Terrorism Financial Innovation: DLT’s Impact on International Diplomacy

This thesis traces the history of terrorist economics, financial innovation and the emergence of distributed ledger technology infrastructure products such as cryptocurrency, non-fungible tokens, smart contracts and decentralized autonomous organizations. Enabling the transfer of value, information and rights in deregulated environments, DLT infrastructure products have posed a new threat to international security, challenges for anti-money laundering (AML), and regulation on combating the financing of terrorism (CFT).

Research Question: How have distributed ledger technology infrastructure products influenced terrorist financing processes and strategies?

Disclosure. The research presented in this document is based on objective and independent analysis. All sources used have been cited accurately and in accordance with the academic standards of my institution. It is important to note that this thesis is focused on the topic of Web3 terrorist financial innovation, which is a sensitive and potentially controversial subject matter. While every effort has been made to present a balanced and objective perspective on this topic, it is possible that some readers may disagree with certain interpretations or conclusions. Furthermore, I declare that I have no financial or personal interests that may have influenced the research presented in this thesis.


Distributed ledger technology (“DLT”) enables the creation, storage and transfer of digital assets, secured by immutable cryptography. Broadly, DLT includes several infrastructure products that are used to build trustless networks allowing actors to exchange value and information without requiring a third-party intermediary, including: cryptocurrencies, smart contracts, non-fungible tokens and decentralized autonomous organizations. These products have been integrated with many sectors, including finance, government, energy, and healthcare, cumulating a market capitalization of US$2.9 trillion.

Commonly referred to as “Web3”, this infrastructure enables a new way of engaging with data over the internet in a secure, transparent, and trustworthy environment. Novelly, transactions do not require a centralized authority, and are recorded on a public ledger. This ledger of transactions is decentralized across multiple nodes and visible to all members of the network. Consensus protocols validate transactions and verify the integrity of the data, providing a tamper-proof way of conducting operations. 

“Actors” in Web3 ecosystems, including individuals, organizations and dynamic-assets, can engage with infrastructure products under quasi-pseudonymous or verified handles. This provides actors with greater privacy and carries the significant risk of concealing criminal activity. The quasi-pseudonymity and traceability of DLT transactions for activities such as money laundering, organized crime, fraud, and the financing of terrorism is a conflicting value proposition to terrorist organizations. Traceability creates a paradoxical situation. While transactions may not reveal the true identities of parties involved, the transparency of DLT infrastructure enables a comprehensive record of every transaction stored on a ledger. These records, commonly referred to as blocks, are immutable and permanently stored across a decentralized network. This means that, although the individuals or entities involved might be pseudonymous, their transactions and interactions are still traceable and verifiable. The transfer of funds, information and assets in this deregulated environment has proven concerning to governments around the world, incubating a billion dollar (by market capitalization) on-chain analytics sector with investments from international funds such as Accel, Benchmark, and to combat this new category of crime. 

It is increasingly rare for an actor to purchase or sell a cryptocurrency without being subject to Know Your Customer (“KYC”) verification during fiat currency on- and off-ramp procedures due to the introduction of international government regulations. KYC refers to the process of verifying the identity of a customer or client, as well as assessing their potential risk for illicit activities such as money laundering or terrorist financing. KYC procedures are typically conducted by financial institutions and other regulated entities to comply with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. 

Interaction with infrastructure products or hardware storage is a different story. The underlying risk of terrorist financial innovation in Web3 comes from the functional ability to store and transfer assets within an ecosystem of actors, or between infrastructure components designed to imitate our financial systems, market economy and communication tools. 

On-chain representations of information and value are difficult to trace and disseminate intention from. “Movement risk” arises from the rapid transfer of digital assets between infrastructure-, and actor-based destinations making it difficult to track and monitor their movement. Similarly, while pseudo-pseudonymous wallet addresses provide transparency into the flow of funds, they do not reveal the identities or motivations behind transactions. These attributes of Web3 make it challenging to enforce sanctions designed to deter terrorist operations. Cryptocurrencies have increasingly become the payment method of choice for a variety of illicit activities, such as when Iran used tokens to pay for a failed assassination attempt of former U.S. National Security Advisor, John Bolton. Weapons dealers, drug dealers, human traffickers, and child pornography distributors have been recorded accepting payment in cryptocurrency, all while terrorist organizations such as Al-Qassam Brigades (Appendix A) and Al-Qaeda (Appendix B) have used cryptocurrencies to raise funds.

Websites like “Fund the Islamic Struggle without Leaving a Trace”, and books such as “Bitcoin was Sadaqat al Jihad” have made it increasingly easy for actors to engage DLT infrastructure products to finance and interact with terrorist organizations. In 2016, Bahrun Naim, who planned several attacks in Jakarta, paid armed-actors in cryptocurrency, and even as far back as 2015, an American teenager admitted to teaching Islamic state operators how to interact with cryptocurrencies. Following a flow of funds analysis, it is known that the Bitcoin ransom that was paid to the Islamic State for kidnapped Europeans directly funded terrorist operations in Europe. 

These and similar actors have utilized increasingly sophisticated DLT infrastructure products to evade law enforcement agencies (“LEAs”). ISIL has used Monero, a public decentralized ledger with privacy-enhancing features to ensure that observers “cannot decipher addresses trading Monero, transaction amounts, address balances, or transaction histories.” Recently in 2019, Hamas raised funds in cryptocurrencies; first using conventional custodial, but eventually switching to non-custodial wallets. Since then, Hamas has also implemented software that generates a unique address for each donation. In July 2021, over twenty different types of Hamas-owned cryptocurrencies were seized after a social media fundraising campaign violated Israel's Anti-Terrorism Law. The Israeli Minister of Defense confirmed that the wallets were affiliated with Hamas' military branch. 

Cryptocurrency transaction settlement anonymizing services, known as “mixers”, help to obscure the origin of transactions, as evidenced by North Korea's recent use of the mixer “Tornado Cash” to evade sanctions. As a result of these activities, a number of governments including the United States, China Russia and Switzerland have begun to expand regulation for decentralized finance (“DeFi”), cryptocurrencies (“CC”) virtual assets (“VA”) and virtual asset service providers (“VASPs”).

Studying the history of terrorist financial innovation is not only important for understanding the current state of terrorist financing and the challenges faced by AML and CFT regulation, but it can also shed light on the marked effect that financial innovation has had on the successes and nature of terrorism/political violence by non-state actors. The evolution of terrorist financing methods and the emergence of decentralized financial technologies have greatly impacted the way in which terrorist organizations raise and move funds, allowing them to become more agile, adaptable, and difficult to track. Understanding the historical context of these developments can inform our current strategies for countering terrorist financing and help us anticipate future trends. Moreover, studying the history of digital financial innovation in the context of terrorism is also interesting from a historical perspective because it provides a window into the ways in which technology and conflict intersect and evolve over time.

Chapter One: Are Terrorists “Crypto-Bros”?

1.1 The Emergence of Terrorist Financial Innovation. 

Terrorism has been a persistent threat to international security for decades, with groups such as Al-Qaeda and ISIS emerging as major players in the early twenty-first century. Historically, these groups have relied on a range of financing methods, including state sponsorship, criminal activities, and donations from sympathizers. However, the rise of the internet and globalization has dramatically changed the financial landscape for terrorist groups, leading to the emergence of new financing methods that rely on the exploitation of digital technologies. In recent years, terrorist groups have increasingly turned to cryptocurrencies as a means of financing their operations. Cryptocurrencies operate independently of central banks and can be traded pseudonymously, making them an attractive tool for illicit actors seeking to evade detection.

The use of cryptocurrencies by terrorist groups represents a significant shift in financing strategies. While traditional financing methods have historically been vulnerable to disruption by law enforcement agencies and international sanctions, cryptocurrencies offer a degree of pseudonymity and decentralization that can make them difficult to track and disrupt. This has enabled terrorist groups to fund their activities more securely and evade law enforcement more effectively. The historical evolution of terrorist financing methods and the emergence of cryptocurrency-based financing has significant implications for international security. As the use of cryptocurrencies by terrorist groups continues to grow, governments and regulatory bodies are faced with the challenge of adapting their regulatory frameworks to address these emerging threats. 

Distributed ledger technology (DLT) infrastructure products, such as blockchain, smart contracts, and decentralized autonomous organizations (DAOs), have provided terrorist groups with new means to innovate their financial operations. The decentralized and immutable nature of these technologies enables terrorists to avoid detection and circumvent traditional financial institutions, making it easier for them to communicate, fund their operations and carry out attacks. One way in which terrorists have leveraged DLT infrastructure products by creating their own cryptocurrencies or by using existing ones, such as Bitcoin and Monero. For example, the Islamic State of Iraq and Syria (ISIS) created its own cryptocurrency called "Islamic State Coin" to fund its operations and evade detection. 

Smart contracts are another DLT infrastructure product that terrorists have used to innovate their financial operations. Smart contracts are self-executing contracts that are coded on a blockchain and can automatically trigger certain actions when predetermined conditions are met. Terrorist groups have used smart contracts to automate their fundraising activities, such as by creating crowdfunding campaigns that are automatically executed when a certain funding threshold is reached. Additionally, smart contracts can be used to facilitate the smuggling of goods and people across borders by automatically releasing funds to smugglers once predetermined conditions, such as the successful crossing of a border, are met. Decentralized autonomous organizations (DAOs) are governed by smart contracts and operate autonomously without the need for centralized management. Terrorist groups have used DAOs to create decentralized fundraising and financing networks, which are difficult for law enforcement agencies to track and shut down. 

The emergence of terrorist financial innovation, facilitated by DLT infrastructure products such as cryptocurrency, has posed significant challenges for anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) regulation. One of the major challenges is the difficulty in identifying and tracking illicit activities due to the pseudonymity and decentralization features of cryptocurrencies. This has made it challenging for law enforcement agencies to monitor and prevent terrorist financing activities, as traditional regulatory frameworks are not well-suited to address the unique features of DLT products. Moreover, the international nature of DLT products poses additional challenges for regulation. Cryptocurrency transactions can take place across borders, making it difficult to establish a clear regulatory framework that can be enforced worldwide. 

Furthermore, the pseudonymous nature of cryptocurrencies has enabled terrorist groups to exploit online platforms, particularly social media, to solicit donations in cryptocurrencies from supporters worldwide. The decentralized nature of DLT products has also created challenges for regulating decentralized autonomous organizations (DAOs), which are increasingly being used by terrorist groups for fundraising purposes. DAOs are decentralized networks that allow individuals to pool their resources and make collective decisions. They operate outside traditional financial institutions and are difficult to regulate, making it challenging for regulators to prevent terrorist groups from using them for fundraising purposes.

Over the past decade, there have been several high-profile cases of terrorist groups using cryptocurrencies to finance their operations. These cases illustrate the unique challenges posed by the intersection of terrorism and cryptocurrency, as well as the need for effective regulation and law enforcement measures. One of the most well-known cases of terrorist financing using cryptocurrencies was the use of Bitcoin by the Islamic State of Iraq and Syria (ISIS). In 2014, ISIS began accepting Bitcoin donations through a website called the Islamic State Bitcoin Wallet. The group used the funds to finance its activities, including the purchase of weapons, recruitment, and propaganda. Despite the pseudonymity of Bitcoin transactions, law enforcement agencies were able to trace some of the funds to individual donors and disrupt the group's financial network.

Another example of terrorist financing using cryptocurrencies is the Lazarus Group's use of Monero. The Lazarus Group, a North Korean hacking group, has been linked to several high-profile cyberattacks, including the 2017 WannaCry ransomware attack. The group has also been found to use Monero, a privacy-focused cryptocurrency, to launder the proceeds of its cyberattacks. Other examples of terrorist financing using cryptocurrencies include the use of Bitcoin by the Al-Qassam Brigades, the military wing of Hamas, and the use of Bitcoin by the al-Qaeda-affiliated al-Nusra Front. These cases demonstrate the appeal of cryptocurrencies to terrorist groups, as well as the challenges that law enforcement agencies face in monitoring and disrupting these activities. The rapid pace of technological advancement presents new challenges for combating terrorist financing. Terrorist groups have shown a remarkable ability to adapt to new technologies and exploit them for their own purposes. 

1.2 Why Blockchain Infrastructure Appeals to Terrorists. 

One of the key features that makes cryptocurrencies attractive to terrorist groups is the pseudonymity of cryptocurrency transactions, which terrorist groups have leveraged this pseudonymity to avoid detection by law enforcement agencies. For instance, in 2019, the United Nations reported that North Korea had used cryptocurrencies to evade sanctions imposed on the country. According to the report, North Korean hackers had stolen $2 billion from banks and cryptocurrency exchanges and used these funds to finance the country's weapons program. 

Similarly, in 2021, the US Department of Justice indicted three individuals associated with Al-Qassam Brigades, the military wing of Hamas, for using cryptocurrencies to finance their operations. The indictment alleged that the individuals had solicited Bitcoin donations through social media and then transferred these funds to a cryptocurrency wallet, which they used to purchase weapons and other supplies. The indictment also highlighted how the pseudonymity of cryptocurrency transactions made it difficult for law enforcement agencies to track the flow of funds. Furthermore, the pseudonymity of cryptocurrency transactions makes it challenging to identify the real-world identities of the parties involved in these transactions. Terrorist groups have leveraged this feature to avoid detection and to create fake identities to solicit donations. For instance, in 2020, the US Department of Justice indicted two individuals associated with ISIS for using cryptocurrencies to solicit donations. The indictment alleged that the individuals had created a website that falsely claimed to be collecting donations for Syrian refugees. The website accepted Bitcoin and other cryptocurrencies, which the individuals then used to finance ISIS operations.

Unlike centralized financial systems, cryptocurrencies operate on a decentralized network of computers, which means that they do not rely on a central authority to facilitate transactions. The lack of intermediaries in the transaction process makes it easier for terrorist groups to transfer funds without being detected by law enforcement agencies. This means that no single entity controls the network, making it difficult for governments or financial institutions to regulate the system effectively. Another advantage of decentralization is that it provides a high degree of transparency in the transaction process. Every transaction on the blockchain is recorded and verified by a network of computers, making it virtually impossible to tamper with the records. This transparency has made cryptocurrencies an attractive option for legitimate businesses, but the net increase in international on-chain transaction volume has also made it easier for terrorist groups to transfer funds without being detected.

The lack of regulation in the cryptocurrency market has made it an attractive avenue for terrorist financing. Terrorist groups can use unregulated cryptocurrency exchanges to convert their funds into fiat currency without any intermediaries, making it difficult for law enforcement agencies to track and seize the funds. Moreover, terrorist groups can use cryptocurrencies to transfer funds across borders and evade detection by regulatory authorities. 

The regulatory landscape for cryptocurrencies varies widely across different countries, making it challenging to enforce regulations at an international level. Some countries have implemented strict regulations for cryptocurrency exchanges, while others have taken a more lenient approach. The lack of a standardized regulatory framework has made it easier for terrorist groups to exploit the regulatory gaps and use cryptocurrencies to finance their activities. The FATF has developed guidelines for regulating VAs, including cryptocurrencies, to combat money laundering and terrorist financing. These guidelines require countries to license or register VASPs, implement customer due diligence measures, and maintain records of transactions. 

Sanctions have been a commonly used tool by governments and international organizations to restrict financial flows to terrorist groups and their affiliated entities. However, the rise of cryptocurrencies has presented a new challenge in enforcing these sanctions, as terrorist groups have been able to use cryptocurrencies to evade them. Terrorist groups can use multiple wallets and accounts to obfuscate their transactions and avoid detection by law enforcement agencies. For instance, in 2018, the US Department of Justice indicted nine Iranians who allegedly used Bitcoin to evade sanctions imposed by the US government. According to the indictment, the defendants used cryptocurrency exchanges to convert their Bitcoin holdings into fiat currency, which they then used to purchase goods and services in the United States. The use of cryptocurrencies to evade sanctions is not limited to terrorist groups. 

The dark web, also known as the darknet, is a part of the internet that is not indexed by traditional search engines and requires specific software for access. It has become a hub for criminal activities, including the sale of illegal drugs, weapons, and images of child sexual abuse. The pseudonymity provided by the dark web makes it an attractive platform for terrorist groups to conduct financial transactions using cryptocurrencies.

Terrorist groups such as ISIS, Al Qaeda, and Hezbollah have taken advantage of the dark web to finance their operations. For example, the United Nations Security Council reported that ISIS used the dark web to raise funds through the sale of looted antiquities and the solicitation of donations in cryptocurrencies. The dark web provides a secure and pseudonymous platform for terrorist groups to receive and transfer funds. Transactions on the dark web are conducted using cryptocurrencies such as Bitcoin, allowing terrorist groups to bypass traditional financial institutions and avoid detection by law enforcement agencies. 

While the use of cryptocurrencies on the dark web presents new challenges for law enforcement agencies, it also provides them with opportunities to track and disrupt terrorist financing. The FBI and other law enforcement agencies have launched operations to identify and dismantle dark web marketplaces used by terrorist groups to finance their operations. The seizure of the dark web marketplace AlphaBay in 2017 resulted in the disruption of several criminal activities, including the sale of illegal drugs and the laundering of funds in cryptocurrencies. 

1.3 The Role of Social Media and Online Platforms. 

The use of social media and online platforms by terrorist groups has become increasingly prevalent in recent years. Terrorists have been able to leverage these platforms to spread their propaganda, recruit new members, and solicit donations in cryptocurrencies. Social media platforms such as Twitter, Facebook, and Telegram have been used by terrorist groups to communicate with their followers and to spread their message. These platforms have also been used to coordinate attacks and to recruit new members. For instance, ISIS had a strong social media presence, which it used to recruit fighters from around the world and to spread its ideology.

In addition to social media, terrorist groups have also used online marketplaces and forums to raise funds and launder money. These marketplaces provide a platform for terrorists to sell illicit goods and services, such as drugs and weapons, and to solicit donations in cryptocurrencies. Online gambling and gaming have also been used for money laundering and terrorist financing. Over time, the use of social media and online platforms by terrorist groups has become more sophisticated. They have adapted to the changing technological landscape and have found new ways to exploit these platforms for their financial operations. While it can be difficult to quantitatively measure such an impact, the qualitative ability to transfer funds, information and assets in deregulated environments is a material improvement.

Regulatory frameworks have been put in place to address the risks associated with terrorist financing using cryptocurrencies. However, the effectiveness of these measures remains questionable as the evolving nature of terrorist tactics requires an adaptive and proactive approach. The difficulties of enforcing regulations on international online activities are exacerbated by the lack of a universal regulatory framework for cryptocurrencies. The decentralized nature of these currencies means that they are not subject to the same regulatory oversight as traditional financial institutions. Technology companies, including social media and online platforms, have a responsibility to address these challenges by implementing measures to monitor and detect terrorist activities on their platforms. However, the balance between privacy and security must be carefully maintained, and it is the responsibility of governments to ensure that technology companies are held accountable for their role in preventing terrorist financing.

Hamas, which has been designated as a terrorist organization by several countries, including the United States, has long relied on donations from supporters in the Gulf region. However, due to increased scrutiny from governments and banks, Hamas has turned to cryptocurrencies and social media platforms to raise funds. Using Telegram in 2019, Hamas created a channel to solicit donations in cryptocurrencies, including Bitcoin and Ethereum, from its supporters. The group promoted the channel on its official website and social media accounts. The donations were then transferred to various cryptocurrency exchanges and converted into cash.

Another example of terrorist financing using online platforms is the case of the Islamic State of Iraq and Syria (ISIS). ISIS has been known to use online marketplaces, such as the now-defunct Silk Road, to sell looted antiquities and other goods to finance its operations. Additionally, the group has used social media platforms, including Twitter and Facebook, to solicit donations from its supporters. ISIS has also been involved in online gambling and gaming to launder money. In 2015, Spanish authorities arrested a group of individuals linked to ISIS who had used an online betting site to launder money. 

These cases illustrate the increasing sophistication of terrorist groups in their use of cryptocurrencies and online platforms for fundraising and money laundering. Governments have established AML and CFT regulations that require companies to monitor and report suspicious activity on their platforms. In addition, international organizations such as the Financial Action Task Force (FATF) have issued guidelines for combating terrorist financing using cryptocurrencies. Public-private partnerships have also been established to prevent terrorist financing using social media and online platforms. For instance, the Global Internet Forum to Counter Terrorism (GIFCT) is a partnership between technology companies and governments that aims to prevent the spread of terrorist content online. 

1.4 The Impact of Terrorist Financing on International Security. 

In the early days of cryptocurrency, terrorist groups were slow to adopt the technology, largely due to the lack of awareness and understanding of the technology. However, as cryptocurrencies gained popularity and became more widely known, terrorist groups began to see the potential for using them to facilitate their operations. One notable example of the evolution of cryptocurrency-based terrorist financing is the case of the Islamic State of Iraq and Syria (ISIS). In 2014, ISIS was just beginning to explore the use of cryptocurrencies for funding their activities. However, as ISIS became more adept at using cryptocurrencies, they began to develop more sophisticated funding strategies. By 2017, ISIS was using a variety of methods to obtain and transfer cryptocurrencies, including mining, crowdfunding, and theft. The group also began using mixers and other techniques to increase the pseudonymity of their transactions. 

In response to this evolving threat, international organizations such as the Financial Action Task Force (FATF) have developed new guidelines and recommendations for regulating cryptocurrencies and combating terrorist financing. However, the effectiveness of these measures remains uncertain, and there is a growing need for continued research and innovation to address this emerging threat. Historically, terrorist financing was mainly conducted through traditional financial channels, such as banks, cash couriers, and hawalas. These methods were often difficult to detect, and terrorists were able to exploit loopholes in the regulatory frameworks to move money across borders. In response, international organizations such as the Financial Action Task Force (FATF) and the United Nations (UN) established anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations to prevent the use of the global financial system for illicit purposes. However, the emergence of cryptocurrencies and other distributed ledger technology (DLT) infrastructure products have presented new challenges for AML/CFT efforts. 

The impact of terrorist financing using cryptocurrencies on the global financial system has also evolved over time. Initially, the use of cryptocurrencies by terrorists was seen as a relatively minor threat. However, as terrorist groups have become more sophisticated in their use of cryptocurrencies and the value of the cryptocurrency market has grown, the threat has become more significant. The potential for terrorist financing using cryptocurrencies to destabilize the global financial system has become a growing concern for regulators and policymakers.

Since the 9/11 attacks, there has been an increased focus on combating terrorist financing, and international organizations have played a critical role in this effort. In the early days, the focus was on disrupting traditional financial channels used by terrorists, such as hawala networks and cash couriers. In 2015, the FATF released its guidance on virtual currencies, which clarified that virtual currencies and exchanges should be subject to the same AML/CFT regulations as traditional financial institutions. This guidance was updated in 2019 to address the challenges posed by stablecoins and other emerging technologies. The FATF has also conducted several reviews of member countries' efforts to combat terrorist financing, including their regulation of cryptocurrencies. The United Nations (UN) has also played a role in combating terrorist financing through cryptocurrencies. In 2018, the UN Security Council adopted Resolution 2462, which called on member states to prevent terrorists from using cryptocurrencies for financing purposes. 

In 2013, the Financial Crimes Enforcement Network (FinCEN) issued guidance stating that virtual currency exchanges and administrators were subject to the same anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations as traditional financial institutions. In the years that followed, other countries and international organizations also began to develop regulations aimed at combating the use of cryptocurrencies for illicit purposes. In 2015, the Financial Action Task Force (FATF) issued guidance on the risk-based approach to virtual currencies. This was followed by the EU's Fifth Anti-Money Laundering Directive in 2018, which brought virtual currency exchanges and custodian wallet providers under the scope of AML/CFT regulations.

Chapter Two: Literature Review

The following provides a foundational understanding of relevant literature on financial innovation, terrorist economics, distributed ledger technology and academic research on their intersection. Given the emerging nature of this research scope, the following is limited by a lack of academic maturity, time of publication and does not include material found in working papers. 

2.1 Financial Innovation. 

Financial innovation refers to the development and introduction of new financial products, services, and infrastructure. This section examines the various forms and impact such innovations have had on financial and social structures around the world, over time. 

In his 1998 book The History of Money, Jack Weatherford traces the evolution of money from its ancient origins to modern times. He argues that money has played a central role in shaping human history as a driving force behind the rise and fall of civilizations. Weatherford examines the various forms that money has taken throughout history, including precious metals, paper currency, and digital forms, while exploring the cultural, economic, and political factors that have influenced the development of money. Ultimately, Weatherford argues that money is more than just a means of exchange, but rather a complex social and cultural construct that reflects the values and beliefs of the societies that create it. Naturally, his work is limited by publishing date and excludes material on modern banking automations, scope of influence from personal mobile devices, and of course, the emergence of alternative digital currencies made possible by infrastructure innovation such as DLT. 

While Niall Ferguson's The Ascent of Money: A Financial History of the World, published in 2009, covers similar material, he argues that financial systems have been a key driver of historical change and played a central role in the rise and fall of empires. Through a mix of economic analysis and storytelling, Ferguson illustrates how financial innovations have shaped world events and how financial crises have had far-reaching consequences. 

In Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, (2011) Abhijit Banerjee challenges traditional approaches to addressing poverty and offers a new framework for understanding the complex issues faced by the poor. Banerjee and co-author, Esther Duflo, argue that the root causes of poverty are often misunderstood and that traditional approaches such as international aid and microfinance, have had limited success in addressing the issue. Instead, they advocate for a more nuanced approach that takes into account the specific context and needs of individuals. Banerjee establishes an interrelation between deployment of international aid for poverty and economic stimulation of terrorist organizations, making this work pertinent to understanding the risks associated with an expansion of microfinance infrastructure solutions. 

Nigel Dodd’s 2014 The Social Life of Money works to expand on the role of capital in shaping our relationships and daily interactions. Dodd argues that money is not simply a tool for exchange, but also a means of communication and a source of power. He contends that our understanding of money is shaped by cultural and historical factors, and crucially, that the social meaning of money has the ability to change over time. In further work titled The Social Life of Bitcoin published in 2017, Dodd distinguishes the “relational character of money” bound by “social practices, organizational structures and utopian ambitions”.  He argues that the widely held notion that Bitcoin is 'trust-free' money is flawed, and that the currency is actually deeply embedded in social practices and organizational structures. He points out that Bitcoin's utopian ambitions and its focus on being a decentralized currency rely on the idea of money as a 'thing' that can be abstracted from social life. However, in practice, the currency is highly reliant on social organization, and has a social structure characterized by asymmetries of wealth and power that are similar to those in the mainstream financial system.Dodd continues by highlighting a paradox at the heart of Bitcoin: if it succeeds in its own terms as an ideology, it will fail in practical terms as a form of money. This is because the currency's success depends on the very social practices and structures that it seeks to bypass or replace.  

2.2 Terrorist Economics. 

The study of "terrorist economics" has emerged as a subfield within the broader discipline of economics, with the goal of understanding the financial networks and funding mechanisms that sustain terrorist activities. This section explores the various models and theories that have been developed to analyze the financing of terrorism, including the effectiveness of counter-terrorism policies and strategies to disrupt the flow of funds to terrorist organizations. 

The Bank Secrecy Act of 1970 was the first piece of legislation in the United States that combated money laundering by requiring financial institutions to report large currency transactions and suspicious activity to the Department of the Treasury. This act was a response to the increasing use of financial institutions to facilitate organized crime and drug trafficking. In years following, several additional laws were enacted to strengthen the regulation of money laundering, including the Money Laundering Control Act of 1986, the Anti-Drug Abuse Act of 1988, and the Money Laundering Suppression Act of 1994. In 2001, the USA PATRIOT Act significantly expanded the scope of anti-money laundering laws by requiring financial institutions to implement know-your-customer (“KYC”) policies and to report any suspicious activity that might indicate money laundering or terrorist financing. Specifically, Section 314 “helps law enforcement identify, disrupt, and prevent terrorist acts and money laundering activities by encouraging further cooperation among law enforcement, regulators, and financial institutions to share information regarding those suspected of being involved in terrorism or money laundering.”

The Financial Action Task Force (FATF), an intergovernmental organization established in 1989 by the G7 countries, combats money laundering and terrorist financing. The organization promotes international standards and policies to prevent the misuse of the financial system for illicit purposes. The FATF issues recommendations to member countries, which include measures to comply with the standards it sets. The organization also conducts mutual evaluations to assess the implementation of these measures by its member countries. In 2001, the FATF expanded its focus to include the financing of terrorism and established FATF-Style Regional Bodies to promote the implementation of its standards in regions around the world. Today, the FATF has 39 member countries and 2 observer organizations.

The FATF has consistently kept up with the changing landscape of cryptocurrency by responding to the potential risks associated with it. In 2014 and 2015, the FATF released risk analysis and guidance regarding the cryptocurrency industry, and in 2018, the FATF amended its mandatory Recommendations to explicitly include cryptocurrency. To ensure its continued relevance, the FATF has issued clarifications and updates related to the application of the FATF Recommendations to cryptocurrency, proving its commitment to being a leader in the industry.

The 1990 Vienna Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, a United Nations treaty, defines money laundering as "any act or attempted act to conceal or disguise the proceeds of crime as legitimate funds." The convention requires signatory countries to criminalize money laundering and to adopt measures to prevent and detect it. These measures include the requirement to establish financial intelligence units to analyze and disseminate information related to suspicious financial transactions, and to cooperate with other countries in the investigation and prosecution of money laundering offenses. The convention has been ratified by over 100 countries and calls for the confiscation of proceeds from money laundering and the seizure of instruments used in the commission of the offense. 

Adam Dolnik's 2007 Understanding Terrorist Innovation is a comprehensive examination of the ways in which terrorist groups innovate and adapt to changing circumstances. The book is divided into three main sections, each of which explores a different aspect of terrorist innovation. In the first section, Dolnik examines the various strategies and tactics that terrorist groups have used to innovate over time. He argues that terrorists are constantly seeking new ways to evade detection and disrupt the status quo, and that they have been successful in doing so by adopting new technologies and tactics. This section also examines the ways in which governments have attempted to counter terrorist innovation, and the challenges that they have faced in doing so. The second section of the book focuses on the role of leadership in terrorist innovation. Dolnik argues that terrorist leaders play a critical role in shaping the direction and strategy of their organizations, and that their decisions have a significant impact on the ability of the group to innovate. He also examines the ways in which leadership transitions can affect the ability of a group to innovate, and the implications of these transitions for counterterrorism efforts. The final section of the book explores the future of terrorist innovation. Dolnik predicts that terrorists will continue to adapt and evolve in response to changing circumstances, and that they will increasingly rely on technology and the internet to carry out their attacks.

Alan B. Krueger's 2008 book titled What Makes a Terrorist: Economics and the Roots of Terrorism is a seminal work in the field of terrorism studies. Krueger examines the economic and social factors that contribute to terrorism, with a particular focus on the role of education and poverty. Highlighting the limitations of previous studies that have tended to focus on individual-level psychological or ideological factors, he presents a new framework for understanding the economic and social roots of terrorism. Using data from a variety of sources, Krueger demonstrates that terrorists are disproportionately likely to come from disadvantaged backgrounds and shows that higher levels of education are associated with a lower likelihood of involvement in terrorism, suggesting that education may be an important factor in preventing terrorism. 

Expanding on Krueger’s work, Eli Bermen's Radical, Religious, and Violent: The New Economics of Terrorism published by The MIT Press in 2009 offers a unique perspective on the motivations and economic factors behind terrorism. Bermen argues that the traditional view of terrorism as a form of irrational violence is incomplete and that economic factors must be considered to fully understand this phenomenon. One of the key ideas presented in the book is that terrorism can be seen as a financial market for violence, with supply and demand driving actors of terrorism. His work provides evidence that terrorists are motivated by a variety of factors, including religious ideology, political goals, and financial gain. He also notes that the costs of terrorism, such as the loss of life and damage to infrastructure, can be quite high, and that this can lead to a spiral of violence as terrorists seek to escalate their attacks to garner greater attention and resources. Bermen also discusses the role of state sponsorship in terrorism to fund and facilitate operations, arguing that state support can be driven by a variety of factors, including the desire to destabilize rival states or to distract from domestic issues.

In 2013 Paul Gill, John Horgan, Samuel T. Hunter, and Lily D. Cushenbery published  "Malevolent Creativity in Terrorist Organizations" as an examination of the ways in which terrorist organizations use creativity in their operations. The book is based on a detailed study of various terrorist groups, including Al-Qaida, the IRA, and the Tamil Tigers, and examines the ways in which these groups have used creativity to achieve their goals. The authors begin by defining "malevolent creativity" as the ability to devise new and innovative ways to harm or kill others. They argue that terrorist organizations have been highly successful in using this type of creativity to achieve their goals, and that this has made them particularly difficult to counter. The book then goes on to examine the various ways in which terrorist organizations use creativity in their operations. The authors argue that terrorist groups use creativity to develop new tactics, such as the use of suicide bombings, and to adapt to changing circumstances, such as the increasing use of the internet and social media. They also examine the ways in which terrorist groups use creativity to evade detection and disrupt the status quo. In addition to examining the ways in which terrorist organizations use creativity, the authors also explore the implications of these developments for counterterrorism efforts. They argue that traditional counterterrorism approaches, such as military force and intelligence gathering, are unlikely to be effective in countering the type of creativity used by terrorist groups. Instead, they suggest that a more comprehensive approach, which includes addressing the underlying political, economic, and social conditions that give rise to terrorism, is needed to effectively counter malevolent creativity.

2.3 Distributed Ledger Technology. 

Antony Lewis’ 2018 "The Basics of Bitcoins and Blockchains: An Introduction to Cryptocurrencies and the Technology that Powers Them" is an accessible introduction to the rapidly evolving world of cryptocurrency, blockchain and distributed ledger technology. Lewis provides a thorough overview of the history and development of bitcoin and other digital currencies, as well as the underlying infrastructure that enables their creation and use. In addition to its technical depth, the book covers the broader social and economic implications of DLT. Lewis discusses the potential impact of these technologies on traditional financial systems, as well as the regulatory challenges that they present. He also addresses the potential risks and challenges associated with cryptocurrencies, including the possibility of fraud and the lack of government oversight.

Furthermore, Primavera De Filippi's 2018 "Blockchain and the Law: The Rule of Code" examines the legal implications of DLT infrastructure products. The book explores the various ways in which blockchain technology intersects with existing legal frameworks, including issues of contract law and intellectual property. One of the key arguments of the book is that blockchain technology challenges traditional legal concepts such as sovereignty and jurisdiction through decentralized networks that operate independently of traditional legal frameworks. Examining the role of smart contracts in a blockchain ecosystem, De Filippi argues that these products have the potential to significantly reduce the need for intermediaries, such as lawyers and notaries, in the contract process. Finally, De Filippi discusses the issue of intellectual property in relation to digital assets, concluding that current laws are not equipped to deal with the unique characteristics of DLT-based digital assets.

Saifedean Ammous' 2018 "The Bitcoin Standard: The Decentralized Alternative to Central Banking" analyzes the economic and historical context of money, highlighting the role of central banks in shaping modern monetary systems. Ammous argues that bitcoin, as a decentralized digital currency, offers a superior alternative to traditional central banking practices, which he asserts have contributed to economic instability and inequality. Some critics have raised concerns about the book's one-sided perspective on central banking and its assumption that bitcoin is a superior alternative to traditional fiat currencies. 

Robert M. Townsend's 2020 "Distributed Ledgers: Design and Regulation of Financial Infrastructure and Payment Systems" reviews the design and regulation of financial infrastructure and payment systems utilizing distributed ledger technology. The paper begins by providing an overview of DLT and its potential impact on the financial industry. Townsend discusses the need for a balanced approach that takes into account the unique features of this emerging infrastructure and suggests that regulatory efforts should focus on promoting innovation while also addressing potential risks, such as those related to money laundering and consumer protection.

2.4 Web3 Terrorist Economics. 

"National Security Implications of Virtual Currency Examining the Potential for Non-state Actor Deployment" (Baron et. al, 2015) explores the feasibility of non-state actors, including terrorist and insurgent groups, using virtual currency (VC) to increase their political and/or economic power. They address several research questions, including why a non-state actor would deploy a VC, how they might go about it, what challenges they would face, and how a government or organization could disrupt such a deployment. The authors find that VC deployments are attractive in developing countries or those undergoing internal turmoil where the existing financial infrastructure is insufficient or weakened. They also note that creating new, usable yet reliable VC poses great challenges, particularly for a non-state actor without technical sophistication. The authors suggest that a non-state actor's VC would likely be vulnerable to cyber attacks, especially by a sophisticated adversary, and that promoting adoption of VCs among populations is difficult due to newness, lack of legitimacy, and familiarity with physical tangibility of currency. However, despite numerous hurdles, the authors note that trends indicate a future in which VCs could be deployed by non-state actors or other organizations. The authors suggest that the development and implementation of VCs could add to security-related technological developments that could aid non-state actors. For example, VCs demonstrate a resilient means of storing data in a highly distributed fashion that is very hard to corrupt. This could have implications for information dissemination, such as blogs, social media, forums, news websites, that is eventually completely resilient to nation-state interference. Furthermore, the need to develop security mechanisms for VCs could encourage the development of advanced cryptographic techniques, such as secure multiparty computation.

“Cryptocurrencies: The Next Generation of Terrorist Financing?” (Brill et. al, 2014) argues that virtual currencies, such as Bitcoin, have become an important factor in global funds transfers but are attractive to cybercriminals, drug dealers, money launderers, and those involved in global terrorist funding due to their transaction pseudonymity and irreversibility of payments. The paper examines what these financial vehicles are, how they work, and why they facilitate terrorist funding, offering suggestions to members of the antiterrorism community for investigating cases involving virtual currencies and bringing perpetrators to justice. The author highlights that virtual currencies represent a challenge for every national government as they need to balance the promise of fast, safe, and low-cost global funds transfers with the risks associated with these currencies being used to facilitate and obfuscate transactions related to criminal activities, including money laundering, trading in illicit drugs, moving the proceeds of human trafficking, and serving as a vehicle for funding of terrorist groups. The challenge for governments will be to gain the maximum advantage while minimizing the risks of misuse of these payment systems and payment vehicles.

In the 2019 RAND research paper, “Terrorist Use of Cryptocurrencies Technical and Organizational Barriers and Future Threats” (Johnston et. al, 2019) the authors argue that the success of counterterrorism finance (CTF) efforts in reducing terrorist access to official currencies has raised concerns that terrorist organizations might increase their use of digital cryptocurrencies, such as Bitcoin, to support their activities. While current cryptocurrencies are not well-suited for terrorist activities, the emergence of a single cryptocurrency with widespread adoption, better pseudonymity, improved security, and lax or inconsistent regulation could increase its potential utility for terrorist organizations. The authors suggest that regulation and oversight of cryptocurrencies, along with international cooperation between law enforcement and the intelligence community, are important steps to prevent terrorist organizations from using cryptocurrencies to support their activities. The authors identify factors that will increase cryptocurrency viability for terrorist organizations, including a growing market, widespread adoption of second-generation cryptocurrencies with advanced privacy features, and increased use of cryptocurrencies in complementary and adjacent markets. On the other hand, uncertainty and infighting within the cryptocurrency community, law enforcement cooperation, and the potential for fraudulent exchanges and theft of improperly secured funds are factors that could decrease cryptocurrency viability for terrorist organizations. Overall, the authors highlight the importance of monitoring and regulating the use of cryptocurrencies to prevent their exploitation by terrorist organizations and other illicit actors.

Furthermore, “Innovation in Terrorist Financing: Interrogating Varying Levels of Cryptocurrency Adoption in al-Qaeda, Hezbollah, and the Islamic State” (Eaddy, 2019) argues that while terrorist groups have historically been innovative in their material, strategic, and ideological approaches to terrorism, they have been slow to adopt cryptocurrencies as a financing mechanism. However, the use of cryptocurrencies by terrorist organizations has been increasing since 2014, with groups such as ISIS, Al-Qaeda, and their affiliates using cryptocurrencies for activities ranging from online server maintenance to violent campaigns. Despite the potential benefits of using cryptocurrencies, terrorist organizations have not yet adopted them on a systematic level, and the author explores why this is the case. The author suggests that terrorist groups have been able to efficiently use their current funding mechanisms, which fit their needs satisfactorily, and they do not feel the need to search for alternative funding apparatuses yet. Additionally, the current counter-terrorism financing regime has made it more difficult for terrorist organizations to adopt cryptocurrencies systematically. However, as technologies become more accessible and easier to use, and traditional funding mechanisms become more challenging, cryptocurrencies may become more appealing and practical for a wide range of terrorist organizations. 

The author emphasizes the importance of effective policy in mitigating the use of cryptocurrencies by both state and non-state actors, including terrorist organizations. The author suggests that the United States should focus on reinforcing its policies that put pressure on contemporary methods of terrorist financing and cooperate with multinational cooperatives, such as the European Union, to develop adequate follow-up measures to tackle the subsequent cryptocurrency adoption, which often follows sanction regimes. The author argues that the speed at which both technology is developing and groups are adopting the technology will be exceedingly high, such that legislation and regulation will ultimately prove too slow and encumbered to effectively address the issue at hand.

“Cryptocurrencies: Potential For Terror Financing” (Mahzam et. al, 2018) examines the use of cryptocurrencies by extremist groups for financing their activities. The main argument is that cryptocurrencies are appealing to extremist groups because they provide an alternative to mainstream financial systems that are perceived as infidel currencies. Cryptocurrencies offer transaction pseudonymity and user-friendliness, making them a viable means for fundraising, purchasing and selling weapons, and moving funds globally. The decentralized financial ecosystem of cryptocurrencies allows extremist groups to circumvent financial institutions and their counterterrorism tools. The review highlights the growing interest of extremist groups in cryptocurrencies, as evidenced by the inclusion of a Tech Talk section in a pro-Al-Qaeda magazine that examines the Sharī‘ah permissibility of using cryptocurrencies. 

The review discusses the varied opinions of Sharī‘ah scholars and Islamic finance experts on the use of cryptocurrencies, with some justifying their usage as digital wealth possessing legal value and resembling commodity money. However, the review warns that cryptocurrencies can fuel terrorism, as they offer untraceable transactions, pseudonymity, and are not subject to any form of regulation. The review provides examples of how cryptocurrencies have been used by extremist groups to finance their activities, and how authorities need to harness the potential of cryptocurrencies to facilitate earlier detection of terror financing. The review concludes that if extremist groups are insistent on building a Caliphate based on the Sharī‘ah, they should be wary of the nature of their wealth and avoid any impermissible sources.

In the article "Terrorist Financing and the Internet" Michael Jacobson discusses how terrorist groups have increasingly relied on the internet for financing-related purposes, such as raising and transferring funds to support their activities. The author notes that the internet provides these groups with a broad reach, timely efficiency, and a degree of pseudonymity and security for both donors and recipients. While many governments recognize that the internet is an increasingly valuable tool for terrorist organizations, the response to this point has been inconsistent. The author also discusses the early use of the internet by terrorists, including Babar Ahmad, who ran an entity called "Azzam Publications" and a number of associated websites that solicited funds and attempted to recruit fighters. Since 9/11, terrorist groups have made increasing use of the internet for propaganda, recruiting, training, and financing-related activities. The author notes that the number of websites associated with Al Qaeda has increased from 12 in 1998 to approximately 2,600 by 2006, according to a UN study. Many different terrorist groups have had websites or made active use of the internet at one point or another. Criminal activity on the internet is one of the primary ways that terrorist groups are using the internet to raise funds, such as through the acquisition of stolen credit card numbers and money laundering through online gambling sites. Charities and NGOs also remain a major problem in the terrorist financing arena, and their activities on the internet are no exception to this troublesome trend.

“Global Financial Risks of Cryptocurrencies” (Jaatinen, 2022) argues that cryptocurrencies, which are blockchain technologies, offer a pseudo-pseudonymous way for wealth distributions but are known for their involvement in organized crime and price volatility. The paper investigates the illicit applications of cryptocurrency and demonstrates how they can be used in international crime. The research hypothesis assumes that cryptocurrencies employ new channels of illicit activities, and their popularity will continue to grow regardless of the regulation. The case study is regarding El Salvador, as the country ventures on accepting Bitcoin as a form of legal tender to gain economic stability and independence from the USA. The author hypothesizes that El Salvador's Bitcoin endeavor will not become successful and will cause more financial damages to the Salvadoran economy than benefits. The author's main findings include that the hypothesis assuming cryptocurrencies employ new channels of illicit activities was proven correct, linkages were found between transnational crime and cryptocurrency applications, and the popularity of cryptocurrencies will continue to grow regardless of safety concerns. The author also discusses the ideological and political aspects of cryptocurrency and how its adoption by developing nations and wealthy investors is driven by an illusion of trust. The paper concludes that cryptocurrency poses significant financial risks, especially in relation to transnational crime, and could potentially threaten traditional central banks' global standing.

Chapter Three: DLT Infrastructure Products and Properties.

3.1 Layer Zero and Middleware Infrastructure. 

Layer zero infrastructure, also known as decentralized cloud, is a way to store, compute and index data on the internet that is based on blockchain technology. In the traditional way often referred to as “Web2”, data and computation are centralized on servers owned by one actor. But in Web3, the aim is to use blockchain technology to distribute these services across multiple actors, making them more secure and fault-tolerant. Decentralized cloud has three main components: storage, where data is replicated across multiple servers; compute, where computation is distributed across many nodes; and indexing, where data is aggregated and standardized for easy access.

Node Infrastructure is a set of systems that help to keep blockchains running smoothly. Remote Procedure Calls (RPC) are a core part of this infrastructure, and allow different computer programs to communicate with each other. This is especially important for blockchains, which need to handle a lot of requests from different computers in separate locations. Companies like Alchemy, Syndica and Infura provide this service so that people building blockchain applications don't have to worry about the technical details of how to connect to a blockchain. However, having one central company like Alchemy control all the nodes can be risky, because if that company fails, the whole blockchain could be affected. Another important part of node infrastructure is staking and validators. In order for a blockchain to work correctly, it needs a group of distributed nodes to validate transactions. However, running these nodes can be expensive, so some people rely on others to do it for them. Services like P2P and Blockdaemon allow users to pool funds to run the infrastructure. Some people have criticized this approach, saying it could lead to too much centralization. However, without these services, it would be hard for the average person to run their own nodes, which could lead to even more centralization.

It is clear that the development of layer zero infrastructure and decentralized cloud technology has had a significant impact on the ways in which terrorist groups operate. By allowing for the secure and fault-tolerant distribution of data and computation across multiple actors, a decentralized cloud has made it easier for terrorist groups to communicate and coordinate their activities without fear of detection. The use of blockchain technology also makes it more difficult for authorities to track the movement of funds, as transactions can be anonymized and encrypted. However, as with any technological development, there are also potential downsides. The centralization of node infrastructure can be risky, as the failure of one company controlling all the nodes could have a significant impact on the entire blockchain. Additionally, the pooling of funds to run the infrastructure could lead to too much centralization, making it easier for authorities to target a small number of actors rather than a larger network. Overall, the impact of layer zero infrastructure on terrorist groups has been significant, allowing them to adapt and evolve their tactics in response to increased regulation and surveillance.

Middleware is a type of infrastructure that helps other software work together. In the context of blockchain technology, it helps to make sure that data is available to the different applications that need it. Data availability is an important part of middleware. Applications use a lot of data, and in the traditional way of doing things, this data is often sourced directly from users or third-party providers in a centralized fashion. But in the case of decentralized applications (DApps) on a blockchain, data needs to be made visible and available to everyone that requires access to it. There are two main ways that DApps can quickly and efficiently access data: Data Oracles and Data Availability Layers. Data Oracles like Pyth and Chainlink provide access to data streams that are not available on the blockchain, which allows blockchain networks to connect with other systems. This is important for things like trading, lending, sports-betting and insurance. Data Availability Layers like Celestia are specialized chains that focus on making sure that data is available to the chains they support. They provide proof that data has been published on the blockchain, which helps to make sure that everything is reliable and reduce the cost of blockchain transactions.

As more and more blockchains are created, it naturally becomes increasingly important to be able to connect them, so that they can share information and resources. This is where “cross-chain bridges” come in. They allow different blockchains to communicate with each other, similar to how trade routes connect different regions and allow them to share knowledge. There are different solutions like Wormhole, Layer Zero and others that can help to move data and information, including tokens, across different blockchain ecosystems. This means that applications can access resources from other communities without having to move to a different blockchain. On-chain messaging is another important part of blockchain infrastructure. As more people start using blockchain applications, it becomes increasingly important for protocols to be able to communicate with users in a decentralized way. On-chain messaging can be used for different purposes like sending notifications to claim returns or tokens, allowing for built-in communication within wallets, announcements about important updates, and tracking critical issues. Dialect, Ethereum Push Notification Service (EPNS) and XMTP are a few examples of projects that historically have developed on-chain communication protocols.

With the use of middleware, such as Data Oracles and Data Availability Layers, terrorist organizations can access data and resources in a decentralized manner without relying on traditional centralized sources. This allows them to move funds and resources more quickly and efficiently while evading detection. Additionally, the ability to connect different blockchains through cross-chain bridges further facilitates the movement of resources across different ecosystems, making it easier for terrorist groups to operate across borders. The use of on-chain messaging also allows for more secure and decentralized communication within these groups. As blockchain technology continues to evolve, it is likely that terrorist groups will continue to adopt and adapt these innovations to their advantage.

3.2 Cryptocurrencies. 

Cryptocurrencies are digital or virtual currencies that are secured through the use of cryptography. They are decentralized, meaning that they are not controlled by any single government or financial institution, and are instead managed by a network of users through a public ledger system. Cryptocurrencies use a variety of digital algorithms and cryptographic techniques to secure and verify transactions, as well as to control the creation of new tokens. These tokens can be used to purchase goods and services, or to make payments for services rendered. Transactions on the blockchain are transparent and secure, and can be tracked and verified easily. Increasingly adopted by businesses and individuals, cryptocurrencies are a viable alternative to traditional currencies. Cryptocurrencies are also a popular investment asset, as they are highly volatile and have the potential for significant returns.

Proof of work and proof of stake are two different ways that cryptocurrencies can be created (“mined”). In proof of work, miners use powerful computers to solve complex mathematical puzzles in order to create new units of the cryptocurrency. This process is called mining, and it helps to ensure that transactions on the network are accurate and secure. In contrast, in proof of stake, instead of solving mathematical puzzles, the creator of a new block is chosen based on the number of coins they hold. This method is less energy-intensive than proof of work. This topic is important because the way a cryptocurrency is mined or created can have a big impact on how it works and how secure it is. Proof of work helps to ensure that transactions are accurate and secure, but it also requires a lot of energy. Proof of stake is less energy-intensive but it raises different security concerns.

In a proof of stake infrastructure, nodes are computers that work together to keep the network running. They are responsible for validating transactions, creating new blocks, and maintaining the overall integrity of the blockchain. For a client, nodes help to ensure that their transactions are processed quickly and securely. They also help to make sure that the client's cryptocurrency is safe and can be accessed when needed. There are different types of nodes in a proof of stake infrastructure, each with a specific role. Participation nodes, also known as validating nodes, are responsible for validating transactions and creating new blocks. Read/Write nodes are nodes that have the ability to read and write to the blockchain. Sentry nodes are responsible for monitoring the network, ensuring that it is running smoothly, and identifying any potential security risks. Relay nodes are responsible for relaying information throughout the network.

Zooming out slightly, clusters are groups of computers that work together to create new units of a cryptocurrency. These clusters are made up of different types of nodes. Load balancers are responsible for distributing work evenly across the different nodes in the cluster, to make sure that no one node becomes overwhelmed. Failover protection is in charge of ensuring that if one node fails, another can take its place without interruption. Monitoring and alerting services are responsible for keeping track of the health of the cluster and notifying the people in charge if something goes wrong. Container services are responsible for packaging and deploying the software that runs on the nodes. The responsibilities of these different machines in the cluster are important because they help to ensure that the cluster is running smoothly, and that new units of the cryptocurrency can be created reliably and efficiently.

While traditional financial institutions are subject to strict regulatory requirements, cryptocurrencies operate in a largely unregulated space, making them an appealing option for terrorist financing. The way cryptocurrencies are created or mined can also affect their impact on terrorist financing. Proof of work, for instance, is energy-intensive, while proof of stake raises different security concerns. Clusters and nodes also play a critical role in ensuring the smooth running of cryptocurrency networks, with different machines performing specific tasks to create new units of the currency reliably and efficiently.

3.3 Smart Contracts and DAOs. 

Smart contracts are self-executing digital contracts that are stored on a public ledger such as a blockchain. They are written in code and managed autonomously, meaning that they can be executed without the need for a third party. Smart contracts are designed to provide a secure and transparent way for two or more parties to enter into a legally binding agreement, enforcing them without the need for a central authority or intermediary. They can be used for a variety of purposes, from financial transactions to asset management. The underlying infrastructure holds many advantages over traditional contracts, as they are more secure, efficient, and cost-effective. The code and data of a smart contract is stored on a blockchain, making them secure, tamper-proof, and immutable. Smart contracts are used in illicit activities because they can provide a level of pseudonymity and irreversibility for automating transactions. One of the most common ways that criminals are utilizing smart contracts is to facilitate the distribution of illegal goods and services. These contracts can be used to create a secure and pseudonymous way to transfer money for the purchase of drugs, weapons, and other illicit items. This can allow criminals to hide their identity and the source of the funds they are using to purchase these items. 

Smart contracts have been used to facilitate the distribution of illegal goods and services, enabling terrorists to hide their identities and the sources of their funding. This has made it more difficult for law enforcement agencies to detect and prevent terrorist financing. The use of smart contracts has enabled terrorist groups to remain pseudonymous and avoid detection, which has led to an increased need for organizations to understand the risks associated with these contracts and take the necessary steps to protect their data and assets.

Decentralized Autonomous Organizations (DAOs) are a form of organization that is managed through a set of rules encoded in a computer program known as a smart contract, rather than relying on traditional management structures. DAOs are distributed and decentralized, meaning that no single entity has control over the organization and all decisions are made democratically by the members of the organization. This allows for a more transparent and secure way of managing an organization, as all decisions must be approved by the majority of members. Members of the DAOs can securely vote on decisions, create new rules and manage the funds of the organization. In addition to providing a secure and transparent platform for organizations, DAOs can also be used to create new financial instruments and technologies. For example, DAOs have enabled the development of decentralized finance (DeFi) protocols and tokens such as stablecoins and decentralized exchanges. These protocols enable users to store and transfer cryptocurrency in a secure and trustless manner. DAOs are also being used to create new investment opportunities, such as tokenized real estate and tokenized venture capital funds. By utilizing DAOs, individuals and organizations are able to access new financial instruments and technologies, providing them with more efficient and secure ways of managing their assets.

3.4 Metaverse. 

As the metaverse becomes an increasingly popular platform for social interaction, leisure, and technical and crypto innovations, it is important to recognize that it is also vulnerable to criminal activity. Crypto assets, which have a range of use cases and are growing in value and popularity, are particularly attractive targets for criminal efforts. To effectively prevent and combat financial crime in the metaverse, it is important to have a thorough understanding of the typical threats that may arise, to exchange best practices and information, and to cooperate at the national and international level. In the metaverse, users can explore a virtual world that includes shops, offices, and entertainment facilities, and can create and own virtual property such as art or buildings. These virtual worlds are often gamified and decentralized, meaning that they are not owned by a single entity but by the community of users. Decentralized metaverses allow users to have a high level of control over their experience, including the way the metaverse is built and operated. Users can also buy and trade goods, land, services, and applications using crypto assets.

Academically, the metaverse refers to a virtual shared space created and maintained using decentralized technologies such as blockchain and peer-to-peer networks. The concept of the metaverse is often closely related to that of virtual worlds and online gaming, as well as other applications such as virtual reality and augmented reality. One key aspect of the metaverse in this context is the use of non-fungible tokens (NFTs) to represent and track the ownership of virtual assets within the metaverse. These assets can include virtual real estate, art, and other collectibles, and can be bought, sold, and traded using cryptocurrency. The use of NFTs and cryptocurrency in the metaverse allows for the creation of new economic models and opportunities, as well as enabling new forms of expression and creativity. To acquire, access, and trade crypto assets, users need a digital wallet, which holds the cryptographic keys needed to access the assets but does not contain the assets themselves. The value and popularity of crypto assets, particularly non-fungible tokens (NFTs), have increased significantly due to new investments in metaverse projects, celebrity involvement, and expanding use cases. NFTs are unique digital certificates that can be used to authenticate digital artworks and prove ownership within the metaverse, and can be collected, sold, and traded on various online marketplaces.

Naturally, the metaverse can be used as a means of laundering illicit funds, whether they originate in the real world or in the crypto world. Funds can be exchanged for metaverse assets such as land, NFTs, or metaverse-related crypto assets. Perpetrators may also attempt to use the metaverse to raise funds for sanctioned actors, including those linked to terrorism, through metaverse-related assets. The 5th Anti-Money Laundering Directive (AML) of the EU specifically addresses virtual currencies and extends AML obligations to providers of exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers. Some wallet providers and cryptocurrency exchanges, such as Coinbase and Binance, have implemented Know-Your-Customer (KYC) checks. However, there are still many cryptocurrency exchanges that allow crypto transactions without such controls or verifications. Similarly, KYC checks are not yet required to purchase goods on many metaverse or secondary marketplaces, which makes it easier to launder money or provide funds to sanctioned actors. On the other hand, the transparency of every transaction on a blockchain may serve as a deterrent to criminal activity, particularly in the case of NFTs. The page for an NFT on a marketplace can provide a complete history of transfers, bids, listings, etc., and links to related transactions and buyers' or sellers' wallets can provide further insights. This makes NFTs one of the most transparent assets on a blockchain and therefore easily traceable by investigators and unattractive to illicit actors.

In addition to financial risks, the use of the metaverse also introduces non-financial risks that should be considered. One such risk is the potential for sanctioned entities and illicit actors to use the metaverse as a means of communication and coordination. Many metaverses have chat functions that allow users to "follow" or "befriend" others, which could enable groups of illicit actors to exchange information outside the view of law enforcement. This may be particularly appealing to sanctioned actors, who may feel that law enforcement is more likely to monitor traditional communication channels such as social media, web messaging services, and mobile messaging apps, but may not yet be paying attention to activity in the metaverse.

Chapter Four: Change Over Time, Terrorist Finance 3.0.

4.1 Origins and Evolution.

The earliest recorded instance of terrorist financing dates back to the 19th century, when the Russian revolutionary group Narodnaya Volya raised funds through illegal means to finance their activities. In the 20th century, terrorist financing became more sophisticated, with terrorist groups using various methods such as bank robberies, extortion, and smuggling to raise funds. One of the most infamous incidents of terrorist financing in modern history was the 1972 Munich Olympics massacre wherein the Palestinian terrorist group, Black September, responsible for the attack, received significant financial support from sources in the Middle East. The incident highlighted the need for greater international cooperation to combat terrorist financing.

Since then, there have been numerous incidents of terrorist financing around the world. The attacks of September 11, 2001, which killed almost 3,000 people, were largely financed by Al Qaeda. The group raised money through a variety of methods, including donations from wealthy individuals and charities, money laundering, and drug trafficking. Terrorist financing has evolved over time, with groups adopting new methods and technologies to raise and transfer funds. However, it was not until after the September 11th attacks that concerted efforts were made to combat terrorist financing through a legal framework. The United Nations Security Council, in its Resolution 1373 adopted in 2001, called upon all states to take measures to combat terrorist financing. The resolution also established the Counter-Terrorism Committee (CTC) to monitor the implementation of the resolution. In response to the resolution, many countries passed new laws to criminalize terrorist financing and established specialized agencies to investigate and prosecute terrorist financing activities. In the United States, the USA PATRIOT Act was enacted in 2001, which gave the government broad powers to investigate and prevent terrorist financing. The Act expanded the definition of "financial institution" to include many types of businesses that were not previously regulated, such as money service businesses.

Similarly, the European Union adopted the Directive on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing in 2005, which required member states to implement specific measures to combat terrorist financing. The directive also established the Financial Intelligence Units (FIUs) to collect, analyze, and disseminate financial intelligence to law enforcement agencies. Over the years, the legal framework for combating terrorist financing has continued to evolve. The Financial Action Task Force (FATF), an intergovernmental organization established in 1989 to combat money laundering, has taken a leading role in developing international standards for combating terrorist financing. In 2012, the FATF revised its recommendations to include specific measures for combating terrorist financing, such as freezing terrorist assets, identifying and monitoring non-profit organizations, and enhancing international cooperation.

Despite concerted efforts by governments and international organizations to combat terrorism, it continues to pose new threats to the global economy. It is critical to understand the changing nature of international financing and the strategies employed by terrorist groups to sustain themselves financially. Shadow economics, also known as the underground economy or the informal sector, refers to economic activities that are conducted outside of government regulation and taxation. The shadow economy includes a variety of activities, such as unreported work, illegal trade, and informal markets, among others. The underground or shadow economy is a fact of life in almost all societies, and its growth can have serious consequences for the official economy. Transactions that take place "off the books" not only escape taxation, but they also make official statistics unreliable. Policies and programs that are based on unreliable statistics may be inappropriate and self-defeating. As a result, societies try to control the growth of the shadow economy, as it can set off a destructive cycle. 

A prospering shadow economy can keep tax revenues lower than they otherwise would be, eroding the tax base or tax compliance. Governments may respond by raising tax rates, which can further encourage a flight into the shadow economy that worsens the budget constraints on the public sector. Shadow economics has been identified as a critical component of terrorist financing and has become a growing concern for policymakers around the world. Historically, terrorist groups have relied on various sources of financing, including state-sponsorship, private donations, and criminal activities such as drug trafficking and kidnapping for ransom.

During the Cold War era and the rise of national liberation movements, state sponsorship played a key role in financing terrorist activities. Countries like the Soviet Union and China provided financial and logistical support to revolutionary groups across the world, seeing them as a means to advance their own geopolitical interests. These movements, often aligned with socialist or communist ideologies, aimed to overthrow colonial or authoritarian regimes and establish their own independent states. Many of these movements, such as the African National Congress (ANC) in South Africa, the Irish Republican Army (IRA), and the Palestine Liberation Organization (PLO), resorted to violence to achieve their objectives. Terrorist organizations of this period relied heavily on state sponsorship as a means of financing their activities. For example, the PLO received significant financial support from the Soviet Union, and the IRA received funding from sympathetic Irish-Americans. These funds were used to purchase weapons and explosives and to train fighters in guerrilla tactics. Another source of revenue for these groups was the use of kidnappings and ransom payments. Kidnapping high-profile individuals, such as politicians, diplomats, or wealthy businessmen, became a popular tactic for terrorist groups seeking to raise funds. In some cases, the victims were released unharmed after a ransom was paid, while in other cases, they were killed.

By the 1990s and early 2000s, however, we saw the emergence of a new type of terrorism, driven by Islamic extremism and characterized by a more decentralized and diffuse organizational structure. With the emergence of groups like Al-Qaeda and the Taliban, new tactics and strategies were employed to finance their activities. One significant change was the use of charities and humanitarian organizations as fronts for fundraising. Groups like Al-Qaeda were able to exploit the generosity of donors by portraying their cause as one of righteous struggle against Western imperialism. This strategy was effective in attracting funds from individuals who were sympathetic to their cause and were willing to donate to the cause of fighting perceived injustices.

In addition to charities, terrorist organizations also began to exploit the global financial system to move and launder money. This involved setting up a complex network of shell companies, offshore bank accounts, and other financial instruments to obscure the origins of their funds and make them difficult to trace. This diversification of funding sources was a significant change from the past, where terrorist groups relied mainly on state sponsorship and kidnapping for ransom. The move towards a more diverse range of funding sources not only made it more difficult for governments to track and disrupt their activities, but it also allowed them to be more resilient in the face of counterterrorism measures. Despite these changes, it is worth noting that the underlying motivation for terrorist groups has remained largely the same - the pursuit of political goals through violent means. The use of charities and the exploitation of the global financial system are just new tactics in the same old game.

Since the mid-2000s, we have witnessed a further evolution in the financing of terrorism, as groups like ISIS and other violent extremist organizations seek to diversify their revenue streams and explore innovative new financing models. Terrorist organizations have diversified their funding sources and adopted new methods to finance their activities, making it increasingly challenging for law enforcement and intelligence agencies to track and disrupt their networks. The rise of the Islamic State of Iraq and Syria (ISIS) in 2014 marked a significant turning point in the financing of terrorism. Unlike previous terrorist organizations that relied heavily on state sponsorship, ISIS was largely self-funded through extortion, taxation, and looting. The group controlled a significant amount of territory, including oil fields and other natural resources, which provided a steady stream of revenue. Additionally, ISIS imposed taxes on businesses and individuals within its territory, generating further income.

Another significant development in recent years has been the use of cybercrime and cryptocurrency to finance terrorist activities. As traditional financial systems have become more closely monitored and regulated, terrorists have turned to digital currencies like Bitcoin to move and launder money. Cryptocurrency provides an anonymous and decentralized way of financing terrorist activities, making it difficult for authorities to track and disrupt terrorist networks. Furthermore, terrorist organizations have increasingly been linked to organized crime, including drug trafficking, smuggling, and human trafficking. These criminal activities provide a source of income for terrorists and allow them to exploit existing criminal networks for their own purposes. In 2014 alone, the Islamic State of Iraq and Syria (ISIS) reportedly earned over $20 million in ransom payments. Furthermore, according to a 2012 report from the United Nations, the global illicit drug trade generates an estimated US$320 billion annually, and terrorist groups have been increasingly involved in this trade. The Taliban, for example, is heavily involved in the opium trade in Afghanistan, which reportedly generates over $3 billion annually. 

From the 1950s to the present day, terrorist groups have relied on various methods to move liquid assets (historically fiat currency). However, what is perhaps most interesting is the ways in which these methods have changed over time, reflecting both the changing technological landscape and the evolving strategies of law enforcement agencies and financial institutions.

Before the 1980s, terrorist groups relied on traditional methods of moving money, such as smuggling, counterfeiting, and extortion. These methods were often inefficient and time-consuming, requiring physical transportation of goods or large amounts of cash across borders. In addition, these methods were often risky, as they were vulnerable to interception by law enforcement or other actors. However, as the world became more globalized and interconnected in the 1980s, new non-traditional methods of moving money emerged. These methods provided terrorist groups with new opportunities to evade detection and move money more efficiently.

For example, the use of hawala, an informal system of money transfer that operates outside of the formal banking system, became increasingly common in the 1980s and 1990s. Hawala allowed for the transfer of money without the need for physical transportation or large amounts of cash, and it was often difficult for law enforcement to trace. Moreover, the rise of the internet and digital communications in the late 1990s and early 2000s created new opportunities for terrorist groups to move money across borders. The use of encrypted messaging apps and other digital technologies made it easier for terrorist groups to coordinate and transfer funds without detection.

In the early 2000s, financial institutions and governments around the world began to increase regulations and crack down on money laundering in an effort to combat terrorist financing. This had a significant impact on the methods used by terrorist groups to move money. While traditional methods such as smuggling and counterfeiting were still used, terrorist groups began to adapt and use other methods to evade detection. One of the key ways in which terrorist groups adapted was through the use of charities and non-profit organizations to move money. This was seen in the aftermath of the 9/11 attacks, when it was discovered that Al-Qaeda had used charities to move money around the world. Additionally, in the aftermath of the 2004 Indian Ocean tsunami, Al-Qaeda was able to exploit the outpouring of charitable donations by creating fake charities to funnel money to their operatives. In response, governments began to increase regulations and oversight of charities and non-profit organizations, making it more difficult for terrorist groups to use these entities to move money.

However, these regulatory efforts had unintended consequences. They led to a phenomenon known as "de-risking," where banks and financial institutions began to terminate relationships with charities and non-profit organizations in order to avoid the risk of non-compliance with regulations. This had the consequence of making it even more difficult for legitimate charities and non-profit organizations to access banking services, and created a humanitarian crisis in some parts of the world. Another key development during this period was the emergence of the concept of "terrorist financing" as a distinct area of focus for law enforcement and financial institutions. This led to the creation of specialized units within financial institutions and government agencies tasked with identifying and preventing terrorist financing. While this has had some success in disrupting terrorist financing, it has also led to concerns about privacy and civil liberties, as individuals and organizations are subject to increased scrutiny and surveillance.

In the 2010s, we have witnessed significant changes in the ways terrorists move money, as digital currencies and other new technologies have emerged as powerful tools for terrorist financing. These developments have brought new challenges to governments and law enforcement agencies, requiring them to adapt their strategies for countering terrorist financing. Terrorist groups have also taken advantage of other new technologies, such as prepaid cards and mobile payments. These technologies can be used to move money across borders and to access funds in countries where traditional banking services are limited or unavailable. Despite the challenges posed by these new developments, governments and financial institutions have made significant strides in adapting their strategies to counter terrorist financing. For example, many countries have introduced regulations to monitor and control the use of digital currencies, and financial institutions have improved their due diligence procedures to detect suspicious transactions. Moreover, governments and financial institutions have also recognized the importance of partnerships and information sharing in countering terrorist financing. International cooperation among law enforcement agencies and financial institutions has improved, and governments have taken steps to improve transparency and information sharing across borders.

4.2 Instruments, Assets and Processes. 

Over the course of history, terrorist groups have used a variety of instruments and assets to finance their operations. Cash has traditionally been the preferred means of financing for terrorist groups due to its anonymity and ease of use. However, with the advent of modern technology, terrorist groups have been able to exploit digital currencies and other alternative financial systems, resulting in a significant shift in the instruments and assets used for terrorist financing. 

While cash smuggling, money laundering, and informal value transfer systems such as hawala have historically been popular methods for terrorist financing, advances in technology and the globalization of financial markets have opened up new avenues for non-cash asset transfers. One such asset is gold. Terrorist groups, particularly those in the Middle East, have increasingly used gold as a means of transferring value across borders. Gold is easily transportable, highly valued, and its price can fluctuate, allowing for a degree of arbitrage. 

The Tamil Tigers, a militant organization in Sri Lanka, are a prime example of how non-cash assets were used by terrorist groups in the pre-9/11 era. During the 1970s, the Tamil Tigers emerged as a separatist group fighting for an independent Tamil state in the north and east of Sri Lanka. To fund their operations, the group turned to smuggling and the black market. The Tamil Tigers established a sophisticated smuggling network that allowed them to import weapons, ammunition, and other supplies.

Terrorist groups have purchased and sold real estate, non-cash asset, to generate revenue and launder money. This practice has become increasingly prevalent as real estate markets have become more globalized and interconnected. Additionally, artwork and antiquities have been used to transfer value, often by purchasing them in one location and then selling them in another for a higher price. The sale of these items can be difficult to track, making them an attractive option for terrorist financing. 

4.3 Tokenization of Assets.

In recent years, terrorist groups have increasingly turned to the tokenization of assets as a means of financing their operations. Tokenization involves the representation of an asset, such as artwork or real estate, as a digital token on a blockchain. These tokens can then be traded, providing a means for individuals to invest in these assets without physically owning them. The use of tokenization by terrorist groups represents a significant shift in their financing strategies. While traditional financing methods have historically been vulnerable to disruption by law enforcement agencies and international sanctions, tokenization offers a degree of pseudonymity and decentralization that can make it difficult to track and disrupt. This has enabled terrorist groups to fund their activities more securely and evade law enforcement more effectively.

Tokenization offers several advantages for terrorist financing, including fractional ownership and an increased velocity of money. This innovation allows multiple individuals or groups can own a portion of an asset, making it easier to pool resources and generate revenue through the sale or rental of the asset. The velocity of money on the other hand is a measure of how quickly money is exchanged in a market economy. By tokenizing physical assets, the tokens can be traded more easily and quickly than the underlying assets. This increased liquidity can lead to inflationary pressures and potentially impact monetary policy. For terrorist organizations, the tokenization of physical assets represents a significant risk because it enables them to move and hide funds more easily. Terrorist groups can use tokenization to convert physical assets, such as real estate, into digital tokens that can be sold or traded without the need for a physical transfer.

One example of tokenization being used for terrorist financing is the case of ISIS. In 2020, it was reported that the group had been using NFTs to raise funds. These NFTs were digital images of the group's propaganda, which were sold to supporters as a means of fundraising. The funds raised were then used to finance the group's operations, including the recruitment of new members and the planning of attacks. The use of tokenization by terrorist groups presents significant challenges for law enforcement agencies and regulatory bodies. Tokenization allows terrorist groups to move funds across borders and evade detection more effectively than traditional financing methods. Additionally, the pseudonymity and decentralization of blockchain technology make it difficult to track the movement of funds, making it harder for law enforcement agencies to disrupt these activities. In response to these challenges, regulatory bodies are exploring new approaches to combating terrorist financing using tokenization. These approaches include the development of new AML and CFT regulations specific to tokenization and the exploration of new technologies such as artificial intelligence and machine learning to monitor the movement of funds on the blockchain.

As the use of tokenization by terrorist organizations grows, there is a need to understand the economic models that underlie these activities. Tokenization of assets enables terrorist organizations to move funds across borders more easily, evade detection, and operate more efficiently. This creates a significant challenge for governments and regulatory bodies seeking to monitor and regulate these activities. One economic model based on the tokenization of assets for terrorist organizations is the use of stablecoins. Stablecoins are cryptocurrencies that are pegged to the value of a traditional asset, such as a fiat currency or a commodity. They are used to provide stability to the cryptocurrency market, and to reduce the volatility of cryptocurrency prices.

Terrorist organizations can use stablecoins as a means of transferring value across borders, without the need for traditional financial institutions. This allows them to evade detection and move funds more efficiently. Additionally, stablecoins can be used to fund operations in countries with unstable currencies, where traditional financial institutions may be difficult to access. The impact of stablecoins on the money supply is complex. Stablecoins are not created by central banks, but by private companies. This means that they do not have the same level of regulation as traditional currencies. The creation of stablecoins can impact the money supply, as the creation of new stablecoins can increase the supply of digital currencies in the market. However, the impact of stablecoins on the money supply is still uncertain, as stablecoins are a relatively new technology.

The use of tokenization by terrorist organizations also creates challenges in measuring the shadow economy. The shadow economy refers to economic activity that is not recorded in official statistics. This can include illegal activities such as drug trafficking, as well as legal activities that are not reported for tax purposes. The use of tokenization by terrorist organizations can make it difficult to track these activities, as transactions can be made pseudonymously and without the need for traditional financial institutions.


Over the course of history, the world has witnessed the evolution of terrorist financing processes and strategies, and this thesis has explored the impact of distributed ledger technology (DLT) infrastructure products on these phenomena. Through an analysis of terrorist economics, financial innovation, and the emergence of DLT infrastructure products such as cryptocurrencies, non-fungible tokens (NFTs), smart contracts, and decentralized autonomous organizations (DAOs), it has become evident that a significant change has occurred in the realm of terrorist financing.

DLT infrastructure products have introduced a new dimension to the dynamics of terrorist financing by enabling the transfer of value, information, and rights in deregulated environments. The decentralized and pseudonymous nature of cryptocurrencies, for example, has facilitated the illicit movement of funds, making it increasingly difficult for authorities to trace and regulate financial transactions. This has posed a substantial threat to international security, as terrorist organizations exploit these technologies to fund their activities and evade detection.

Moreover, the emergence of NFTs, smart contracts, and DAOs has further complicated the landscape of terrorist financing. These innovative financial instruments have provided terrorists with alternative means to raise and manage funds, often operating outside the traditional banking system and existing regulatory frameworks. The use of smart contracts, for instance, allows for the automation of financial transactions, bypassing the need for intermediaries and increasing the anonymity and efficiency of illicit transactions.

Furthermore, the tokenization of assets, another aspect of distributed ledger technology (DLT) infrastructure products, has introduced both opportunities and risks in the realm of terrorist financing and market liquidity. On one hand, tokenization has the potential to increase market liquidity by fractionalizing ownership and facilitating the trade of traditionally illiquid assets. This can provide legitimate economic benefits and promote financial inclusion. However, the risks associated with tokenization cannot be overlooked. The ease of transferring ownership and the potential for anonymity in tokenized markets create vulnerabilities that can be exploited by terrorist organizations seeking to fund their activities. The rapid and borderless nature of token transactions can complicate efforts to monitor and regulate financial flows, making it harder for authorities to detect and disrupt illicit activities. Thus, while tokenization holds promise for enhancing market liquidity and economic efficiency, policymakers and regulators must carefully consider the associated risks and develop robust mechanisms to prevent misuse and safeguard against the potential facilitation of terrorist financing.

As a result of these developments, the effectiveness of anti-money laundering (AML) measures and regulations on combating the financing of terrorism (CFT) has been significantly challenged. Traditional approaches to tracking and disrupting terrorist financing have proven insufficient in dealing with the decentralized and borderless nature of DLT infrastructure products. Therefore, it is crucial for policymakers, financial institutions, and law enforcement agencies to adapt and develop new strategies and technologies to counter this evolving threat.

It is important to emphasize that the developments outlined in this study are not mere speculative possibilities, but rather tangible and ongoing realities. The tokenization of assets, along with the emergence of various DLT infrastructure products, has already brought about a material change in the landscape of terrorist financing and market liquidity. Numerous real-world examples attest to the utilization of cryptocurrencies, NFTs, smart contracts, and DAOs by terrorist organizations for funding purposes, evading traditional detection methods, and exploiting market vulnerabilities. These instances demonstrate a clear departure from the past, where conventional financial systems dominated and terrorist financing mechanisms operated within more regulated and traceable frameworks. The empirical evidence highlights the urgency of addressing these novel challenges and adapting regulatory frameworks to effectively combat the evolving threats posed by the tokenization of assets and DLT infrastructure products.

The historical significance of the changes brought about by distributed ledger technology  infrastructure products in the realm of terrorist financing lies in the transformative impact on traditional financial systems and the evolution of illicit funding methods. This marks a departure from established historical patterns where terrorist financing operated within regulated frameworks and relied on conventional financial channels. The advent of cryptocurrencies, non-fungible tokens , smart contracts, and decentralized autonomous organizations has introduced decentralized, pseudonymous, and borderless means for terrorists to raise and transfer funds. This shift not only challenges the efficacy of existing anti-money laundering measures and regulations on combating the financing of terrorism, but also necessitates a fundamental rethinking of strategies and policies to address the changing nature of terrorist financing. As such, this historical moment underscores the imperative for societies, governments, and financial institutions to adapt and develop innovative approaches to mitigate the risks posed by these emerging technologies and safeguard international security.

Exploration of the historical development of terrorist financial innovation utilizing distributed ledger technology (DLT) infrastructure products has shed light on the profound implications for international security and the regulatory landscape. However, it is crucial to acknowledge that our understanding of this complex phenomenon remains incomplete, and further research is warranted to fill the existing gaps in information. One area that requires deeper investigation is the specific strategies employed by terrorist organizations to exploit DLT infrastructure products. Understanding their modus operandi, patterns of behavior, and the extent to which they adapt to evolving technologies is essential for devising effective countermeasures. Qualitative studies that incorporate in-depth interviews with individuals involved in terrorist financing networks, as well as analysis of seized financial records and communications, can provide invaluable insights into the intricacies of these illicit activities.

There is a need to explore the broader societal, economic, and geopolitical factors that shape the landscape of terrorist financial innovation. Examining historical case studies and conducting comparative analyses across different regions and time periods can help identify common trends, contextualize the role of DLT infrastructure products, and illuminate the interplay between terrorist financing and larger socio-political dynamics.

In conclusion, this research has demonstrated the transformative influence of distributed ledger technology infrastructure products on terrorist financing processes and strategies. The adoption of cryptocurrencies, NFTs, smart contracts, and DAOs by terrorist organizations has brought about a paradigm shift in the methods and mechanisms through which they transfer funds, information and assets in deregulated environments. Consequently, it is imperative for society to recognize the potential dangers of these technologies and implement effective regulatory frameworks and surveillance systems to mitigate the risks they pose to international security. Only through proactive measures can we hope to confront the evolving challenges of terrorist financing in the modern era.


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