The Bitcoin Solution to Terrorism Financing

May 8, 2014

The chairman of the U.K.’s Charity Commission, William Shawcross, recently commented that Islamic extremism is the “most deadly” threat in terms of abuse of charities in England and Wales.

The Charities Commission is responsible for regulating all charities operating in England and Wales, including those raising funds for use abroad. It is not an easy role to carry out given the complexities of our existing financial system and the lawless nature of some destinations of this aid — places like Syria, for example.

This difficulty is not lost on Shawcross, who continued, “I’m sure that in places like Syria and Somalia it is very, very difficult for charities always to know what the end use of their aid is, but they’ve got to be particularly vigilant.”

One tool that Shawcross could utilize in the future to counter these issues is Bitcoin.

Given the high levels of transparency that the peer-to-peer financial system offers — all transactions are recorded on the blockchain (a public ledger) — charitable donations over the Bitcoin network can be easily traceable. As such, using the Bitcoin network for every charity’s finances would make charity accounting significantly more transparent.

We can look to Bitcoin100 for an example of this in action. Bitcoin100 is a project that aims to convince charities that they should accept bitcoins as a form of donation and in doing so take advantage of the benefits that the payment system offers.

The most obvious benefits are no chargebacks (so once a donation is made it is final and cannot be reversed) and negligible fees (saving charities a few percent on every donation made). As a golden handshake, the project offers the equivalent of $1,000 to charities that start accepting bitcoin.

Notably, this $1,000 per charity has been donated in its entirety by the Bitcoin community. And the Bitcoin community can track exactly where its donations are sent by looking up Bitcoin100’s address on the blockchain (1BTC1oo1J3MEt5SFj74ZBcF2Mk97Aah4ac).

Should Bitcoin100 start donating to charities that individual donors are unwilling to support, donors have two options. Either they can express their displeasure directly to those who administer the project on the bitcointalk.org forums; or they can simply refuse to donate further funds and render the charity financially defunct.

This means that those who have donated funds hold the organization distributing the funds wholly accountable.

A version of this model could be implemented by those charities acting in Syria, thus removing Shawcross’ “deadly threat” and making the job of the Charities Commission significantly easier. Using Bitcoin would mean that not only can donors make sure they are happy with the distribution of the funds, but the Commission can similarly make sure they are content.

But until we see widespread adoption of bitcoin and its use as a currency, this level of transparent transacting is hanging out of grasp. Bitcoin needs to resolve two issues before it is used as a currency:

  1. Bitcoin is not a reliable store of value: $1,000 of bitcoin purchased today is highly unlikely to be worth $1,000 in a week. A currency must maintain its value to be trusted as a currency. This is something bitcoin will likely achieve as it matures. It is, after all, still only a 5-year-old child.
  2. Bitcoin is not readily acceptable: If you walk into Starbucks and try to buy your espresso with bitcoins you will probably encounter a confused-looking barista. If you cannot transact with a currency, it is not currency.

This second reason is important because it means that in order to use the value of their bitcoin donations, charities must convert their bitcoins into cash.

How can the Charities Commission be sure that when the money has been withdrawn from the Bitcoin network (into cash) it is not routed on to fund extremism?

It quite simply cannot. If one wants to make a totally anonymous transaction — which one might want to do if funding extremism — cash is the way to do it.

The world stands to benefit a great deal from the widespread adoption of Bitcoin. Total financial transparency for charities (and any other organizations, including even governments) is just one way in which use of Bitcoin could dramatically change and improve current methods.

I for one would appreciate the irony of one day using Bitcoin to combat international terrorism and extremism through increased financial transparency when its critics attempt to argue that it does exactly the opposite.

 

A Bitcoin advocate working in the communications industry, Tom holds a Masters’ degree in Terrorism, Security and Society from the Department of War Studies, King’s College London. You can follow him on twitter @tomhashemi.

 

Photo credit: antanacoins