Is Crypto Becoming a War Currency? The impact is not limited to just the Middle East. It is branching out to other pro-Israel countries as well, including India.
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The haunting images and news of over 3000 (and counting) lives being lost in the attacks on Israel since Saturday night find its financial sources being traced to a new emerging alternate currency- cryptocurrency.
According to a Wall Street Journal report, the attacks on Israeli territory by Hamas, a Gaza-originated Sunni Islamist political and militant organization, were funded by the use of cryptocurrency. The statement was made citing an Israeli government data and blockchain analytics report.
Three militant groups- Hamas, Palestinian Islamic Jihad (PIJ) and Hezbollah, have been reported to have received funds worth USD 93 million via crypto between August 2021 and June 2023 according to Elliptic, a crypto research firm. Similarly, BitOK, a Tel Aviv-based crypto research firm, states that Hamas, alone, received a sum of around USD 41 million during the period.
The US government have designated the three as foreign terrorist organizations; limiting access to the international banking system and making them resort to unregularized cryptocurrency. WSJ reports that the groups primarily resorted to the use of Tether- stablecoin which is pegged to fiat currency (US dollar in this case) or gold, to avoid the volatile nature of other crypto tokens. The Israeli government has now frozen the crypto accounts associated with Hamas donations.
Similarly, Chainalysis, an American blockchain analysis firm, reported that about 100 pro-Russian groups had raised around USD5.4 million worth of crypto over one year since the onset of the Ukraine-Russia war,
India connection
The impact is not limited to just the Middle East. It is branching out to other pro-Israel countries as well, including India. Recently, it was reported that cryptocurrency worth INR 4 crore were stolen from a Delhi-based businessman's crypto wallet. The incident took place back in 2021 with Delhi Police's Special Cell investigating the case.
With time, it was understood that the several wallets which received the Bitcoin and Ethereum assets from Delhi were operated by the cyber terrorism wing of Hamas.
On how such transactions can be identified and controlled, Alankar Saxena - CTO & Co-founder, Mudrex, a Bangalore-based crypto start-up, shares that such Indian crypto platforms need to comply with the KYC, AML guidelines, and taxation policies, in order to verify users and report suspicious transactions.
"The Israel-Hamas conflict showcased the ability of intelligence agencies to identify and restrict terrorist-owned digital asset wallets. By using Blockchain analysis Israel intelligence agencies showcased a new way of crippling the terrorist by cutting off their funding resources. Hamas terrorists launched campaigns on social media to raise funds through crypto and Israel, known for its tech expertise, blocked the crypto accounts used for Hamas funding," adds Manhar Garegrat, Country Head- India and Global Partnerships, Liminal, a wallet infrastructure and custody solutions platform.
"In combating such activities, a multifaceted approach is crucial. Prioritizing geographic verification, screening high-value transactions in both fiat and crypto, and verifying the legitimacy of associated bank accounts are vital steps. Employing security audits as a proactive measure significantly reduces the risk of illicit activities. Combining these strategies enhances overall security and minimizes the potential for misuse," adds Saxena.
