Cryptocurrency and terrorism: ISIS’s use of privacy coins and global regulatory gaps

Abstract

The paper explores the problem of terrorist financing, taking into consideration the new tendency of using privacy-focused cryptocurrencies and decentralized systems. In particular, the case of ISIS increased use of Monero and Tron, which provide greater anonymity. As the traditional money transfer systems, especially hawala and cash courier systems, are increasingly regulated and subject to being tracked, terror groups have turned to digital assets which allow them to remain anonymous, transfer funds across national borders without restrictions, and avoid regulation entirely. Reports shows that ISIS had used these mechanisms to receive over USD 2 million in 2023-2024 in untraceable crypto transfers. The study uses a qualitative case-study analysis method based on Rational Choice Theory (RCT) and Actor-Network Theory (ANT). The results highlight three immediate problems that face global attempts at counter-terrorism: the limited ability of blockchain analytics to track privacy coins, the utilization of country locations with low regulatory control, and the technology gap between terrorist developers and regulators. The paper ends with a set of policy recommendations that will enhance international cooperation, increase the regulation of cryptocurrencies, improve the blockchain forensics, and create a balance between the opportunity of financial innovation and the needs of global security.