A think tank that advises several US government agencies is now exploring the potential threats bitcoin poses to national security.
Still in its earliest phases, the research is being headed by the director of analysis at the Center on Sanctions and Illicit Finance in Washington, DC, and crafted to gather data on how state actors might currently use bitcoin and other cryptocurrencies to evade sanctions.
Contrary to some inflammatory calls to ban bitcoin, however, the research, being conducted by Yaya J Fanusie of the Foundation for the Defense of Democracies, is looking as much at how blockchain can help prevent illicit activity as how it can enable it.
After spending seven years as both an economic and counter-terrorism analyst in the CIA, Fanusie told CoinDesk:
The Foundation for the Defense of Democracies is a non-profit organization founded in 2001 to advise members of Congress, federal agencies, the US Treasury Department and other agencies about how to prevent terrorism around the world.
Fanusie was hired in 2015, at which point he first began looking into the potential national security threats resulting from bitcoin and other cryptocurrencies. At the time, he was skeptical that the mostly unverifiable claims were true. But when he discovered a known terrorist organization using Twitter to raise money for weapons, he intensified his research.
Then last month, CoinDesk reported that the Swedish government had incorporated a venture capital firm that would begin investing in Iran using the payment method.
By using bitcoin to incorporate in Sweden which, along with the rest of Europe, has a more relaxed policy on sanctions against Iran, the startup, Brave New World Investments, is helping pave the way for what could end up being a legal way for some to circumvent US sanctions.
But, according to Fanusie, the potential threat should not be exaggerated. "Bitcoin by itself is not going to compensate for all the outlets that are cut off," he said, adding:
Similarly, Fanusie sought to temper the escalating concerns being circulated in the media about bitcoin being used as part of the 'WannaCry' ransomware attacks, in which an estimated 200,000 victims were asked to pay bitcoin to regain access to encrypted computer files.
Instead of focusing on the potential threat that bitcoin might pose, Fanusie said the hacks are more evidence of how bitcoin enables "transactions which financial authorities can’t interdict".
"This is not illicit in itself," said Fanusie. "It's just a more recent and increasingly more common way of transacting that serves anyone looking for alternative payment methods."
In the future, he said that cyber forensics investigations into more traditional online crime will likely need to happen "in tandem" with investigations of blockchain itself.
Blockchain and democracy
In its infancy, blockchain technology, which makes middlemen less necessary (or not necessary at all), was developed out of "desire for freedom" according to Fanusie. "A desire for more of a democratic way of transacting or interacting."
While potential threats to national security – such as the raising of funds for terrorism, the circumventing of sanctions and the ransoming of vital infrastructure – remain worth researching, Fanusie also emphasized the need to learn more about its benefits as well.
He mentioned the growing prevalence of cryptocurrency exchanges conducting know-your-customer (KYC) and anti-money laundering (AML) due diligence as evidence of how products built with blockchain can help remove the need for middlemen while still adhereing to international protections.
He also cited the increased exploration of blockchain by supply-chain infrastructure providers as a possible way to prevent trade-based money laundering, where the price of imported goods is increased or lowered to effectively send money or charge fees for illicit activities.
"It should be more difficult to traffic in weapons, or in drugs or doing money laundering, to funnel more money to a cause which could be used for a terrorist group," said Fanusie.
In the fallout surrounding the WannaCry ransom attacks, a number of formal studies have been revealed.
As for Fanusie, in addition to better understanding what it might mean if cryptocurrency usage were to spike in Iran, he says he wants to learn more about other usage patterns – for example, in China and in other nations and cities around the world – and how central banks might implement various blockchain solutions.
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