Cryptocurrency, Bitcoin, KYC, AML and terrorism

Bitcoin is main source of the financing for the illegal activities

This sentence is so wrong, on so many levels, yet we have so many people who are making that assessment. Terrorists have been tinkering with bitcoin since it’s value has been somewhat significant – that is true. But thinking that, jihadi crowdfunding campaigns have been funded by cryptocurrency alone is a total misconception. When word of Bitcoin began to spread, illicit actors were thrilled by the idea of an anonymous currency that could send money across international borders unregulated by any central entity. However, the reality of using bitcoin for money laundering or terrorist financing is fundamentally different and it’s generally in direct opposition to what general public believes.

First of all, let me debunk some common misconceptions. Firstly bitcoin is not completely anonymous. It’s pseudonymous at best. What does that mean? To find out we need to look at the nature of the blockchain. It’s a public ledger of all bitcoin transactions. It’s true that there is no personal data stored there: no names nor addresses - only transactional data. But at the same time, researchers and law enforcement can extract users’ information using various blockchain analysis tools. With advanced search methods, blockchain transactions can be traced with extreme accuracy – and at the moment Bitcoin is converted to fiat money, for example using exchange – a certain individual can be found. Also unlike with fiat money, using bitcoin basically puts transactions in the spotlight for all to see, which is not ideal for criminals.

That all being said, bitcoin is not an ideal payment method, not yet at least. We cannot use it to buy goods for it, and an only small percentage of businesses accept BTC directly. Purchasing weapons and supplies are bound by the same principle – you cannot use BTC directly. Terrorists need fiat money. Cashing out bitcoin is definitely possible, but requires connecting to a bank account or trading directly with someone in your area. These are bad conditions for criminals who aim to hide their identities as much as possible. At this point, I can say with absolute certainty that bitcoin or crypto is used for financing illegal activities to a far lesser extent than fiat money – contrary to the popular narrative line of mainstream media.

Why Know YourCustomer (KYC) then?

Governments fight terrorist financing, money laundering and protect consumers with KYC policies by targeting bitcoin and cryptocurrency in general. KYC and AML measures may be viewed as necessary evils in the crypto space by many but they’re here to stay. There is no going back at this point, but to sacrifice our privacy for the greater good. What is more, I assume that the anti-money laundering (AML) and know your customer (KYC) procedures are on the rise and it’s just the beginning of a trend.

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