Introduction
Cryptocurrency has emerged as a significant tool in today’s decentralized financial landscape, particularly appealing to extremist groups for fundraising due to its ability to bypass regulatory frameworks. From 2012 to 2024, extremist organizations in Europe and North America amassed over 21 million USD in cryptocurrencies. Despite a decline in overall donations to these groups, Europe has seen a rise in extremist cryptocurrency contributions from 2022 to 2024. This trend is primarily attributed to right-wing extremist factions, with European white supremacist and nationalist groups experiencing a staggering 270% increase in average cryptocurrency deposits from 2023 to 2024, indicating heightened donor support. This insight delves into the tracking and analysis of cryptocurrency donations to extremist groups, specifically white supremacists and nationalists, using Social Network Analysis tools like clustering and bipartite graphs.
While the utilization of cryptocurrency by extremists has been mostly associated with Islamic terrorist groups such as Islamic State and al-Qaeda, white supremacist and nationalist factions were among the early adopters of cryptocurrencies. Individuals like Stefan Molyneux and Andrew Anglin, editor of The Daily Stormer, were engaging in crypto activities as early as 2013 and 2014. The connection between the libertarian ideals of cryptocurrency and the anti-government sentiment prevalent among white supremacist and nationalist groups further strengthens their affinity for this financial tool.
Why Extremist Groups Use Cryptocurrencies
Cryptocurrencies are digital or virtual currencies using cryptographic techniques to facilitate secure transactions, primarily via blockchain technologies. The blockchain maintains a distributed public ledger that records data in uniquely encrypted ‘blocks’ whenever accessed, forming a chronological and transparent transaction history. This decentralized structure eliminates the necessity for traditional banks, allowing direct transfers between digital wallets. To convert cryptocurrencies back into traditional currency, users rely on Virtual Asset Service Providers (VASPs) like Kraken, Coinbase, and CashApp, which serve as gateways to the blockchain.
The appeal of cryptocurrencies for extremist groups lies significantly in their decentralized nature, which they perceive as a way to operate beyond the jurisdiction of central banks, thus evading regulatory scrutiny and facilitating transnational fundraising activities. The combination of decentralization and digitization complicates the freezing of transactions and asset confiscation, providing new avenues to avoid law enforcement. Techniques like ‘chain hopping,’ where assets are moved across different blockchains—such as converting Bitcoin into Ethereum—serve as a smokescreen for extremist groups, masking their funding operations. Additionally, escaping traditional financial systems allows white supremacist groups to reject what they see as a “Jewish-controlled” monetary system.
Moreover, extremists are drawn to cryptocurrencies by the belief that transactions can be conducted anonymously. Cryptocurrencies such as Bitcoin and Ethereum do not disclose sender or recipient identities; rather, transactions are associated with unique, lengthy addresses that obscure ownership. As regulators enhance their ability to analyze blockchain data, extremist groups like The Daily Stormer have shifted towards ‘privacy coins’ like Monero and ZCash, designed to maximize anonymity through advanced techniques that blur user identities. While these privacy coins offer greater confidentiality, their complexity and volatility present challenges for white supremacist supporters and potential donors.
The Challenges of Regulation
In recent years, regulatory bodies have pushed back against the use of cryptocurrencies for extremist funding, with significant efforts coming from the Financial Action Task Force (FATF). However, as new challenges from cryptocurrency continue to arise, the regulatory landscape remains underdeveloped. The lack of standardization is a major hurdle; while the FATF establishes international guidelines, implementation is left to individual states and financial entities, creating loopholes that extremist groups exploit.
Many white supremacist organizations are not designated as Foreign Terrorist Organizations (FTOs), allowing them to take advantage of regulatory inconsistencies. For instance, in December 2020, a French programmer successfully transferred over 410,000 EUR worth of Bitcoin to various American white supremacist groups, including The Daily Stormer. The cross-border nature of decentralized extremism underscores the necessity for adaptable, network-based regulations that consider the specific hierarchies within extremist organizations. Additionally, due to the unique characteristics of cryptocurrencies, traditional regulatory techniques often fall short in addressing the dynamic digital landscape.
Social Network Analysis: A Piece of the Cryptocurrency Puzzle
‘Blockchain analysis’ frequently integrates Social Network Analysis (SNA) to investigate cryptocurrency flows, including those related to extremist financing. SNA employs network properties to map user interactions, identifying key nodes and clusters within the blockchain. This approach has been utilized to study the structure of extremist organizations and disrupt their financial networks. For example, the Anti-Defamation League’s 2024 report utilized network graphs to visualize flows of 142,546 USD between extremist actors and VASPs like Kraken and Binance.
SNA techniques such as tracking ‘peel chains’ can further obscure extremist fund movements through various crypto wallets, making detection challenging. Identifying and categorizing wallet clusters can provide insights into the funding landscape linked to extremist organizations. This method enables the distinction between original and subsequent transaction values, facilitating the tracing of funds through the blockchain. As regulatory cooperation and more advanced transaction monitoring tools evolve, they will enhance the ability to identify and disrupt extremist financial networks effectively.
Conclusion
In summary, employing SNA within blockchain analysis significantly contributes to refining financial monitoring methods. As extremist groups increasingly leverage cryptocurrencies for fundraising, financial institutions, regulators, and VASPs must go beyond conventional Know Your Customer (KYC) practices. Understanding the patterns associated with cryptocurrency flows related to extremism becomes imperative in addressing and mitigating risks. Without addressing complex funding strategies like peel chains, responses to extremist financing will be insufficient, resulting in limited effectiveness in countering these evolving threats.
