Israel is one of only nine global nuclear powers and boasts one of the world's most advanced and interconnected air defense systems. Israel's "Iron Dome" has been largely successful at repelling air attacks from  Hamas for years.

But on October 7, Hamas — an Islamist militant group and de facto governing authority in Gaza that is classified as a terrorist organization by the EU, the US, Germany and other governments —  succeeded in overwhelming those defenses, firing more than 2,000 rockets into Israel from inside the Gaza Strip.

How did Hamas gather the resources for such a sophisticated attack against one of the world's most well-prepared militaries? According to analysts, cryptocurrencies played a significant role.

Millions in crypto funding

As a designated terrorist entity, Hamas faces sanctions and exclusion from the international banking system. Global counterterrorism financing measures go after any fundraising attempts by the group. Even so, reports show Hamas received a significant amount of funding in the form of cryptocurrency in the years leading up to the terrorist organization's latest brutal attack on Israel.

Crypto addresses linked to Hamas received $41 million (€39 million) between August 2021 and June 2023, according to crypto analytics and software firm BitOK, which is based in Tel Aviv. The Palestinian Islamic Jihad (PIJ), whose militants joined Hamas in carrying out the attack, received another $93 million in cryptocurrencies, according to The Wall Street Journal, citing an analysis by the London-based crypto researcher Elliptic.

The al-Qassam Brigades, the military wing of Hamas, have also received millions of dollars of cryptocurrency transfers, according to an Elliptic analysis. These transfers came in the form of bitcoin, the stablecoin tether and other crypto-assets, including dogecoin, a cryptocurrency popular with Elon Musk that was initially invented as a joke.

Some of these groups are even involved in crypto-mining, Elliptic says, which allows them to earn more money from the basic maintenance of cryptocurrency networks.

Crypto lets donors skirt sanctions

Under Hamas rule, Gaza has experienced severe economic isolation from many countries. Blockades with neighbors Israel and Egypt have restricted the movement of goods and people.

Even with these restrictions, US magazine Forbes named Hamas one of the wealthiest terrorist groups in the world in 2014, when their annual turnover was estimated to reach as much as $1 billion. This came from taxes and fees as well as financial aid and donations. Much of the funding for Hamas has come from expatriates or private donors in the Gulf region.

Iran is considered one of Hamas' most prominent financial backers. According to the US State Department, the Middle Eastern power provides Hamas and other Palestinian terrorist groups with around $100 million a year in funding. Qatar and Turkey have also financially backed Hamas.

Cryptocurrencies have made it easier for Hamas supporters in areas hostile to the group to get around sanctions. As early as 2019, the al-Qassam Brigades were asking supporters on its Telegram social media channel to send bitcoin.

"The reality of jihad is the expenditure of effort and energy, and money is the backbone of war," Hamas wrote in a post, attaching a wallet address that received about $30,000 in bitcoin that year.

Payments under pressure from authorities

In April 2023, however, the group said it would cease its bitcoin fundraising. This was due to a "doubling of hostile efforts against everyone who tries to support the resistance through this currency," they said on Telegram.

Cryptocurrency is still far from the largest funding source for terrorism, but there is a growing focus on cutting off this channel to Hamas.

Following the October 7 attack, Israeli authorities announced they had frozen several Hamas-linked cryptocurrency accounts, saying the group had organized another call for fundraising on social media.

"The Police Cyber Unit and Ministry of Defense immediately took action to locate and freeze these accounts, with the assistance of the Binance crypto exchange, in order to divert the funds to the state treasury," a police statement said.

Binance is the world's largest cryptocurrency exchange. While it is cooperating with Israeli authorities, the exchange is itself under scrutiny for the indirect but significant role it has played in financing terrorism. In recent years, authorities have attempted to seize cryptocurrency held on dozens of Hamas-linked Binance accounts, according to reports from the Wall Street Journal. The US Justice Department has also been investigating the crypto exchange for failure to prevent money laundering.

Binance investigation highlights criminal activities

Internal Binance communications revealed in court proceedings indicate that while Binance may not seek out criminal customers, it is aware of and tolerates this customer base.

In one internal exchange, former compliance chief Samuel Lim wrote that terrorists usually send small sums, as large sums would constitute money laundering.

"You can't buy an AK 47 [assault rifle] for $600," a colleague responds. Binance did not respond to DW's request for comment.

The United Nations estimates that cryptocurrencies account for 20% of terror financing in the world. The recent seizure of the Hamas accounts has renewed scrutiny of cryptocurrencies. Critics say crypto is the perfect funding tool for criminals because the payments can be difficult to track and can evade financial regulations.

"It's alarming and should be a wake-up call for lawmakers and regulators that digital wallets connected to Hamas received millions of dollars in cryptocurrencies," US Senator Elizabeth Warren wrote on X, formerly Twitter. "Crypto is the not-so-secret financial weapon funding terrorist organizations like Hamas, Chinese fentanyl networks and North Korea's missile program."

Update: On October 25, 2023, crypto researcher Elliptic released a statementclaiming that The Wall Street Journal, which originally broke this story, misrepresented data provided by them and other firms in the US newspaper's coverage of this subject. Elliptic, whose work is aimed at preventing the illicit use of cryptoassets, says it is not clear how much cryptocurrency has been accessible to Palestinian terror groups, and that while Hamas has been known to solicit Bitcoin donations, there is no evidence that crypto fundraising had raised funds close to what was originally reported. This article has been updated to clarify that the funds mentioned were sent to accounts with links to Hamas, though it is unclear how much money the terror group ultimately had access to. 

Edited by: Uwe Hessler