Crypto Fuels Drone Purchases in Russia and Iran, Report Says

Russia and Iran Use Crypto to Fund Military Drone Purchases, Chainalysis Reports

Chainalysis Reveals Cryptocurrency's Role in Military Drone Procurement

By Hannah Lang

March 30 (Reuters) - Groups linked to Russia and Iran are increasingly using cryptocurrency to finance the purchase of low-cost military drones and components, according to a new report from blockchain analytics firm Chainalysis.

The Rise of Commercial Drone Use in Conflict Zones

Commercially available drones have become central to conflict in Ukraine and the Middle East, but because low-cost drones are widely available on global e-commerce platforms, it is often challenging for authorities to track who is behind the purchases and what their intent with the products might be.

Blockchain and Cryptocurrency in Drone Purchases

Traditional vs. Blockchain-Based Transactions

While most drone purchases are made using traditional financial rails, procurement networks are increasingly intersecting with the blockchain, the public digital ledger on which cryptocurrencies are based, Chainalysis found. That ledger allows investigators to map the path of a transaction from its origin to its destination.

Tracing Crypto Transactions to Drone Purchases

Blockchain researchers at Chainalysis were able to trace the flow of crypto from individual wallets connected to drone developers or paramilitary groups to the purchase of low-cost drones and their components from vendors on e-commerce sites.

Crypto Donations and Military Spending

Pro-Russia Groups and Crypto Funding

Since Russia's full-scale invasion of Ukraine in 2022, pro-Russia groups have raised more than $8.3 million in crypto donations, and drones have been among the specifically itemized purchases made with those donations, the report said.

Investigative Insights from Blockchain Analysis

"On the blockchain, there's this incredible opportunity, once you have identified the vendor to see the counterparty activity and make assessments that help clarify that utilization and the intent behind the purchase," said Andrew Fierman, the head of national security intelligence at Chainalysis.

Matching Crypto Transactions to Drone Purchases

Chainalysis was able to match transactions in crypto for between $2,200 and $3,500 to the exact price points of drones and drone components on e-commerce platforms, Fierman said.

"We saw everything from the request for the drones and the parts and how much they were looking to get, and then the pictures showing that they had procured those goods," he said.

Iran-Linked Groups and Crypto-Funded Procurement

The report also found that Iran-linked groups are using crypto to procure drone parts and sell military equipment. It specifically highlighted a crypto wallet with connections to Iran's Islamic Revolutionary Guard Corps purchasing drone parts from a Hong Kong-based supplier.

Implications for Authorities and Future Oversight

To be sure, the total volume of crypto tied to drone procurement remains small compared with overall military spending, but the report argued that the blockchain could help authorities better trace purchases that might have otherwise remained murky.

"The blockchain can provide a lot of insight that isn't necessarily traditionally available," Fierman said.

(Reporting by Hannah Lang in New York; Editing by Hugh Lawson)