A court case is underway in the United States that could become a watermark decision for Bitcoin transaction privacy and compliance law.
Larry Harmon of Ohio — who, incidentally, owns the Coin Ninja media site — was recently charged and arrested for money laundering some 350,000 bitcoin (roughly $300 million at the time of the indictment) through his custodial mixing service, Helix. Harmon’s service catered to dark web market participants, particularly sellers, and he associated this service with Grams, his dark web search engine. Authorities may have sniffed Harmon out following the forced closure of AlphaBay in July 2017. At the time, AlphaBay was one of the most popular black markets on the web and the source of Harmon’s business.
“The sole purpose of Harmon’s operation was to conceal criminal transactions from law enforcement on the Darknet, and because of our growing expertise in this area, he could not make good on that promise,” Don Fort, the chief of the IRS Criminal Investigation unit, said in a press release. “Working in tandem with other sites, he sought to be the ‘go-to’ money launderer on the Darknet, but our investigators once again played the role of criminal disrupters, unraveling the interlinked web from one tentacle to another.”
Mix at Your Own Risk
Harmon’s legal defense is staking the claim that this case, ultimately, is an affront to online privacy. At its core, this case is about bitcoin’s fungibility — or whether or not each coin is indistinguishable from another. Bitcoin’s lack of fungibility from a technical perspective is a bedrock of the ongoing privacy debate surrounding the cryptocurrency.
For Harmon’s case, the issue of legal fungibility is coming to the fore.
“The District Judge (after a pretty substantial fight) overruled the Magistrate Judge and granted Larry release on bond conditions. So, it’s a glimmer of hope for the Harmon family — but the Government has seized all their properties and assets so they still need all the financial support the bitcoin community can muster. If the Government’s theory of the case is successful, it is the beginning of the end of cryptocurrency fungibility. The Government has made it clear that they conflate privacy with illegality,” Harmon’s attorney, Charles Flood, told us.
The problem is, there’s not much conflating that needs to be done in Harmon’s case. His mixer — which required its users to relinquish their private keys so funds could be shuffled — was used with the explicit purpose of obfuscating illicit funds. Thus, honest, privacy-savvy Bitcoin users should have nothing to worry about legally, so long as they have nothing to hide, Jesse Spiro, head of policy at Chainalysis, told Bitcoin Magazine.
But to Flood’s point, if an honest Bitcoiner winds up with coins that were involved in mixing illicit funds, those bitcoin could be tainted. Fungibility, then, could be very much at legal risk with this case — especially considering the compliance trend has prioritized marking such “dirty” coins.
“Honest, privacy-focused users shouldn’t have a problem because this shows law enforcement is focused on individuals who are using mixers to cover up criminal activity,” Spiro said. “The risk is that with mixers, honest people may unknowingly mix their funds with illicit funds, which may raise flags across the ecosystem considering the increase in compliance controls. Most of our customers consider mixers to be high risk, and as a result if they see their clients using them, it will trigger increased scrutiny and compliance measures.”
Compliance Ramped Up
Consequently, these “compliance controls” and “compliance measures” take root in Chainalysis’s own software and other blockchain analytics companies like it. These companies sell transaction querying software to exchanges, regulators and other officials with the ostensible aim of keeping tabs on illegal activity.
But Spiro’s comment betrays the consequence of this surveillance: Honest users can get caught in the crossfire.
That is precisely the worry at Samourai Wallet, according to their representative, who sees the case as an affront to online privacy and, depending on the outcome, an excuse to ramp up efforts.
“Regardless of the outcome of the investigation, the pro-compliance trends within the industry are very concerning,” they told Bitcoin Magazine. “The compliance companies have recently solidified their place and authority in the space and appear to be driving pro-KYC compliance policies and narratives. We expect this trend to continue but encourage users to push back by never opting into custodial or KYC services.”
Another wallet that provides CoinJoin services, Wasabi, declined to provide comment on the case.
A Custodial vs Non-Custodial Distinction
The anonymous Samourai representative believes this case won’t impact the wallet’s functions, which include a noncustodial CoinJoining service called Whirlpool. Helix was a custodial service (Harmon had to procure private keys from users in order to mix their funds), so his hustle has been treated under the law as a money transmitter. Samourai, on the other hand, “never takes possession of the coins and is not subject to the money transmitter issues that are being applied to Helix,” the representative said.
“Where Helix took possession of the coins on behalf of users, Whirlpool is merely a protocol that allows for the exchange of information between users, with the end user always retaining possession of their coins,” they continued. They also said that the team has not seen a trend of third parties targeting mixed transactions, [nor have they] received reports of flagged Whirlpool deposits into centralized exchanges.
To break this down further: With Helix, the funds are simply “mixed” and each user receives someone else’s coins in the process; with CoinJoins, each user batches his/her own bitcoin into a transaction with many other participants and, at the end, receives the same bitcoin back after it has been obfuscated using the service.
Still, technicalities aside, Spiro is not convinced that this argument would hold up in a court of law. The U.S. Treasury’s criminal task force, the Financial Crimes Enforcement Network (FinCEN), wouldn’t discriminate between custodial services like Helix and noncustodial services like Samourai or Wasabi. If your software has run-ins with illegal activity, you could be subject to enforcement, Spiro put it.
“FinCEN doesn’t make a distinction between something like Helix or something like Wasabi or CoinJoin, and this could be seen as a warning shot to all mixers and tumblers. It means that 1) they need to register with FinCEN, and 2) if they can’t keep bad actors from exploiting their services, they will be subject to law enforcement action,” he told Bitcoin Magazine.
This may be frustrating to Bitcoiners who understand that the CoinJoin services Samourai and Wasabi provide are — in the words of Samourai’s representative — “a fundamentally different proposition than what Helix was offering.”
Same Song, Different Dance?
Still, it remains to be seen whether or not this argument would hold up in court. With the creeping hands of compliance slowly closing over the cryptocurrency industry, though, transaction privacy is becoming increasingly compromised at the hands of authority and legacy financial regulations. Chainalysis’s software is becoming more sophisticated as well; as Spiro put it, it’s “very possible,” if “fairly labor intensive, to deanonymize coins that have been cleaned through a wallet like Wasabi or Samourai.” With enforcement ramping up and transaction analysis tools finding their way into the hands of exchanges and regulators, the war on Bitcoin transaction privacy is likely just beginning.
It will be fought in the courts, and we won’t know the ramifications for sure until more legal action takes place. After all, this is the first case in which a custodial/centralized mixer has been implicated in illegal activity as a money services business (FinCEn made it clear this would be the case in May of 2019).
The next question, then, is this: Will the “good guys” like Samourai and Wasabi be in hot water as regulators pay more acute attention? Spiro says it’s hard to say, but as the question looms, he believes more regulation will come to address it down the road.
“We anticipate further regulation will be introduced that will limit the viability and accessibility of those services to the ecosystem, regardless of whether they are custodial, centralized services or not. It’s hard to speculate what would happen if the operators of decentralized services were brought to court.”
The post The Bitcoin Mixing Case at the Center of the Fight for Transaction Privacy appeared first on Bitcoin Magazine.
KuCoin Exchange Hacked: $150 Million In Bitcoin and Ethereum Stolen
- Hot wallets of the popular cryptocurrency exchange KuCoin have been compromised and drained for at least $150 million worth of digital assets.
- The company reported the event as a “security incident” a few hours ago, reaffirming that “part of Bitcoin, ERC-20, and other tokens in KuCoin’s hot wallets were transferred out of the exchange.”
- The monitoring resource Whale Alert has tracked most coins sent to this particular address. In the past few hours, the address has seen numerous small transactions, possibly testing.
- Some of the less-known altcoins transferred out of the exchange’s hot wallets include DGTX, AGI, SNX, DX, SNT, DRGN, and more.
- To ensure that further unauthorized withdrawals cannot happen, KuCoin has suspended all deposits and withdrawals while conducting a “thorough security review.”
- The Singapore-based exchange asserted it had re-deployed the hot wallets after the incident. The statement reassured that the cold wallets are safe and unharmed, and users who have lost any funds will be reimbursed “completely by KuCoin and our insurance fund.”
- Binance CEO Changpeng Zhao, among other prominent individuals within the industry, has shown support and promised that his company will “actively” assist during the investigation.
- The exchange’s native cryptocurrency felt the adverse consequences immediately. KuCoin Shares (KCS) plummeted from over $1 to $0.86 in minutes. Since then, the token’s price has recovered to some extent and trades just beneath $1.
Crypto Market Cap Gained $10 Billion, Bitcoin Eyes $11,000? (Saturday’s Market Watch)
The cryptocurrency market continues to rebound and has added another $10 billion to its market cap since yesterday. Bitcoin trades around $10,700, while some leading altcoins mark serious gains.
Bitcoin Price Trades Around $10,700
Following yesterday’s increase in which Bitcoin topped at $10,800, the primary cryptocurrency retraced to its intraday bottom at about $10,550. However, the bulls intercepted the price dip and drove the asset upwards once again. Just as 2020 goes so far, this Bitcoin spike followed the 1-2% gains seen on Wall Street at the Friday trading session.
The S&P 500 (1.6%), the Dow Jones Industrial Average (1.34%), and the Nasdaq Composite (2.26%) were all deep in the green.
At the time of this writing, BTC has dipped to $10,760 after getting rejected at the first major resistance at $10,790.
As per the analysis, if BTC price breaks above, it could head towards the next resistance at $11,000, followed by $11,200, $11,360, and $11,530. Alternatively, should the asset fall, it could rely on the support levels at $10,580, $10,440, and $10,390, if necessary.
Despite stocks and cryptocurrencies, gold had failed to increase: Recording an intraday high of $1,875, the precious metal dived and closed the session at $1,860.
Altcoins Gain Traction
Some alternative coins lost significant chunks of value lately, but they have been recovering in the past few days. Ethereum has continued its upward movement with another 3% increase to above $350.
Ripple has surged by 5% to $0.243. Bitcoin Cash (1%), Polkadot (3%), Binance Coin (1%), and Litecoin (3%) are also in the green from the top 10. However, Chainlink has outperformed them all by marking an 11% increase. LINK has overtaken BNB and DOT and currently occupies the 6th spot.
As it typically happens, the most volatile price moves come from mid and low-cap alts.
CyberVein leads with a 21% surge. Ren (20.5%), Yearn.Finance (17%), The Midas Touch Gold (14%), DFI.Money (14%), Cardano (11%), Zilliqa (11%), HedgeTrade (10.5%), and Nervos Network (10%) follow.
In total, the cryptocurrency market cap has increased by $10 billion since yesterday. On a 48-hour scale, the metric is up by 8% since its bottom at $319 billion to $344 billion.
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Bitcoin Always Online In Venezuela: Launched The First Satellite Node In Collaboration With Blockstream
Bitcoiners in Venezuela don’t need the internet to send some Satoshis. Today, the crypto payments startup Cryptobuyer announced the successful launch of the first Bitcoin satellite node thanks to a collaboration between Cryptobuyer, Blockstream, and a team led by a crypto enthusiast named Aníbal Garrido.
The initiative allows interacting with the Bitcoin blockchain without the need of an internet connection. A satellite antenna installed in Venezuela is in charge of the communication between the node and the blockchain.
We successfully installed and run a satellite #Bitcoin node in #Venezuela which allows us to be independent of the internet to download messages and validate transactions. Thanks to @Blockstream @adam3us @richardbensberg @anibalcripto for all your support https://t.co/TUb6eG19XP
— Cryptobuyer (@cryptobuyer) September 25, 2020
How the Satellite Node Works
This novel solution allows the Venezuelan node to process information in real-time completely off-line. Thus, the normal functioning of the network in case of connectivity failure (something widespread in the country) is guaranteed. It also facilitates the use of cryptocurrencies in remote places where internet service is scarce, expensive, or even non-existent.
The project works as follows: Blockstream contracts a number of satellites to provide the communication service between the nodes and the blockchain. Cryptobuyer bought the necessary equipment to receive the signal and connect to the satellite, and Anibal Garrido and his team were in charge of assembling the antennas and making the required adjustments.
It’s been a pleasure working with @cryptobuyer and @anibalcripto to launch the first of many #BlockstreamSatellite nodes in #Venezuela, ensuring bitcoiners in the region are always connected to the Bitcoin network! 🛰⛓💻 https://t.co/hzqoR1nACI
— Blockstream (@Blockstream) September 25, 2020
For Alvaro Perez, a software programmer from Valencia City who helped set up the whole infrastructure, the node’s synchronization was an inspiring moment. In statements compiled by Cryptobuyer on an official blog post, the expert says that the operation was a “great achievement.”
“We downloaded the whole Bitcoin blockchain and successfully carried out the first transaction through a Bitcoin satellite node in our country on September 23, from the city of Valencia (…) We received bitcoin through the satellite connection without any internet connection. It was a moment of great achievement.”
The journey is just beginning for Bitcoiners in Venezuela
This would be the first of three antennas that Cryptobuyer plans to deploy to cover the country’s most critical areas. The remaining two will be placed in the country’s capital, Caracas, in the north of Venezuela, and Puerto Ordaz, an industrial city located south of the country.
Later on, they plan to deploy a large number of small devices that will serve as a sort of repeater antenna to create a sizeable mesh-type network that will facilitate transactions in Bitcoin even far away from the primary antenna.
Now there’s no excuse to start using some satoshis in the country. Venezuela keeps proving that it has plenty of reasons to be on the podium of the three countries with the most adoption of Bitcoin around the world.
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