Latest Report States Virtual Currency is Attack Prone without State Support

22.12.2015

A non-profit think tank RAND Corporation funded by the Pentagon and U.S. Homeland Security released a report titled “National Security Implications of Virtual Currency”, which analyzes possible scenarios of using virtual currencies (referred to in the text as just VC) by terrorists, insurgentes, organized criminals, and malevolent individuals, collectively referred to as non-state actors.

The report generally examines their possible attempts to increase political and economic power by deploying virtual currencies. The report highlights that the VC in question should be considered separately from “already-deployed” virtual currencies, such as Bitcoin. Possible applications of VC include illicit transfer, fundrasing, and money laundering.

When it comes to the terrorist threat, the report points out that notorious contemporary terrorist groups like ISIL tend to reject virtual currencies mostly to difficulties inherein in their deployment in the given situation. The report reads:

“Historically, insurgents have issued new currencies in an effort to assert their political and economic control. ISIL’s declaration on November 13, 2014, that it will issue its own commodity-based currency fits within this trope. ISIL’s choice of a commodity-based currency rather than a VC may be a result of the difficulties involved in deploying a VC in a politically contested territory characterized by relatively low physical infrastructure and low penetration of communicationstechnology
platforms such as smartphones.”

Notably, the report also states that virtual currency itself is attack-prone due to its non-state nature. The only means of escaping the aforementioned trap, according to the report’s authors, is a form of a government support. In fact, the statement covers nothing but good old regulation. The text reads:

“In the case of a VC, which would require trust, anonymity, and availability of widely deployed cyber services (such as wallet and mining applications), it seems infeasible that a consistently successful cyber defense can be mounted. The only hope might be if the non-state actor were supported by a sophisticated nation-state opponent who was capable of defending against such threats.”

Another issue inherent in the VC problem, according to the report, is anonymity of virtual currencies. The report reads:

“Investigating VC anonymity is crucial because anonymity is one of the most important properties of any currency, namely that “neither the buyer nor the seller requires knowledge of its history.”

However, the report confirms the fact already known to some cryptocurrency enthusiasts. Even when combined with some anonymity-enhancing options, such as Tor, virtual currencies provide only so-called “pseudo-anonymity”. The report describes it in a very straightforward way:

“The anonymity of using Bitcoin with Tor is the subject of debate, with recent research suggesting that de-anonymizing Bitcoin users employing Tor is possible given the current manner in which Bitcoin is configured.”

Even though RAND Corporation is funded by the military, it states that the opinions provided in the report do not necessarily reflect the opinions and views of the think tank’s clientelle.

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Tags: Bitcoin, report, USA