operational risk procedures to better deal with the use of dangerous hybrids and tumblers that can hide wallet addresses from law enforcement agencies, Carbone said. “Everyone in the industry needs to be more proactive. We need more information to identify how serious the problem is.

There are signs that some of these things are happening, Redbord added. Binance has recently been working with Israeli authorities to block the crypto accounts of several terrorist groups, including PJ and Hamas.

In the court of public opinion, it wouldn't hurt to be more assertive.

“We believe crypto is here for good,” Smith said. “The technology is neutral, the protocols are open and anyone can use it, just like the Internet itself. Over time, crypto has the potential to reduce financial barriers, protect constitutional privacy rights, and ultimately give users the opportunity to take back the monopoly power of Big Tech and our digital lives.” The value of humanity will be self – clear.

Is reform crypto legislation dead in the US now?

But the upheaval in the Middle East may have already overshadowed prospects for comprehensive crypto reform legislation in the US — at least for now.

Berenberg Capital Markets analyst Mark Palmer was one of the first to warn of the potential impact of the conflict between Israel and Hamas on crypto reform efforts in the US, Palmer told Cointelegraph.

“Coinbase may face an uphill battle in lobbying Congress in hopes of drafting legislation that would bring regulatory clarity around the question of whether crypto tokens are securities, especially now that recent media reports have focused on it. Before Hamas attacked Israel, it used crypto fundraising in recent years.” How to use method.

Palmer isn't surprised to find crypto opponents in Washington, D.C., now redouble their efforts to crack down on them. What's even more alarming is that “the reports seem to have encouraged more lawyers to get involved in this effort.”

In other words, momentum may be building against the industry. “None of this is good for Coinbase as it seeks to better position itself in the US, and now there seems to be a growing possibility of new legislation that could undermine the company's prospects,” Palmer said.

Is it too soon to say that reform law in America is dead on arrival?

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“He's not dead,” Carbone said. But we are running out of time. Forget the chaos of the speaker; We're nearing the end of the year, the government has to refinance next month, and there are other priorities. And then it's an election year.”

According to Carbone, there is still the possibility of legalizing stablecoins, but even that would probably have to be “traded for a non-crypto account — secure banking, credit card law — or an illegal financial account.”[…] The issue is becoming more partisan,” he said.

Ultimately, it's up to the voters to decide, Smith said. “Industry developers must continue to build applications that have mainstream and tangible value to society. Policymakers ultimately serve voters. The more voters want to use this technology, the more likely we are to protect it.”