Islamic State's Online Currency Adventure

Author: Geneva Image source: Dazhi

Bitcoin vs. Gold, The Islamic State is currently experimenting with currency, a further step in its ambitions to create an independent nation. But will this new move further solidify its position as the international community works to eradicate the group?

The Islamic State wants to carve out a new territory in the countries of the Middle East and Africa, and its latest strategy explains a political project that encompasses all aspects of life, especially finance and economics.

In its attempt to transform itself from a group of disparate militants into a recognized state, the Islamic State (IS) has been building state-level institutions and services, including schools and hospitals, and now a finance ministry.

At about the same time that the Islamic State began minting and issuing its own currency, the “golden dinar,” it also began using decentralized technology Bitcoin directly. However, the group’s use of the two currencies is likely for different purposes.

Donate via digital transactions

The complex technology behind the digital currency makes it difficult to track, but an unidentifiable wallet - or account tied to IS - has received $23 million (20.3 million euros) worth of bitcoins in the past month.

The European Union Institute for Security Studies (EUISS) published a report in June detailing the digital currencies and encryption platforms used by IS, noting that this makes Bitcoin particularly "difficult to track" the movement of finances and black market goods.

"Sadaqa (private donations) is one of ISIL's main sources of income, and its supporters around the world are said to use digital currencies such as Bitcoin to transfer funds to accounts held by ISIL militants quickly and with minimal risk of detection," EUISS junior analyst Beatrice Burton wrote in the report. ISIL in the report is an alternative acronym for IS.

To date, thousands of dollars worth of Bitcoin has been transferred to accounts allegedly affiliated with the Islamic State, with one account's first transaction recorded in 2012.

However, an investigation into a series of transactions carried out by this related account revealed another account with more than $3 million (€2.65 million) in Bitcoin, but it is not clear who the account owner is.

The high-profile account was discovered by an anti-Islamic State hacker group, GhostSec, a collective of Anonymous hackers.

Ideological basis

In a paper titled "Bitcoin and the Charity That Fights Violence," 17-year-old Ali Amin hypothesized that "Islamic countries" would use Bitcoin as an alternative currency after criticizing the use of foreign currencies as a means of exchange.

"One solution that has been proposed is to use something called 'Bitcoin,'" Amin, who uses the alias Taqi'ul Deen al-Munthir, wrote in the article.

Amin, who is widely known for his Twitter account @AmreekiWitness, which has now been suspended, was arrested in Virginia, the United States, in June for teaching Islamic State militants how to use Bitcoin and crypto platforms to remain anonymous online in order to provide material support to the "terrorist organization." In August, he was sentenced to 11 years in prison.

Before his arrest, Amin proposed a bitcoin market built on the Islamic legal system, in which the arbitrators would be religious judges, qadis, as judges were called when the Ottoman Empire and the Caliphate were unified.

“New advances in Bitcoin allow the Bitcoin market to operate under any legal system of an individual’s choice. This instantly makes the Bitcoin market the only market that complies with Islamic law, transcends national borders and state regulations, can transfer money at any time, and is immune to the pursuit of the black government of South Africa (sic)” Amin wrote. In the article, Amin used the Arabic word “infidels” to refer to Western countries.

"This system has the potential to restore the lost Sunnah of donating to the mujahideen. It is simple, easy, and let us ask Allah to bring it to us soon," Amin wrote.

"Golden Dinar"

International donations can come to the terrorist group in the form of the cryptocurrency Bitcoin, while the Islamic State has also launched its own currency in some of the territories it controls.

From commodity exchange to coin minting, a video titled "The Rise of the Caliphate: The Return of the Golden Dinar" released in early September tells a financial history of the currency's development and ends with the direct release of the "Islamic State" currency.

According to the video, the militant group has reverted to using "gold dinars and silver dalhams as the ultimate measure of goods and services."

"On the reverse side of the coin is a world map showing the territories where the Prophet and Islam will rule, including Constantinople, Rome and America," the video's narrator said.

The video also shows militants distributing the new currency to ordinary people in what appears to be the Syrian city of Raqqa, which is de facto the militant group's capital.

Launching a currency is just one of the militant group's moves to create a state, a step that could allow it to further consolidate its power in Iraq and Syria as the international community works to root out the desperate militant group.