Ramifications of cryptocurrency proliferation on national security

Abstract

Cryptocurrencies constitute a fast-evolving, disruptive technological development. Their proliferation and mainstreaming are undermining national security in several ways. By exploring emblematic cases, this paper examines how decentralised digital assets challenge sovereign functions, complicate law enforcement efforts, and give rise to security challenges. It explores different state-level responses to these developments by drawing on policy documents, reports, and guidance from multilateral regulatory authorities, alongside literature from finance, security studies, international relations, and technology governance. Strategic considerations spanning areas of illicit finance, sanctions evasion, great power rivalry, and state co-option by means of issuing Central Bank Digital Currencies and establishing cryptocurrency strategic reserves are delineated. A comprehensive mapping of the actual impact of cryptocurrencies across several strategic domains is carried out, synthesising insights from previously siloed technical, legal, and international relations literatures into an integrative national-security analytical lens. Specific recommendations are provided for policymakers and planners to navigate this fast-evolving threat landscape. • Synthesizes siloed literature to elucidate how Cryptocurrencies impact national security. • Cryptocurrencies are reshaping threat landscapes and emerging as a domain for great power competition. • Stablecoins strain monetary policy in fragile economies, while Privacy coins hinder AML/KYC enforcement and counter-terror efforts. • Sovereign actors are already using cryptocurrency to circumvent sanctions, fund weapon programmes and covert operations. • CBDCs seek to harness the benefits of cryptocurrencies while re-asserting sovereignty, reflecting divergent geopolitical strategies.