US Think Tank: Terrorists and Cartels May Abuse Digital Currencies

A US government-funded think tank has released a report that explores the implications of digital currencies issued by "non-state actors" like terrorist groups, drug cartels and insurgencies.

The report by the RAND Corporation, entitled "National Security Implications of Virtual Currency", was published earlier this week. The more than 100-page report focuses primarily on hypothetical scenarios in which entities in conflict zones could seek to use a digital currency in a bid to create a domestic transaction network outside of the existing financial system.

On the subject of the benefits of creating a new digital currency, the report states:

"Deploying a virtual currency may be an attractive alternative for non-state actors who look to disrupt sovereignty and increase their own political or economic power by displacing state-based currencies. Virtual currency deployments are particularly attractive in developing countries and in countries undergoing internal turmoil, where the existing financial infrastructure is either insufficient or weakened."

Yet the report asserts that such a process would be challenging for certain groups.

"Developing a virtual currency from scratch, however, requires high technological sophistication, extensive networking and computational infrastructure, and enough expertise to ensure successful rollout and adoption, all of which are in short supply among nonstate actors," the authors note.

Despite these challenges, the report goes on to claim there is a possibility that terror groups and crime syndicates could deploy their own digital currencies in the future.

"In spite of current hurdles, the trends indicate a future in which virtual currencies could be deployed by non-state actors or other organizations, particularly given the rapid rate at which the needed technologies are becoming commodities available for purchase and the gradual but widening public understanding of virtual currencies," it states.

The report's publication follows a period of speculation in the media over whether terrorist groups, including the Islamic State of Iraq and the Levant (ISIL), are using digital currencies, with some pointing to unconfirmed evidence that the technology is being used to fund terror operations.

The RAND Corporation, founded in the late 1940s, draws the majority of its publicly disclosed funding from elements of the US national security apparatus, including the Department of Defense, the US Air Force and the US Army. The Department of Health and Human Services also contributes funding, as do universities and private organizations.

The full report can be found here.

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