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FACTORS OF REDUCING THE USE OF CRYPTOCURRENCY BY TERRORIST ORGANIZATIONS
Bad development mode of cryptocurrency.
With the growth of cryptocurrency types, uncertainty and internal struggle have plagued the long- term development of many cryptocurrencies, significantly reducing the reliability of cryptocurrencies. The instability of cryptocurrencies has greatly hindered the financing activities of terrorist organizations.
The uncertainty of cryptocurrency is mainly reflected in facilities, price, and other fac- tors. First, the basic system of cryptocurrency and its developers are not stable, and some cryptocurrencies may be abandoned by developers in the process of development or trading due to fluctuations in the international market, fraud, technical maturity, and other reasons.
Price is the main reason for the increasing uncertainty in cryptocurrency. On 22 May 2010, Hayes, a Bitcoin miner, used 10,000 Bitcoins to buy two pizzas, which started the exchange of Bitcoins. In February 2011, the value of Bitcoin reached US $1 for the first time; in late March 2013, the value of Bitcoin exceeded US $100 for the first time; around 12 March 2020, Bitcoin dropped as much as 43% in 24 h. Such unstable price fluctuations are easily affected by human factors, which is a risk to the use of Bitcoin for capital transfers. In addition, studies have shown that the price of cryptocurrencies is explosive, leading to the explosion of other cryptocurrencies (Bouri et al., 2019).
The instability of the Bitcoin value significantly affects the normal use of users. Currently, Bitcoin is a high-risk, high-return investment object for the public. The internal struggle of cryptocurrency is reflected mainly in the increasing number of types of cryptocurrencies. Although Bitcoin still accounts for the largest share of cryptocurrency, the continuous emergence of other cryptocurrencies and the development of new cryptocurrency technology impact the status of Bitcoin.
Because of the decentralized management of various crypto- currencies, once there is sufficient diversity among users, miners, investors, and other supporters, it is difficult for the currency system to develop in the long term because of the limitations of technology and management. The development of cryptocurrency systems is not sufficient to support such a complex structure. Therefore, the immaturity of the internal development mode and the complexity and uncertainty of the system have promoted a low level of currency credit since the emergence of cryptocurrency, which is extremely unfavorable to the long-term development of currency.
Strengthening the supervision of international organizations and countries.
Cryptocurrency is a type of virtual currency. FATF divides virtual currency into centralized virtual currency and decentralized virtual currency, which is a distributed, open-source, mathematical point- to-point virtual currency. In recent years, FATF has paid close attention to the development of virtual currencies. In June 2014, the FATF published “Virtual Currency: Key Definition and Potential AML/CFT Risk” in response to the emergence of virtual currency and its related payment mechanism, which defines the relevant terms like virtual currency and studies its potential financial risks (FATF, 2014).
In October 2018, FATF proposed using the concept of ‘virtual asset’, which refers to any digital value representation that can be traded, transferred, or used for payment. It does not include a numerical representation of legal tenders. According to the latest revised international standards on combating money laundering and terrorist financing and proliferation in October 2020, the relevant recommendations on virtual assets in Article 15 of the guidelines clearly indicate that countries should identify, assess, and understand the risks of money laundering and terrorist financing arising from the activities or operations of virtual assets and virtual asset service providers.
In addition, it is suggested that all countries take effective actions to ensure that they meet the requirements of AML/CTF to reduce the risk of money laundering and terrorist financing (FATF, 2020a). In September 2020, the FATF has completed a report on the risk indicators of virtual assets to help financial institutions, non-financial enterprises, and virtual asset service providers to identify the potential terrorist financing and money laundering risks of virtual assets.
It also provides useful information for financial intelligence, law enforcement agencies, prosecutors, and regulators to analyze suspicious transaction reports or monitor compliance with AML and ATF controls. The risk indicators proposed in the report include the technical function of increasing anonymity; abnormal transaction mode; transaction scale without reasonable explanation; and sources of funds related to crime (FATF, 2020b).
The report will help the financial sector carry out customer due diligence in order to avoid the illegal use of virtual assets by terrorist organizations. International organizations, especially FATF, provide action guidelines for countries to combat terrorist financing by proposing and reviewing cryptocurrency, which will effectively reduce the anonymity of cryptocurrency and hinder the illegal financing activities of terrorist organizations.
Teichmann and Falker (2020) proposed that the Liechtenstein Blockchain Act be used as a bench- mark for legislators to more effectively regulate blockchain. This provides a standard for the
supervision of cryptocurrencies via national law enforcement agencies.
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