Believe it or not, Elizabeth Warren is asking good questions about how Hamas is using crypto
Believe it or not, Elizabeth Warren is asking good questions about how Hamas is using crypto
Making sense of crypto’s latest information war
Happy Glitching Hour! As we have said before, we enjoy trying new things. We hope you enjoy this edition, which features a standalone article.
Cryptocurrency advocates of all political stripes are united in their contempt for Elizabeth Warren. The consensus, backed by Beltway reporting and her own unyielding public criticism of the industry, is that she is proudly “anti-crypto.”
The latest evidence is a letter sent to the Biden Administration on October 17—for which the Democratic Senator from Massachusetts was the lead signatory—that argues crypto is partly to blame for the bloodshed this month in Israel and Gaza. Signed by 102 members of Congress, the letter claimed that Hamas and one of its allies, Palestinian Islamic Jihad, “raised over $130 million in crypto” between August 2021 and June 2023.
Warren rarely misses a chance to knock crypto, so no one was surprised to see her pushing this line. But then it came to light that the dollar figure in the letter wasn’t entirely accurate. Crypto influencers pounced. “MISINFORMATION!”
But just how far off base is the number? Despite what you may have heard or read in the crypto media, a closer look at the facts at hand—and, crucially, those not at hand—suggests that it may not be so outrageous.
Either way, if you read past the number in dispute, the letter is asking good questions—queries that crypto fans might like answers to as well.
The murky “service provider” effect
The letter cites a report from the Wall Street Journal as the source of the $130 million figure. “Hamas Militants Behind Israel Attack Raised Millions in Crypto”—that’s the headline on the article, which was published on October 10. Here’s the intro: “Hamas’s lightning strike on Israel last weekend raised the question how the group financed the surprise operation. One answer: cryptocurrency.” The assertion is clear. The truth, not so much.
The article says that in the year leading up to the attack, Hamas and Palestinian Islamic Jihad (PIJ) received large amounts of funds through crypto, citing Israeli government seizure orders and blockchain analytics reports. Then comes the following passage:
“Digital currency wallets that Israeli authorities linked to the PIJ received as much as $93 million in crypto between August 2021 and June this year, analysis by leading crypto researcher Elliptic showed. Wallets connected to Hamas received $41 million over a similar time period, according to research by another crypto analytics and software firm, Tel Aviv-based BitOK.”
The Warren letter simply added those two numbers together.
The next day, Elliptic’s rival Chainalysis published a rebuke of what it called “overstated metrics and flawed analyses.” Though the post didn’t name names or refer specifically to the figure in question, it implied that the $93 million figure in the WSJ article was likely a significant overestimate from *someone* (again, the post doesn’t say who) mistakenly counting the crypto in wallets owned by “service providers” not affiliated with Hamas.
“In order to measure the scale of terrorism financing in cryptocurrency and identify opportunities for disruption, investigators and other experts need to understand the role of service providers,” the Chanalysis post said.
“Service provider” is an umbrella term for a range of businesses, from big crypto exchanges to smaller, more informal “street-level” money service businesses, according to Chainalysis. “They offer trading services, which likely offer the exchange of cash for crypto and also sending to a third party, or vice versa,” Chainalysis’s head of sanctions strategy, Andrew Fierman, said in an email to Project Glitch. “This could range from funds transfers between family members that don’t have access to traditional banking systems, to standard business transactions, to, at worst, financing terrorism.”
Blockchain users are pseudonymous, represented in the transaction data as long strings of numbers and letters, and there is no limit to how many addresses someone can use. Analytics companies use sophisticated methods, combined with public information—for example, address seizures by law enforcement agencies—to identify transactions associated with terrorist activity.
Still, according to Fierman: “It can be challenging to distinguish between a service provider facilitating transactions on behalf of a terrorist organization, and one that is knowingly facilitating or even owned/controlled by the terrorist organization itself.”
One reason is that militant groups go to great lengths to hide their tracks on the blockchain, including by setting up front businesses—some of which look similar to unaffiliated “service providers” based on their activity on the blockchain.
The other puzzle pieces
Back to the WSJ article: “Digital currency wallets that Israeli authorities linked to the PIJ received as much as $93 million in crypto between August 2021 and June this year, analysis by leading crypto researcher Elliptic showed.”
This is a reference to blockchain analysis based on a seizure order in July, in which Israel’s National Bureau for Counter Terror Financing (NBCTF) disclosed 26 Tron blockchain addresses that Elliptic said contained $93.7 million in cryptocurrency. “Since the order also involves crypto exchange wallets, it’s not clear exactly how much of these funds belong directly to the PIJ,” Elliptic’s post about its analysis acknowledged.
To illustrate the degree to which $93 million may have been an overestimation, Chainalysis referred to a separate case in which “a wallet known to be affiliated with terror financing” transacted with at least 20 different “suspected service providers.” One of those 20 received $82 million in crypto—but only about $450,000 came from the “known terror-affiliated wallet.” The point is that mistakenly identifying the former as a wallet owned by terrorists would have vastly inflated the real number.
It’s important to note again that this was just meant as an illustrative example, and is separate from Hamas. Chainalysis is not saying the disputed $93 million number is wildly wrong. (Unfortunately, some did interpret it this way—including the hosts of Bankless, a popular crypto podcast.) It is only saying that in this case, the assertion that Hamas raised $93 million in crypto, based on an analysis of the 26 wallets the Israeli government seized, is likely an overestimate. By how much? We (members of the public) don’t know.
What about the other piece of the disputed $130 million figure? Again, from the WSJ: “Wallets connected to Hamas received $41 million over a similar time period, according to research by another crypto analytics and software firm, Tel Aviv-based BitOK.”
As BitOK explained in an October 26 tweet, its figures are based on an analysis of addresses that belong to companies that the Israeli government has “repeatedly pointed out are controlled by and affiliated with Hamas.” It stands by its analysis that these wallets received $41 million while they were active between 2020 and 2023. So, Hamas-controlled addresses did receive at least $41 million in crypto—at least if BitOK is to be believed. (A recent independent analysis of the same addresses by a researcher at Flipside Crypto came up with similar results.)
At the very least, then, it appears that Hamas has used cryptocurrency as a tool to either directly raise or launder a substantial amount of money. But how substantial relative to the amounts raised and laundered by traditional means?
“Crypto right now is not the main source of funding for Hamas,” said Shlomit Wagman, the former director-general of the Israel Money Laundering and Terrorism Financing Authority, during a Senate Banking Committee hearing focused on combating illicit finance.
“Generally speaking, the funding of Hamas comes from state funding, in many different channels,” she said. Iran is the primary state funder. The US State Department said in 2021 that Iran “provides up to $100 million annually” to Palestinian terrorist groups.
How much Hamas raised using crypto isn’t the only question, though. “Crypto is an important way of raising funds through crowdfunding,” Matthew Levitt, a fellow at the Washington Institute of Near East Policy, a DC think tank, testified during the hearing. “But I think it’s a more important thing in terms of how they move money.” He added: “We need to pay as much attention to how much terrorist groups like Hamas transfer funds as we do to how they raise funds.”
This stuff is not only technically complex but also financially complex. And there is potentially a lot of relevant information that folks without security clearances aren’t privy to. That all makes the topic challenging to argue about with any kind of authority. If law enforcement officials kept less information secret, perhaps a more productive dialogue—where both sides get more of what they want—would be possible between crypto and its critics in Congress.
“I believe strongly in the value of the distributed ledger,” Senator Mark Warner of Virginia (and a signatory on the controversial letter) said during the same Senate Banking Committee hearing. “But I do think—and I see more of this, frankly, from a setting as chairman of the Intelligence Committee, that unfortunately crypto is being used in a disproportionate way, particularly around rogue regimes like North Korea.”
Warner continued: “I think one of the things that ought to be really incumbent upon me and others on the intel side is to get more of this information declassified, so we can at least have more facts out there on this subject matter.”
That was one of the main points of the Warren letter, too. Read past the number that launched crypto’s latest information war, and you’ll notice a list of questions at the bottom. Here are some that might be of interest to crypto fans (edited for clarity):
Is (the WSJ’s reporting) consistent with the Administration’s estimates? Does the Administration have an estimate of the value of crypto assets remaining in wallets controlled by these groups?
Does the Administration have an estimate of what percentage Hamas, PIJ, and (Lebanon-based militant group) Hezbollah’s total funding moves through cryptocurrency channels? Does the administration know how those funds are utilized and through what means?
What information does the Administration have about which actors are facilitating the sending and exchange of cryptocurrency for other assets, including those exchanged for weapons? Where are the actors based? What actions has the Administration taken against these actors?
Both sides of this brouhaha should want answers to those.
—Mike Orcutt