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Blockchain analytics company Chainalysis has refuted claims and analyses circulating in the media that exaggerate the involvement of cryptocurrencies in financing terrorism.
In a recent report aimed at clarifying misunderstandings about the utilization of crypto by terrorists for funding their activities, Chainalysis data indicated that digital assets have a minimal impact on this issue.
Clarifying Misunderstandings
Chainalysis highlighted that although certain terrorist groups, such as Hamas, Jihad, and Hezbollah, do raise and transfer funds via crypto, these transactions represent a small percentage of the already limited volume of illicit cryptocurrency transactions.
“Terrorism financing constitutes a very small segment of the already very small segment of cryptocurrency transaction volume that is illicit,” Chainalysis stated.
The report observed that terrorist organizations have traditionally relied on conventional fiat-based methods, such as financial institutions, hawala, and shell companies, as their main funding sources and are likely to continue doing so.
Chainalysis underscored that the transparency inherent in blockchain transactions renders it less appealing for terrorists, which is a significant reason why Hamas ceased accepting Bitcoin donations. This transparency enables law enforcement to trace the origin and destination of every transaction on the blockchain, a task that is nearly impossible with cash transfers.
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Correcting Misestimation Methodologies
The report also tackled the inaccuracies in assessing crypto flows into accounts associated with terrorists. Following the recent assault by Hamas on Israel, numerous reports estimating the amount of cryptocurrency used to fund the group’s activities have emerged.
However, Chainalysis emphasized that estimates regarding crypto-related terrorism financing are frequently overstated when analysts include all transactions processed by intermediary service providers rather than solely those directly linked to terrorist organizations.
The report cautioned that while substantial amounts of cryptocurrency may seem connected to terrorists, a considerable portion of these funds is unrelated. To enhance anonymity, most service providers aggregate multiple transactions from various users. Consequently, tracing such transactions can lead to erroneous estimates.
The report provided an example of a wallet associated with terror financing that had approximately 20 suspected service providers as counterparties. In one instance, the firm identified multiple transactions involving large sums of cryptocurrency, exceeding $82 million.
Chainalysis noted that it would be incorrect to assume that all the funds were acquired for terrorism financing. Upon further examination, the analytics firm found that around $450,000 worth of cryptocurrency from the known terror-affiliated wallet was transferred through this counterparty.
The report also urged investigators to take into account the role of service providers, as they can facilitate the transfer of terrorism-related funds, whether knowingly or unknowingly. Meanwhile, earlier this week, the Israeli government disabled over 100 Binance accounts that may be linked to Hamas.
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