Despite being widely celebrated, the traceability of cryptocurrency remains one of the most pertinent issues that require more focus than what is being currently afforded to it. Negligence in policymaking to evaluate cryptocurrency as a viable operational strategy for transnational terrorist networks might spell more trouble than we can handle.
Debunking the Crypto Myth: What Is It?
Transactions of cryptocurrency, or crypto, takes place independent of a central authority. It uses a distributed public ledger called blockchain, which is a record of all transactions and is available to everyone. This means that crypto is decentralized, does not operate under any state’s authority, and provides almost instantaneous fund transfers with zero fees. Accordingly, a common myth is that crypto is untraceable.
Crypto is hosted on commonly accessible ledgers, which means that everyone has access to records of each transaction irrespective of who made it and where it was made. The identity of the person who transferred a lump sum is represented by a ‘hashed ID,’ followed by a series of numbers. This means that although one cannot find the identity of the people involved by analysing a single transaction, dedicated pattern analysis can potentially lead to their discovery since a publicly accessible ledger allows state authorities to trace crypto flows. However, as with all crime detection, the awareness that a crime is happening, and the political mobilization required to stop it, are two crucial elements.
On Political Will
In a world with increasing crypto use, policymakers should recognize that crypto can be a viable alternative financing channel that connects transnational terrorist networks in the Middle East to global and regional donors to terrorist causes, and local hubs in the small and medium states. However, in countries where crypto is not outright banned, this is largely ignored and remains unmentioned in global annual risk assessments. The focus of states on monitoring traditional terrorist financing represents a failure to nip extremism in the bud.
For instance, Bank Indonesia’s (Central Bank of Indonesia) Payment System Blueprint 2025 recognizes that the advent of cryptocurrency runs the risk of spurring increased money laundering and terrorist financing through ownership of digital assets, yet nascent cybersecurity laws remain largely absent from steps safeguarding the use and ownership of cryptocurrency in terrorist financing. In the Philippines, the Anti-Money Laundering Council particularly noted the use of cryptocurrency in its Terrorism and Terrorism Financing Risk Assessment 2021, citing suspicious transactions associated with bitcoins or virtual currency worth around $34,000 between 2019 and 2020. The report also mentions incidents of terrorist groups using crypto assets in the Marawi siege, yet Philippines digital laws allow cryptocurrencies to be used as a legal tender, effectively enabling users to convert crypto into fiat currency through ATMs of the Union Bank of Philippines.
Internationally, guidelines to prevent the misuse of crypto to finance terror activities have been led by the Financial Action Task Force (FATF), which published updated guidelines in 2020 for virtual assets and virtual asset service providers. It identifies the gaps in the security infrastructure of nations and seeks to ensure a common standard. In this regard, Indonesia is only an observer of the FATF, with the Philippines on the brink of being included in the grey list due to ‘strategic deficiencies‘ in its money laundering and terrorism financing system. On top of this, the implementation of the guidelines is a major challenge and one that is especially difficult for small and medium states in the developing world which prioritize spending to prevent conventional forms of terrorist financing.
The Political Will–Terrorist Ambition Mismatch
We must pause and ask why terrorist organizations have adopted cryptocurrency as an important lever in their operational strategy. The literature on terrorist innovation is scant. However, there exists cogent analysis on Grand Strategy—as elaborated below—that can prompt policymakers to evaluate the viability of cryptocurrency adoption among local terrorist hubs.
Terrorist organizations have centralized decision-making and decentralized execution. This means any innovation in the grand strategy of a terrorist group is always designed by the top brass of the leadership. This can be seen from Wadie Haddad’s influence on the PFLP which led to the adopting of airline hijacking as a critical tactic, or Osama bin Laden’s push to shift focus away from the Middle East to the United States.
Almost all instances indicate a top-down process of adopting innovation in grand strategy, where individual leaders with strong personalities and authoritarian leadership styles played pivotal roles in important decision-making processes that changed the identity of the organization. While terrorist leadership always appears open to suggestions from their subordinates, it is often the case that only executive decisions are left to the lower-level members who occupy the local hubs.
Since the late 1990s, most terrorist transnational networks, including the Al Qaeda and the Islamic State, have seemed to divide their responsibilities, whereby the strategic vision is laid out for the local hubs, and the operational strategy is left upon the leaders and entrepreneurs in charge of the hub to figure out on their own. For instance, it was Bin Laden’s bodyguard, Walid bin Attash, who managed capital for operations, and mechanized the whos, hows, wheres and whens of their recruitment strategy during the USS Cole bombings.
Financing for local terrorist hubs in small and medium states pours in from all over the world, especially from the Middle East. The funding does not flow to metropolitan hubs like Dhaka or Jakarta. Rural areas, where it’s much easier to influence radicalism, become primary recipients.
Rural areas in Bangladesh have historically exhibited higher forms of radicalization, with money going to religious institutes like madrasas and Islamic study circles which promote fundamentalist ideologies. Parents who send their children to these institutes often cannot afford to feed or educate their children. So, the madrasas provide food, clothing, and basic education. As a result, parents become loyal to these madrasas as they feel left out by the state, conjuring up a feeling that the religious institutes are safe havens for their families and their collective community. In Indonesia, terrorist recruiters, especially in the rural regions, draw on poor democratic performance to justify the violent pursuit of alternative systems of governance. Most recruits foray into terrorism through Islamic Study Circles, which are categorically shaped like madrasas in Bangladesh, with many of them teaching an extreme brand of Islam to young children from a very young age.
This bottom-up operational strategy which focuses on grassroots recruitment provides ease of access to the local terror hubs which might only receive start-up funds, and an annual allocation of finance from their transnational headquarters and are largely left to fend for themselves in acquiring an arsenal, or even supplies to build an arsenal. Adoption of cryptocurrency as an alternative mode of financing piles upon the ‘ease of access’ by providing anonymity in transactions—local hubs become open to receiving large donations from aspirants in their area of operations, which otherwise would not have been possible due to either strict periodical monitoring of traditional financing channels, or a general fear of getting caught. Most importantly, the potential adoption of cryptocurrency allows terrorist groups, that are otherwise restricted to their region of origin to aggressively pursue expansion into other neighbouring regions since funding will follow without leaving a trail.
The Importance of ‘Intentions’
For the West, most notably the United States, the reconnaissance-strike complex turned out to be the ‘master weapon‘ and a key strategy for winning wars swiftly and decisively since the early 1990s. For terrorist organizations like Al Qaeda, and later ISIS, replicating the reconnaissance-strike complex on equal terms was impossible. Terrorist groups, since then, resorted to bypassing their adversary’s advantage by abandoning traditional modes of military conduct. There were no tactical chains of command, no challenges to achieve linear information management—even technical skills to master the conventional warfare became seemingly unnecessary. Instead, transnational groups empowered local hubs to design and organize their operations, allowing them to conduct multimodal experiments in their respective theatres to identify the most effective method to strike the enemy in different parts of the world.
A terrorist’s commitment to stay in the fight plays a pivotal role. Incessantly seeking to bypass the adversary’s military advantage means that the costs of initiating and sustaining operations appear lower than they are, and there is always a stronger will to maximize gains. This provides sufficient and necessary context for why the more recent generation of terrorist recruitments—tech-savvy engineers helming leadership positions in the local hubs—will see the adoption of cryptocurrency as a key operational advantage and will likely seek to achieve the first-mover advantage in their respective regions.
The assumption we make is that the traditional framework of terrorist financing will always exist, but the ease of access in setting up potentially untraceable cryptocurrency transactions facilitates a local hub’s strategy of bypassing the adversary’s web of defence, dismantling the resource constraint that once dominated the operational calculus of these transnational non-state actors. Perhaps it is also important to note that, in regions where a competing terrorist organization has a sizable footprint—for instance, Jamaat al-Mujahideen Bangladesh pledging allegiance to Al Qaeda and Ansarullah Bangla Team (ABT) siding with ISIS—cryptocurrency and its related innovations runs the risk of turning into a major focal point for outbidding each other, in absence of a dedicated cybersecurity policy and strong policing.
If there’s anything the changing character of war suggests, it is that transnational terrorist networks are always on the lookout to find strategic advantages. Possibly the best example of a first-mover advantage came in May 2020, when the Philippine Institute for Peace, Violence and Terrorism Research (PIPTVR) reported the first-ever cryptocurrency transaction made by the Islamic State-backed local hub under the Filipino government’s nose, with the funds allegedly directed towards activities in the conflict-ridden Mindanao region in the southern Philippines. One might find this instance a rarity, others may argue for stringent regulations. But it is undeniable that terrorists will experiment with cryptocurrency to rejuvenate their activities.