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U.S. Military Probing Digital Currencies in Terror Fight

The U.S. military is studying digital currencies to learn how they are used by America's adversaries around the world.

The U.S. military is studying digital currencies to learn how they are used by America's adversaries around the world. JIM URQUHART / Reuters

The United States military is studying digital currencies like bitcoin to learn if they can be traced and to figure out how they are used by America's adversaries around the world.

CNBC has learned that the global policy counsel of the Bitcoin Foundation flew to Florida to meet with officials from U.S. Special Operations Command for a daylong discussion Monday on the role of so-called cryptocurrencies—of which bitcoin is the best known—in illicit finance.

The first-of-its-kind discussion came just as U.S. warplanes began flying missions over Syria in President Barack Obama's effort to check the advance of the Islamic terror network ISIS. A key priority for the U.S. military is stopping the flow of money to ISIS fighters and blocking the network's ability to process profits from kidnapping, extortion and illicit oil sales.

The military's interest in virtual currency is part of an overall effort by special operations forces to understand how their enemies finance themselves, and what intelligence special operators can glean by following the illicit money.

"We're trying to do our best to understand the true scope of the threat that we are dealing with," said a defense official who attended the meeting. "We have to fully understand all of the components and functions of the adversary across the globe—not just in Syria and Iraq—and the manner in which those adversaries raise, hide and move money."

Defense officials said ISIS is part of a global dark network on the Internet that is involved in the use of virtual currency—although ISIS itself is "principally funded through means other than virtual currency."

The invitation-only event, called simply the "Virtual Currency Workshop," was held at an office building in downtown Tampa near MacDill Air Force Base where Special Operations Command is based, and it included a meet-and-greet cocktail party at the Marriott Waterside Hotel & Marina on Sunday evening.

Business Leaders and Military

It was organized by a little-known but highly influential group called Business Executives for National Security, which facilitates connections between American business leaders and the U.S. military.

The group's members include a who's who of America's corporate and financial elite, according to its website, including Jeff Bezos of Amazon, former AIG CEO Hank Greenberg and David Koch of Koch Industries.

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"We sort of like to fly below the radar," said Susan Maybaumwisniewski, senior vice president for projects at Business Executives for National Security. She said her group has organized previous sessions for U.S. Special Operations Command, putting industry experts in front of American war fighters.

Previous topics have included capital markets and mobile banking. Maybaumwisniewski said the virtual currency event Monday was not specifically focused on ISIS, but rather a long-planned opportunity for the business community to brief the military on virtual currencies.

Among the roughly 100 attendees at the event, said several participants, were business executives and specialists in financial payment processing, experts in bitcoin operations, Silicon Valley executives, representatives from the U.S. Treasury and Department of Homeland Security, as well as members of the U.S. intelligence community.

A key question for the officers in the room: Can the U.S. military trace bitcoin? "That's a difficult question," said the defense official, "and one we're working through now."

One attendee characterized cryptocurrencies as "very dangerous stuff" for the U.S. military. "We were brought in [to Monday's meeting] to work on ways to meet the challenge," he said. "I don't want to say what they were."

The meeting marked a stark culture clash between the transnational, distributed technology of bitcoin and the centralized command ethos of the U.S. military.

For the Bitcoin Foundation, which represents a broad array of libertarian technologists who can be skeptical of the U.S. government, meeting face-to-face with the national security establishment carries certain risks.

"This is the first time I've talked in an organized way with the U.S. military," said Jim Harper, global policy counsel of the Bitcoin Foundation. "The bitcoin community doesn't necessarily endorse U.S. foreign policy, and the bitcoin community doesn't necessarily endorse everything the U.S. intelligence community does." But, he said, "things that are morally wrong, bitcoin rejects."

Cooperation May Continue

And he said cooperation with the U.S. military may continue. "On the things that the bitcoin community agrees with, I think there's certainly a lot of willingness to work together. It's unserious to think that you shouldn't familiarize law enforcement and the military with bitcoin."

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Harper said no one in the U.S. military at the event offered specific intelligence that ISIS is using bitcoin. And he said his message to the government is that bitcoin is an open, transparent, financial system. "Bitcoin runs on a transparent ledger system," he said. "The essence of the protocol is that it's a publicly run ledger system, contrary to the early vision of bitcoin as a magic cloak for evil behavior."

Pinguino Kolb, co-founder of the website Spelunk.in which tracks cryptocurrencies, said the digital currency community is largely skeptical of the U.S. government and of U.S. intelligence. News of a meeting between bitcoin advocates and the Special Operations Command may not be taken well in that community, she said. "A lot of people think, 'oh, my God, government—scary," she said. "They wouldn't look at both sides of the story as much as they would kind of just freak out on Reddit."

Still, Kolb said the broader cryptocurrency community understands the tensions between security and freedom. "Nobody wants the bad guys to get a bunch of money," she said. "But they don't want to lose their freedoms, either." She added that U.S. intelligence would do well to focus less on bitcoin and more on other alternative currencies that are more focused on anonymity, like Darkcoin, which Wired magazine called "the shadowy cousin of bitcoin."

For their part, the special operations officers said it's their job to dive into and understand new communities. "This was my first engagement with the Bitcoin Foundation," said the defense official. "I've read Mao Tse Tung's book," he added. "We are fascinated by anything that interests our adversary."

The military officials said they are mindful of the civil liberties concerns involved in monitoring private financial transactions on the Internet. "Anytime we come across information about a U.S. citizen, that information is to be disposed of if it is discovered," the official said. "Our purpose is never to disrupt legitimate businesses."

Participants in the event said they agreed to hold it under "Chatham House rules" that barred them from identifying other attendees or revealing what was said. But Maybaumwisniewski said attendees were mostly from government agencies and the military, as well as private sector experts. "We had bankers, we had most of the food chain for bitcoin in the room," she said. "The bitcoin people said this is a pretty visible process—all of your trades are online."

Monday's virtual currency meeting coincided with a larger military-only series of meetings at MacDill Air Force Base on terror financing. That event, the Department of Defense's annual Threat Finance Working Group, brought together representatives from all of the U.S. military's combatant commands to focus on all the ways terror organizations and other entities raise and spend money.

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The defense official—who attended both events—said military officers brought information learned about virtual currencies back to the larger group. "It's new to us," he said. "And it's gaining interest."