The great loss of control – BitcoinBlog.de – the blog for Bitcoin and other virtual currencies

The Palestinian Hamas also financed its attack through cryptocurrencies. An expert therefore judges that anyone who tolerates crypto is accepting terror. This is neither true nor false – it simply misses reality.

It has been around half a millennium since cannons became established on the battlefield. Their force made the previously strategically important castles meaningless. The knight Franz von Sickingen learned this the hard way: After his uprising against the princes, they destroyed his and his allies’ castles in a blitzkrieg.

New technologies blunt old weapons. This has always been the case and this is what is currently happening with cryptocurrencies and financial sanctions. A money laundering expert puts it this way in an interview with ZEIT: “Anyone who tolerates cryptocurrencies also accepts terrorist attacks.”

It’s about Hamas. According to analyses, the Palestinian terrorist organization has collected around $41 million in cryptocurrencies as donations since 2019, and its allies have reportedly collected more than $90 million. The government of Israel is calling on the Binance exchange to freeze around 100 accounts that contain crypto assets worth millions intended for Hamas.

“At this stage of the war, cryptocurrencies are a crucial tool for terrorist financing, as there are no other options,” Tom Alexandrovitsch of the Israel Cyber ​​Directorate tells the Financial Times. The number of crypto donations has exploded since Hamas began its attack.

Binance is at least cooperating with the authorities. Another exchange used by Hamas, Garantex, apparently does not do this. The Moscow platform has become the main hub for evading financial sanctions since the war in Ukraine. It connects the two wars to form an unsightly axis of money laundering.

„A ridiculous article” – really?

This is of course unpleasant for the Bitcoin and crypto scene. So unpleasant that the block trainer briefly interrupts his vacation and responds to the interview in ZEIT with a video.

Even in the title, Roman calls the article ridiculous; in the video he laments the negative framing that ignores all the good aspects of Bitcoin. Criminal transactions represent only a tiny fraction of the actual transaction volume, and Hamas is funded to a much greater extent by dollars than cryptocurrencies.

Of course there is something to that. However, as a Bitcoiner you shouldn’t make it too easy for yourself. Because Bitcoiners usually emphasize with shining eyes how crucial decentralization is. Only it makes permission freedom and censorship resistance possible, the elementary properties that make Bitcoin so much better than the dollar: Anyone can receive, store and send money for any purpose, and no power in the world can prevent this, not even the USA with its sanctions lists . Bitcoin frees money from the control of government.

But if an internationally respected and sanctioned terroir organization uses cryptocurrencies because they are censorship-resistant and permission-free as advertised – then it is not really consistent if you as a Bitcoiner suddenly say that the dollar is just as bad.

It is not a coincidence that Hamas uses crypto, but rather it is the nature of the technology. You should have the backbone to acknowledge that.

Bitcoin as a natural counterforce

Bitcoin or blockchain technology is like the cannon: it blunts instruments that were previously crucial to the war.

Today, when financial censorship is exercised, crypto naturally comes into play, like a counterforce that inevitably responds to pressure. Bitcoin and other cryptocurrencies help Chinese dissidents, Syrian refugees, Lebanese families, Venezuelan workers, Nigerian women’s rights activists, Canadian truckers – but also North Korean nuclear missile builders, Russian mercenaries, Iranian Revolutionary Guards and Islamic terrorists.

The development of sanctions losing their power has been foreseeable for many years. With every conflict and every censorship and capital control it becomes more powerful. Like Sickingen, the West is currently having to swallow this pill.

Lawyer Fabian Teichmann, interviewed by ZEIT, explains that cryptocurrencies have now become a preferred means of terrorist financing from the West. Bank transfers are blocked and hawala banking is expensive and unreliable. “A transfer [mit Krypto] “It’s faster than a bank transfer, inexpensive and largely anonymous if you do it right.” In some cases there is already a circular crypto economy in which fighters are paid with stablecoins.

One party after another understands this; Sanctions become less effective with every conflict.

Ban cannons so that castles can function again

Terror financing with cryptocurrencies makes tracking money flows more difficult. Nevertheless, Israel managed to identify the Hamas accounts on Binance, and the blockchain analyst Elliptic traced the connection to the Moscow exchange Garantex.

But anonymity is not that important. Because even if the transaction flows are open, they remain unstoppable. Garantex has been on sanctions lists for a long time, but continues to operate happily. Money laundering expert Teichmann therefore demands: “States must finally start regulating cryptocurrencies more closely. Anyone who tolerates cryptocurrencies also accepts terrorist attacks.” However, in doing so, he massively simplifies the problem.

Teichmann believes that tightening regulation in the West and, if necessary, banning crypto is enough to squeeze the genie back into the bottle. This idea that technical progress can be reversed by law is also widespread in European and German politics. If you ban cannons, castles will work again!

In reality, of course, this is impossible. If anything, crypto can be regulated by global consensus. Even before the war, Russia only took a moderate part in this; Now the country is completely blocking and using crypto itself to circumvent sanctions. The loss of control has already happened, and no lawsuit or law will reverse it.

„No more silver bullets”

Unlike Teichmann, the Wall Street Journal recognizes this loss of control:

“The US Treasury Department said in a report last year that gaps in the control of crypto exchanges allow terrorists to abuse them. Israeli Defense Minister Yoav Gallant emphasized last summer that the use of digital currencies makes the task of stopping terrorist financing even more complex.

In Russia the stock exchange [Garantext] used to exchange rubles for other currencies, which had been made more difficult by sanctions on Russian banks following the invasion of Ukraine. Customers deposit rubles and receive crypto, typically stablecoins pegged to the US dollar.”

Garantex’s expansion “raises questions about the effectiveness of US sanctions when they are directed against targets that are financially isolated in hostile territory.” The Treasury Department’s sanctions lists are “no longer a silver bullet,” and exchanges like Garantex are limiting their effectiveness.

That is apparently the reality. But where do we go from here?

Time to acknowledge reality

One can of course complain that cryptocurrencies have contributed to the erosion of the sanctions instrument. You can call for them to be banned and you can blame Bitcoiners for causing terrorist attacks. Teichmann does all of this in the ZEIT interview, at least indirectly, and maybe it will help some people feel better.

But none of this will help support even a single sanction. None of this will prevent terrorism and nuclear weapons from being financed. It will simply cut off the West from technical progress: it will imagine that it can ban cannons and therefore continue to build castles, which in doubt will be useless. Not taking advantage of technical progress has never been a path to success.

It is time to acknowledge reality instead of complaining about it or trying to fight it with legislation. Sanctions are a blunt weapon in the age of digital currencies. We should finally think of something else instead of repeating the tragedy of Franz von Sickingen in an endless loop.