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National Security Implications of Virtual Currency Summary

Core Content

This report explores the potential for non-state actors, such as terrorist organizations, insurgent groups, and criminal networks, to use virtual currencies (VCs) to increase their political and economic power. It also evaluates the technological and strategic challenges of deploying and disrupting VCs, as well as the broader implications of VC technologies beyond their use as currency.

Main Research Questions

• Why would a non-state actor deploy a VC?
  Non-state actors may deploy VCs to disrupt state-based financial systems, especially in regions with weak financial infrastructure or limited legal enforcement. VCs could offer a more resilient and anonymous means of conducting transactions, thereby enhancing their ability to operate without interference.

• How might a government or organization disrupt a VC deployment?
  Governments or organizations could employ cyber attacks, ranging from relatively simple distributed denial-of-service (DDoS) attacks to sophisticated zero-day exploits or infrastructure subversion, to undermine VC operations.

• What additional capabilities could emerge from VC technologies?
  The technologies underlying VCs, such as blockchain and cryptographic systems, could enable broader cyber capabilities, including secure, anonymous data storage and resilient communication services, which could benefit both non-state actors and other users.

Key Findings

• VCs as a Medium for Economic Transactions:
  VCs are not issued by central banks or public authorities and are not necessarily tied to fiat currencies. They are accepted as a means of payment by users, and their use could provide non-state actors with a new way to conduct economic transactions without relying on traditional financial systems.

• Deployment Challenges for Non-State Actors:
  Deploying a VC from scratch requires high technological expertise, extensive infrastructure, and significant resources. These are typically lacking among non-state actors, making such efforts difficult and risky.

• Resilience and Anonymity:
  Decentralized VCs, like Bitcoin, are inherently more resilient to attacks due to their distributed nature. However, they also offer anonymity, which could be exploited by non-state actors to evade detection. Some newer VCs, such as certain altcoins, incorporate features that enhance anonymity.

• Cyber Sophistication Requirements:
  The degree of cyber sophistication needed to disrupt a VC deployment varies. Less advanced adversaries may use DDoS attacks or exploit market rules, while more advanced actors could target the underlying infrastructure or corrupt software used by participants.

• Technological Contributions of VCs:
  VCs contribute to the advancement of cryptographic technologies and the development of decentralized cyber services. These could lead to more secure and resilient information systems, potentially aiding non-state actors.

• National Security Implications:
  The rise of VCs could have significant implications for national security, including the potential for increased resilience in cyber services, challenges to traditional financial systems, and the need for new countermeasures.

Conclusion and Future Research

The report concludes that while the deployment of VCs by non-state actors is currently challenging, it may become more feasible in the future due to the increasing availability of relevant technologies and growing public familiarity with them. The U.S. Department of Defense and other national security entities should be aware of the evolving threat landscape and the potential for VCs to be used as tools for both legitimate and illicit purposes.

For future research, the report suggests exploring the long-term impacts of VC adoption, the development of advanced cryptographic techniques, and the strategic responses of nation-states to VC-based threats.

Key Terms and Abbreviations

• VC: Virtual Currency
• DDoS: Distributed Denial of Service
• MPC: Secure Multiparty Computation
• TTP: Tactics, Techniques, and Procedures
• ZK-SNARKs: Zero-Knowledge Succinct Arguments of Knowledge
• IP: Internet Protocol
• VOIP: Voice over Internet Protocol
• ISIL: Islamic State of Iraq and the Levant
• DoD: Department of Defense
• DARPA: Defense Advanced Research Projects Agency

Implications for Policymakers and Researchers

• Policymakers should consider the growing feasibility of VC deployment by non-state actors and the potential risks to national security.
• Researchers should explore the broader technological implications of VCs, including their role in advancing cryptographic and decentralized systems.
• The U.S. national security community should develop strategies to counter VC-based threats, particularly in regions with weak financial systems.

References and Appendices

• The report includes an appendix that outlines a tiered system for rating cyber threat sophistication, which helps in understanding the varying levels of capability among potential adversaries.
• References to academic and policy literature, as well as white papers from security organizations, are included to support the analysis.

Summary of Key Points

• VCs offer non-state actors a potential tool to increase their influence and economic power.
• Deployment of VCs is technologically and politically complex, requiring significant resources and expertise.
• The anonymity and resilience of VCs could be exploited by non-state actors to evade detection and disruption.
• The broader technological implications of VCs include the development of more secure and decentralized cyber services.
• The U.S. and its allies should remain vigilant and prepared to counter the growing threat of VC-based activities by non-state actors.