Bitcoin for Terrorists – Another Red Herring

On September 11, 2011 I returned late from work. I threw together a quick dinner, opened a beer, and turned on the TV. I lived in Japan, as I still do, so nighttime for me was morning for New York. The first thing that came on was some terrible movie about one of the twin towers burning. I turned the channel. Same image. Damn.

Soon after the calls started coming in from friends and family. We discussed what was happening, why it was happening and what was likely to happen next. I remember saying to one friend that if we were as exceptional a people as we often told others we were, we would see that we are strong enough to accept the blow, no matter how painful that is, and to start to ask the hard questions of why people from far off countries were motivated to perpetrate suicide attacks.

There are lots of reasons, of course. To begin with, in the mid-fifties, Iran had a democratically elected, secular president, Mohammed Mosaddeq, who made the mistake of saying he wanted to nationalize the oil industry in his country, depriving the Western oil companies of millions. Big mistake. No other than the grandson of Teddy Roosevelt drove his car to Tehran and, at on the payroll of the CIA, proceeded to topple that government. The Shah, a despotic regent was installed with the understanding that he would keep get the support of the US as long as he kept his people quiet and allowed the oil companies to rake in their profits.

Fast forward to 1979 and the Iranian revolution when religious zealots took a key role in overthrowing the Shah. In the process, the staff of the US embassy in Tehran was hostage and kept for more than a year before being released. Soon after, a brutal war began between Iran and US ally Iraq let by Saddam Hussein.

I’m going to stop the history lesson there. The point is obvious: they don’t hate us because of our freedoms; they hate us because we have been mucking around in their countries for a hundred years.

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The one thing they know about us, though, is that we love to talk about our freedoms. And they have our number. They know that they can make us destroy ourselves from within. That by creating a bit of media fanned fear, they can get us to beg to have our freedoms taken away. I predicted it on the night of September 11, 2011, and sure enough, over the last 14 years, we have been searched and surveilled to death, but the terrorists are getting scarier and more effective.

Now in the wake of the Paris attacks, we are seeing the whole thing play out again. ISIS, empowered by the misery the West has created in the Middle East, creates terror. Our response is to lash out at other peoples and internally to crack down as hard as possible.

This morning the news is that the EU intends to crack down on virtual currencies in an effort to cut off funding to terrorists. Is there any evidence that Bitcoin or any other digital asset is being used to fund terrorists? No, not really. Reports that ISIS had a Bitcoin address with first 20 million and then 3 million turned out to be fear-baiting by the media. Even the reporter who originally filed the 20 million story has tweeted that he didn’t know who the address belonged to and that his point was that it’s difficult to track who owns Bitcoin addresses. The wild speculation that the address is controlled by ISIS was added later by an editor, probably to juice up the emotional impact of the article. Facts be damned.

Let’s be really clear about a few things here. Groups like ISIS are UNLIKELY to want to do a lot of funding with something like Bitcoin. It might be good for moving small amounts of money, but the whole market cap of Bitcoin right now is only about 5 billion dollars. Sales of only a few thousand bitcoins can radically impact the price. And in the parts of the world where ISIS really operates, no one is really going to want to use Bitcoin – it’s just not enough of a currency yet to warrant people wanting to use it.

No, dollars and Euros is what ISIS wants to use to fund its terror operations. While it is true that Bitcoin can be used to do bad things, the fact of the matter is that whatever bad thing you want to name—money laundering, drugs, or terrorism—cold, hard cash is still going to be the financial instrument of choice for most of your criminals and terrorists.

If the EU does crack down on Bitcoin, it can certainly slow its growth and will force Bitcoin development out of Europe. Development will continue, though. In the meantime, though, these politicians will continue to play whack-a-mole instead of asking the real questions that might lead to real answers. How have we helped create the monsters we now fear and how can we start to make amends.