Bitcoin and terrorism

This is a risky thing to write about, as so many people tragically died in the Paris attacks, and no amount or sequence of words on the subject can hope to convey how so very sad and unfair that is.

But, while technology obviously facilitated the coordination of the atrocity, and electronic payment rails probably helped move the money that financed it, it is important to point out that technology is not the culprit. Yet that doesn’t stop the gleeful finger pointing and the vindicated headlines proclaiming that Bitcoin’s days are numbered because it obviously finances terrorists.

Quartz last Thursday brandished the provocative headline, “The Paris attacks look to be altering the EU’s stance on bitcoin”:

quartz bitcoin

The Telegraph newspaper declared that “Europe plans crackdown on Bitcoin after Paris attacks”, Business Insider claimed that “Europe is going to clamp down on Bitcoin to try to stop terrorism funding”, and the International Business Times UK ran with a SEO-friendly “Paris attacks: EU to crack down on bitcoin transfers in attempt to strangle Isis funding”. The Washington Times seems to have had the most fun with “EU look [sic] to ban Bitcoin after Paris attacks”. Apparently Reuters had reported that EU Interior and Justice ministers were going to propose a crackdown on cryptocurrencies and the anonymous use of pre-paid cards, to prevent those channels from being used for terrorist funding. Now, I confess that I haven’t seen the draft document, but surely it’s a leap to go from “propose a crackdown” (whatever that means) to “banned”?

The sparse excerpt given of the memo in the Reuters report recommends that the European Commission “strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards.” Again, I’m not sure why “strengthen controls” is interpreted to mean “clamp down”, other than to produce a catchier headline. A strengthening of controls would, in my opinion, have happened anyway, as virtual currencies become an increasing part of the financial fabric. A better anti-money laundering policy is, I think we can all agree, a good idea, unless the regulation stifles the application of innovation for social good.

Extreme reactions from politicians and the media are totally understandable in extreme circumstances. But realistically, even if a Bitcoin “clamp down” is recommended, is this really going to stop terrorist funding? No, probably not, and the setback to economic progress is likely to be material. Another victory for the terrorists?

And for the record, just last month the UK government published a national risk assessment, which concluded that the most likely vulnerability when it comes to money laundering and terrorist financing is… traditional banks. The least likely? Digital currencies.

UK govt national risk assessment

As an aside (although it’s not really an aside), I get thoroughly annoyed when the press touts Bitcoin’s anonymity as a threat. First of all, Bitcoin is not anonymous. It is pseudonymous, and it is usually possible, with careful forensics, to detect where a payment originated. After all, the history of every single bitcoin in existence is on the public ledger for all to see. It is possible to enhance Bitcoin’s anonymity, but it requires some manipulation, and even then, is not totally undetectable.

And if you want to claim that anonymity is bad, we should look at doing away with cash, don’t you think? Of course I’m not being serious (although maybe not totally, we can debate this another time), my point is that anonymity in finance is something that we have dealt with ever since money was invented. A dollar, or a piece of gold, or a shell, does not care who holds it. The current backlash over the power of encryption falls on the same weak argument – that terrorists and criminals use encrypted communications to plan and plot, so obviously it should be banned – without taking into account the good that encryption can do. Governments and dissidents can communicate securely. State and business secrets can be preserved. Privacy can be respected.

Suppose that we squash implicated technological innovations because of the potential for abuse. I’ll wager that more criminal or even terrorist activity has been plotted via email, web bulletin boards, even blog posts or web pages. So, should we ban the Internet? The UK government’s risk assessment puts banks as the top potential terrorist finance funnel – should we ban banks? The French police found an unlocked phone with an un-encrypted message that triggered the attacks. Should we ban mobile phones? Messaging services?

Would it even make any difference?

It’s worth bearing in mind that the same technologies that facilitated the criminal communication also helped to identify the mastermind and catch the accomplices. The same technologies that offered logistical and economic help for the terrorists, also delivered copious amounts of connection and support for the families and friends of the victims, and for a society in shock. I believe that regulation is good. Over-regulation is not. And in something as decentralized as Bitcoin, regulation is difficult to enforce. It needs to be regulation that the community as a whole recognizes as being beneficial for widespread acceptance. Bitcoin is a self-regulating concept. What we need is regulation that we believe is fair and appropriate. Regulation that encourages and protects.

“Strengthening controls” of Bitcoin and other cryptocurrencies, if it goes beyond enhancing anti-money laundering barriers, is no more than unproductive finger pointing which could set back the development and acceptance of a financial innovation which can help people around the world transfer assets securely and inexpensively, enjoy greater financial independence, and even emerge from poverty. And the media should be careful about playing a pivotal role in the barriers to innovation, just to grab attention.

 

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