Bitcoin in the Headlines is a weekly analysis of industry media coverage and its impact.
Due to their status as both an emerging payment method and payments technology, global authorities have long sought to ensure safeguards are in place to prevent digital currencies from being abused by cybercriminals and terrorists seeking to take advantage of their cash-like features.
This narrative was given new prominence this week following the terrorist attacks in Paris last Friday, which left more than 100 people dead and that have found law enforcement agencies and politicians seeking to take aggressive measures to bolster security in their wake.
Of note is that global authorities including FinCEN, Europol, FATF, G7 and Interpol have long been concerned about the state of regulation on digital currencies due to what they consider to be the potential for the new technology to be leveraged by groups seeking to finance terrorists or by terrorists directly.
Such nuance was often lost in new reports that highlighted how digital currencies were once again part of the conversation in the wake of the Paris attacks, as the European Council of the European Union and G7 convened for meetings aimed at assessing potential areas of concern in the global financial system.
Complicating reports by global media outlets was confusion related to past research into whether Islamic State of Iraq and the Levant (ISIL), or Daesh, has been confirmed to have actually used digital currency to fund its operations.
This arguably confusing state of reporting was even highlighted by FinCEN director Jennifer Shasky Calvery in a speech where she stated directly that her agency does not believe digital currencies to represent a "higher risk" when compared to more established payment methods.
According to American Banker, Calvery said:
"There has been public reporting of connections of ISIL promoting the use of bitcoin and virtual currencies as a means of moving and raising funds, but I think we are also very focused on the traditional means of moving funds so I think we need to keep our focus on both areas."
Such nuanced commentary, however, was often reduced in headline form, with American Banker running the headline, "ISIL May Be Using Bitcoin, FinCEN's Calvery Says".
In response, industry thought leaders sought to put forth a more moderate take on the technology's role in global financial crime, with some circulating a report from the UK treasury, released in October, that found that digital currencies were the least likely payment method to be used for money laundering.
The report, however, suggested that, as global law enforcement agencies have advocated, activities in the industry should be monitored due to the potential for such systems to be more widely used for both legitimate and criminal purposes.
Issues began last weekend when cryptocurrency-specific industry news outlets sought to determine whether the technology may have played a role in funding the Paris attacks.
In the wake of the news, industry blog NewsBTC published an interview with a member of Ghost Security Group, an organization formerly affiliated with Anonymous that works in conjunction with the US government, which discussed whether IS was using bitcoin as a means to fund operations.
The member of Ghost Security Group said that IS used cryptocurrencies as a form of income to fund their activities, and that the group had uncovered various bitcoin addresses used by those affiliated with IS, though they did not specify whether any of these funds had been used in the planning of the recent attacks in Paris.
However, the media outlet published the interview under the headline "ISIL Militants Linked To France Terrorist attacks Had A Bitcoin Address with 3 Million Dollars".
The headline sparked a wave of coverage from other outlets, including NetworkWorld and PaymentWeek, which ran similar coverage.
A representative for Ghost Security told CoinDesk that the accounts it claimed it discovered "are in no way connected to the Paris attack", contradicting numerous headlines that attested otherwise.
Further, the representative said that it was not currently in possession of the bitcoin addresses it claimed it were connected to ISIL, adding:
"We no longer have the full addresses and they were handed off to the US government for verification and investigation."
Some observers, including an anti-ISIL group called GhostSec that is associated with online hacktivist collective Anonymous, have disputed Ghost Security Group's claims in light of a lack of verifiable bitcoin address or transactions.
Ghost Security Group provided CoinDesk with a purported image from a now-defunct Islamic State site, though the bitcoin address listed on it was not legible. The group later said it no longer possessed that information.
The language included on the page is identical to that on a Pastebin from May, though the bitcoin address listed has not received or sent any transactions.
Also circulating as media outlets attempted to understand the issue were older reports that had sought to connect IS and digital currencies.
Often cited, for example, was a September article by Deutsche Welle that explored the alleged connection between IS and the digital currency.
"Between bitcoin and gold, the 'Islamic State' is experimenting with currency, marking a new step in its state-crafting ambitions ... its apparent use of the decentralised technology bitcoin has come at nearly the same time as IS minted and released its own currency, the 'gold dinar'. The group's use of the two currencies, however, will likely serve different purposes."
The article cited the EU Institute for Security Studies (EUISS) junior analyst Beatrice Berton, who said:
"Sadaqa (private donations) constitute one of ISIL's main sources of revenue, and its supporters around the world have allegedly used digital currencies such as bitcoin to transfer money quickly to accounts held by ISIL militants while minimising the risk of detection."
Thousands of dollars worth of bitcoin have been sent to accounts purportedly affiliated with IS, said the article, with the one of the accounts registering its first transaction as far back as 2012.
Speculation as to the veracity of the article in light of new attention eventually reached a fever pitch, with author Lewis Sanders IV taking to Twitter to stick by his coverage.
A point of contention, however, was an apparent error in Sanders' report, in which it was originally claimed that an address with $20m in bitcoin had been tied to ISIL. Sanders later said that it was an error added after he had filed the report.
Sanders IV went so far as to denounce how his reporting was being used by other journalists, writing:
"I do not support - and instead condemn - #Bitcoin news (sic) sites extrapolating erroneous information from it."
EU 'crackdown' on bitcoin
Soon after this wave of reporting, Reuters jumpstarted a second life for the narrative when it reported European countries were planning to "clamp down" on digital currencies and "anonymous online payments" in an attempt to curb the financing of terrorism activities in the aftermath of the Paris attacks.
According to a draft document seen by Reuters, EU interior and justice minister were due to gather in Brussels today for a crisis meeting.
"They will urge the European Commission, the EU executive arm, to propose measures to '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," Reuters said, citing the draft conclusions from the meeting.
It was not long until other mainstream media outlets began to cover the news. City AM's Clara Guibourg, picked up on Reuters' original report which outlined the plan to curb terrorism financing by targeting digital currencies such as bitcoin.
The author sought to position the news as part of a new event that was perhaps a "setback" for the digital currency, in what would become a common theme for reporters despite the long-standing investigation of global governments into the connection.She wrote:
"This comes as a setback for bitcoin, which has been charging forward in recent months, with the EU recently accepting it as a currency by granting it VAT exemption.The cryptocurrency surged in price, charging up 110 per cent over October to hit a 2015 high of $500 before tumbling back down just as quickly to trade around $330 today."
Despite the coverage, the meeting conclusions from today's meeting in Brussels did not specifically mention bitcoin or any other digital currencies. CoinDesk reached out to the European Commission for more details on the meeting, but at press time did not receive any new details.
The EU news was accompanied by a separate report that members of the G7 nations were seeking to "get tough" on digital currencies, which Reuters positioned as a response to the Paris attacks.
"The software-based financial services that FinTechs offer, including digital or 'virtual' currencies such as bitcoin, often operate across borders and beyond the reach of security officials."
The story was originally published by Der Spiegel on Wednesday, with both outlets noting that this intention extended to the wider FinTech industry, yet neither positioning their headlines toward this angle.
Old criticisms revived
Elsewhere, news outlets used this background as a kickstarter for conversations about the perceived benefits and drawbacks of digital currencies.
Bloomberg View writer Leonid Bershidsky noted the EU's perceived plan to crack down on virtual currencies using it as a platform to call for cash to be abolished.
"The problem is that terrorists aren't really using [digital currencies], anyway," he said, adding:
"They're using good old cash, though its circulation is already severely limited in countries such as France – the scene of the most recent Islamic State terror attacks. Instead of taking their anger out on virtual currencies, now is the time for governments to think seriously about the abolition of cash."
"Despite the Islamic State's well-known dislike of the US, its financial accounts seem to be kept in US dollars. The terror group's revenue comes in greenbacks, whether from old-school oil smuggling, 'taxes' on subjugated populations or the trade in stolen artefacts," he continued.
He went on to suggest that bitcoin's price volatility against other currencies would make the system "risky" for terrorist groups.
"Groups like Islamic State and their contractors don't want a means of payment that can lose half of its value in a day," he concluded.
Bershidsky's report, while a minority opinion, nonetheless succeeded at highlighting a discrepancy in the media's reporting that had been widely voiced on social media by the bitcoin industry, that reports on the use of newer payment methods in terrorist funding obscure that much of this illicit activity takes place among established forms of payment.
This report was co-authored by Pete Rizzo and Stan Higgins
Terrorism image via Shutterstock