Insight by Chainalysis

Cryptocurrencies link the threats from China and Iran

The world is full of alliances that produce international concern, like the alliance between the People’s Republic of China and Iran. The two countries share a preference for using cryptocurrency in their joint pursuits.

“The headline here is there are a tremendous number of links between China and Iran, and cryptocurrency is a driving force for a lot of that,” said Derek Claiborne, the director of national security initiatives at Chainalysis. The company uses a combination of public blockchain data, proprietary intelligence techniques and heuristics  to assist intelligence and defense agencies to better see the cash flows that undergird threats to national security.

Claiborne estimated that Iran accounts for 4.5% of the Bitcoin hash rate, “which means they’re doing a tremendous amount of mining in cryptocurrency.” This activity is linked to the country’s money laundering, sanctions evasion, drug trafficking and terror financing.

Claiborne said Chainalysis estimates China performs 60% of the world’s hash rate. If that’s the case, the United States, if it is to have a full picture of the China challenge, needs “to understand what they’re doing in this space, how they’re doing it, why they’re moving funds, and the source nature and location of why they’re moving those funds.” All that requires analysis of blockchains, which are publicly available but difficult to assess. He noted the government does the mining, but bans other organizations and individuals in China from doing so.

Crypto also links Iran to China, Claiborne said. At one point in 2022, “we saw 1.3 million barrels [of oil] a day exported from Iran to China. And during that period, there was a tremendous amount of cryptocurrency activity linked between the two countries.”

The flood of deadly fentanyl into the United States has vexed the national security apparatus across the board.

“The linkages that we see, to be able to follow these webs of payments, are clear within the cryptocurrency community,” he said. “Cryptocurrency is a way to send money quickly, swiftly without borders, and without an intermediary like SWIFT to stop a transaction,” he said, referring to the Society for Worldwide Interbank Financial Telecommunications.

Even so, he said international communications and cooperation among allied nations is crucial to   these transactions. He said each of the national security domains – whether military, law enforcement, intelligence or diplomacy – shares a need for blockchain analytics in order to have better situational awareness of the financing of adversarial activities and linkages among players.

“As cryptocurrency adoption grows, it will increasingly be used by both good and bad actors, and will intersect with missions across US national security agencies”, Claiborne said.

He added, “The Chainalysis thesis is that all value will eventually move to the blockchain. Having this data and these tools to be able to identify and track these flows of funds is really important.”

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Featured speakers

  • Derek Claiborne

    Director of National Security Initiatives, Chainalysis

  • Tom Temin

    Host, Federal Drive, Federal News Network