Международный научно-образовательный электронный журнал «образование и наука в XXI веке». Выпуск №25 (том 3)

 
Khalimov Dilovarkhuja Umed ugli, 

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Master's student at Tashkent State University of Law 
Sunnatov Vohid Toshmurodovich 
Tashkent State University of Law,
Acting Associate Professor of the Department of Criminal Law,
Criminology and Anti-Corruption, Doctor of Philosophy (PhD) 
 
COUNTERING THE USE OF CRYPTOCURRENCIES TO FINANCE TERRORISM
 
ANNOTATION: 
This scientific article explores the problematic issues of terrorist financing through digital currencies 
- cryptocurrency, the creation and control of which are based on cryptographic methods. It is noted 
that the modern banking sector remains the most reliable place for global transactions, and the system 
itself remains vulnerable to terrorist financing. The complexity and ambiguity of the category of 
issues and problems under consideration are concluded. 
Keywords: 
crypto-asset, cryptocurrency, consensus register (ledger), bitcoin "Crypto currency" 
(cryptocurrency), forging or ICO, blockchain, ZeroCash, Financial Action Task Force (FATF). 
Cryptocurrency is a kind of digital currency, the creation and control of which are based on 
cryptographic methods. As a rule, the accounting of cryptocurrencies is decentralized. The 
functioning of these systems is based on technologies such as blockchain, directed acyclic graph, 
consensus registry (ledger), etc. Transaction information is usually not encrypted and is available in 
clear text. To ensure the invariability of the base of the transaction block chain, elements of 
cryptography are used (digital signature based on a public key system, sequential hashing) [1]. The 
term was fixed after the publication of an article about the Bitcoin system "Crypto currency" 
(Cryptographic currency), published in 2011 in Forbes magazine. The very same author and creator 
of bitcoin, whose identity is unknown, like many others, used the term "electronic cash". 
Sometimes a new cryptocurrency appears as a fork from another cryptocurrency by changing 
the parameters, which makes them incompatible. At the same time, both cryptocurrencies can have a 
common transaction history until they are separated. 
The emission of different cryptocurrencies can occur through mining, forging or ICO. 
There are discussions about the economic essence and legal status of cryptocurrencies. In 
different countries, cryptocurrencies are considered as a means of payment, a specific product, they 
may have restrictions in circulation (for example, a ban on operations with them for banking 
institutions). The key feature of cryptocurrencies is the absence of any internal or external 
administrator. Therefore, banks, tax, judicial and other public or private authorities cannot influence 
the transactions of any participants in the payment system. The transfer of cryptocurrencies is 
irreversible - no one can cancel, block, challenge or force (without a private key) a transaction. 
However, the participants in the transaction can voluntarily temporarily mutually block their 
cryptocurrencies as collateral or establish that the completion / cancellation of the transaction requires 
the consent of all (or arbitrary additional) parties [2]. 
Cryptocurrency technology comes from the fact that there is no trusted node in the network - 
one whose actions are guaranteed to be true and who can confirm the correctness of other people's 
operations (the task of the Byzantine generals). For the first time, this problem was solved in the 
Bitcoin system due to the artificial complication of making changes to the transaction history registry. 
To store data, transactions are combined into blocks, from which a continuous chain (blockchain) is 
formed. Continuity is ensured not so much by numbering, but by including the hash sum of the 
previous block in the current block, which does not allow changing the information in the block 
without changing the hashes in all subsequent blocks. All hashes meet certain requirements, 
generating hashes that satisfy these requirements takes a long time or is very expensive. Only the 
longest chain is considered true. In different cryptocurrencies, the right to form the next block is 
received by the person who has completed a certain amount of work (Proof-of-work), has a certain 
amount in the account (Proof-of-stake), has provided some resources (Proof-of-space), or another 
procedure is taken as a basis, which easy to verify, but difficult to execute or fake. 

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As a rule, in cryptocurrencies, developers initially stipulate an upper limit on the total amount 
of emission. However, some cryptocurrencies, such as PPCoin[en], Novacoin, Sifcoin and others, do 
not have a fixed upper limit on the total amount of emission and both emission and deissuance are 
possible (by mandatory destruction of a fixed amount in each transaction). 
Most cryptocurrencies provide pseudonymity - all transactions between all addresses are 
public, but there is no data about the owners of the addresses. However, the identity of the owner can 
be established if additional information becomes known. ZeroCash outlines the ability to replace 
pseudonymity with anonymity. 
Since the terrorist attacks in Paris in November 2015, governments have "redoubled their 
efforts" in the fight against terrorism. The fight against terrorist financing continues, and the question 
arises, can this fight affect cryptocurrencies? [3]. 
In fact, regulators understand that cryptocurrencies are of no interest to terrorists. If legitimate 
players are forced out of the world of digital currencies, then we will see only a “disguise” from 
governments that will hide both the legal and illegal use of cryptocurrency. There are many 
“reinsurers” among politicians. But at the same time, there are many people among politicians who 
understand that prohibitive measures only harm, no matter how loud the headlines are. 
The role of cryptocurrencies in financing terrorism can be greatly exaggerated. Is bitcoin 
really the currency of terrorists? Such an opinion can definitely develop after reading some of the 
major media. But a recent study by the intergovernmental organization FATF on the main sources of 
terrorist financing shows a very different picture. 
The Financial Action Task Force (FATF) is an intergovernmental body that is developing a 
new systemic policy to protect the global financial system from criminal money laundering, terrorist 
financing and the creation of weapons of mass destruction. Recently, their report "New Terrorist 
Risks" was published. 
The report has a small section on digital currencies as a tool for possible terrorist financing. 
However, the report also states that foreign terrorist groups primarily use traditional methods. These 
are private donations, self-financing and criminal fundraising activities. Statistics show that new 
payment technologies represent a certain vulnerability that can increase over time, but the prevalence 
of these technologies among terrorist groups is currently extremely low [4]. 
The purpose of the report is to analyze the recently emerging methods of financing terrorism. 
The report argues that understanding how terrorists manage assets is key to limiting their access to 
money and disrupting their activities. Experts from the FATF global network, as well as from law 
enforcement agencies, intelligence agencies and financial intelligence units, took an active part in the 
preparation of this report. 
Terrorist groups raise money, typically for combat operations, propaganda, training, and 
recruitment. Anti-money laundering and anti-terrorist financing efforts have undermined the ability 
of these organizations to use some traditional fundraising methods. However, these organizations can 
adapt to certain methods of pressure, so the authorities must continue to control the use of traditional 
methods of financing by terrorists. 
Virtual and digital currencies are not mentioned until the last part of the report. 
Digital currencies have attracted terrorists and criminals because they offer transaction and 
user anonymity, transaction speed, low volatility and reliability, the report notes. 
Law enforcement has noticed that some terrorist websites are using bitcoin to accept 
donations. The authorities also discovered in online discussions among the terrorists that they were 
using the virtual currency to buy weapons. One of the branches of ISIS (ISIL) has previously proposed 
using Bitcoin to support terrorism. 
The report cites a recent case in which Virginia teenager Ali Shukri Amin, who was arrested 
for using Twitter to promote terrorism, instructed people on how to use Bitcoin. Amin had over 4,000 
followers on Twitter [4]. 
As attractive as cryptocurrencies are, other payment technologies are rated much higher on 
the FATF's list of concerns. One of the main ones is social networks. Donors of social networks and 
crowdfunding platforms often do not know the end use of the raised funds. Such campaigns can attract 

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thousands of donors. Terrorist groups also use other payment networks as communication platforms, 
including mobile apps, chat rooms and forums. 
The growing use of online payment systems by terrorists also requires significant attention. 
To avoid detection when using these systems, terrorists need to falsify registration information [5]. 
The exploitation of natural resources to finance terrorism is becoming increasingly popular. 
Other criminal activities that terrorists use to raise funds are smuggling, illegal mining, extortion, and 
kidnapping for ransom. 
Terrorist groups also infiltrate non-profit organizations to gain access to charitable funds. The 
2014 FATF Report on Not-for-Profit Organizations examined violations in the global non-profit 
sector. Charitable and non-profit organizations that operate in conflict zones are at increased risk of 
infiltration by terrorist groups. They may also be part of a chain of transfers of funds from legitimate 
commercial enterprises to terrorist organizations. 
Other illegal fundraising activities include credit card fraud, credit fraud, insurance fraud, 
smuggling, bank robbery, drug trafficking, tax fraud, extortion, kidnapping, and ransom. 
One section of the report examines how terrorist groups transfer their assets. It is noted that 
the banking sector remains the most reliable place for global transactions, and the system itself 
remains vulnerable to terrorist financing. Anti-money laundering measures make it harder for 
terrorists to exploit the banking sector, yet traditional financial products can still be used to finance 
terrorist activities. A terrorist group can open a bank account and obtain credit cards to allow members 
of their organization to access cash through the ATM network. 
Thus, traditional methods of financing are still the main ones for terrorist organizations, but it 
is necessary to control social networks, as well as monitor cryptocurrencies that provide anonymity 
in their transactions.