Inaccurate methodologies have resulted in overstated metrics about the use of cryptocurrency by terror groups fighting Israel, according to Chainalysis. The analytics company has tried to “correct the record” on crypto’s role in terrorism financing amid ongoing hostilities in the Middle East.

Terrorism Financing Is a Small Portion of Already Small Illicit Crypto Volume, Says Chainalysis

Blockchain forensics firm Chainalysis has turned attention to some “overstated metrics and flawed analyses” in recent reporting about the leveraging of cryptocurrency by terrorist groups like Hamas, Hezbollah, and the Palestinian Islamic Jihad.

While working in support of efforts to freeze and seize digital assets that may be used to fund their activities, the analytics company recognized that some terrorist organizations raise, store, and transfer funds using crypto. At the same time it also pointed out:

Terrorism financing is a very small portion of the already very small portion of cryptocurrency transaction volume that is illicit.

“Terrorist organizations have historically used and will likely continue to use traditional, fiat-based methods such as financial institutions, hawalas, and shell companies as their primary financing vehicles,” Chainalysis said in a blog post on Wednesday.

It highlighted the employment of “inaccurate methodologies for estimating cryptocurrency’s role in terrorism financing” and noted that the inherent transparency of blockchain technology makes crypto less suitable for illicit activities.

The article examines the role of service providers in such transactions such as the Gaza-based Buy Cash business that provides money transfer and crypto exchange services which was recently sanctioned by the U.S. Treasury Department.

It also gives an example with a wallet affiliated with terror financing and its counterparties, among which are about 20 suspected service providers. The company’s analysts have found that eight of these have also transacted with Garantex, a sanctioned Russian exchange that, according to a recent report by the Wall Street Journal, moved money for Gaza groups.

While emphasizing that disrupting facilitators like these is a priority, Chainalysis also notes that “not all funds received by service providers are terrorist funds.” It warns that tracing through service providers could lead to inaccurate conclusions as when someone sends crypto to an address used by a service provider, it’s often pooled and co-mingled by the platform with the funds of other users.

What are your thoughts on the findings in the Chainalysis blog post? Share them in the comments section below.