When you wanted to send money without letting anyone know what you were doing, Bitcoin was a great option. You could locate a dubious broker who would take bags of cash in return for Bitcoin, which you could then send around the globe while remaining hidden behind a string of your initials and letters and out of the prying eyes of compliance officers or intelligence officers.
That dream was dashed with the emergence of blockchain analytics companies like Chainalysis and Elliptic, as well as the increasing recognition by law enforcement agencies that Bitcoin represented a golden age of surveillance, as has been extensively documented by articles and books such as Andy Greenberg’s Tracers in the Dark. Because everything in Bitcoin happens publicly on the blockchain, careful investigators could group transactions together, force intermediaries to disclose the IP addresses or locations of their users, and expose bad actors like never before.
According to messages shared on a Telegram group, a Palestinian news outlet, Hamas made headlines around the world in April 2023 when it declared that its military wing would no longer accept Bitcoin donations. Despite Hamas’s use of platforms such as Binance to finance its operations and launder money, law enforcement sting operations repeatedly frozen the wallets.
However, following the outbreak of the most recent conflict in Gaza, the Wall Street Journal claimed that Hamas had raised millions of dollars in cryptocurrency in the year preceding the attack in Israel on October 7. This report caused controversy as Elliptic, the blockchain analytics company that provided the data for it, attempted to retract its own conclusions.
The question of how Hamas raised cryptocurrency in the face of frequent wallet freezes was, however, far more intriguing. An explanation was given by a recent report published over the weekend. Instead of using Bitcoin, Hamas was shifting to a way of financing illegal activities that was becoming more and more common: the stablecoin Tether, which is issued on the Tron blockchain.
According to the data 92% of terrorist financing used Tether on Tron. Actors barred from the conventional financial system, such as Hamas, find the stablecoin and blockchain appealing because they are both renowned for being unregulated and less vulnerable to seize-and-freeze requests from law enforcement.
In order to settle debts, money service businesses in Gaza, which resemble conventional storefront operations that offer international money transfers, reportedly send digital tokens like Tether to operators abroad. This is an innovative take on the alternative remittance system known as hawala. Large amounts of money could now be received by Hamas and its affiliates, negating the need to transfer actual currency. Up to half of the money passing through the exchanges, according to Israeli officials, was going to Hamas.
It is now harder to track where money is coming from and going as well as how much is truly connected to criminal organizations—behaving almost like a low-tech mixer similar to Tornado Cash—because of the addition of money service companies and the privacy-enhancing features of Tether and Tron. Smaller shops are harder to police than larger platforms like Binance, which are willing to comply with seize-and-freeze requests and sanctions controls.
Probably the most crucial question is one of scale: How much cryptocurrency is being moved using this technique? The answer is hazy as usual.