Increased Transparency of the Global Financial System: Evidence from Terrorist Attacks Financing Detection in Blockchain-based Currencies investigates terrorists’ use of Bitcoin to finance terrorist attacks. Previous studies have shown that more than half of Bitcoin transactions are linked to illicit activities. In particular, there is increasing evidence of terrorist crypto-financing, given the global nature of cryptocurrency networks.
The aim of the paper is to quantify the extent of terrorist activities using forensic blockchain analysis. The authors also train a machine learning model to predict attacks based on abnormal Bitcoin volume. Since terrorists cannot be individually tracked, the authors do this by observing large Bitcoin volumes of launderers and exchanges in the vicinity of the attacks to detect terrorist money laundering activity.
They find that Bitcoin provides financing for large-scale terrorist attacks, with most responses driven by al Qaeda and ISIS attacks overseas. The results indicate that blockchain transparency, without supporting regulation, is not enough to curb illegal activities. However, in the long term, transparency of the public blockchain system opens the possibility for greater scrutiny of these activities by the public, scaring off illicit players. The paper provides tools for agencies to pinpoint, monitor, and shut down Bitcoin users associated with terrorist financing. The authors raise awareness towards these events to promote the highly relevant debate of cryptocurrency regulation.