Month: November 2018

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Following the SEC’s enforcement action against the founder of Ethereum exchange EtherDelta, cryptocurrency traders appear to be shying away from so-called decentralized crypto trading platforms while they wait to see whether more enforcement actions are coming down the pike.

DEX Volumes Take Major Haircut Following EtherDelta Charges

As first noted by crypto research group DRIVE Markets, day-over-day trading volumes on decentralized Ethereum exchanges have plunged significantly since Thursday morning when the Securities and Exchange Commission (SEC) announced that it had penalized the founder of EtherDelta for illegally facilitating securities trading.

According to blockchain analytics site DappRadar, the two largest Ethereum DEXs, IDEX and ForkDelta, have each experienced a 58 percent decline in 24-hour trading volume, while the fourth-largest, LocalEthereum, has seen its volume take a 36 percent haircut.

Trading volume on the largest EOS-based DEX — Newdex — is down 40 percent, though some smaller dApps categorized as exchanges have seen an uptick.

SEC Scrutinizes ‘Decentralized’ Crypto Exchanges

CCN reported yesterday that the Securities and Exchange Commission had filed charges against EtherDelta founder and US resident Zachary Coburn, alleging that he had illegally operated an unregistered securities exchange from 2016 to 2017. According to the SEC order, Coburn sold EtherDelta to foreign buyers in 2017, which is why the platform continues to process trades, even after the charges.

EtherDelta was, and under its current owners still is, one of many crypto exchanges that are classified as “decentralized,” meaning that, to some extent or another, they rely on smart contracts to facilitate the platform’s operations instead of exclusively using company-owned servers. Nevertheless, as the SEC order shows, there are degrees of decentralization, and under Coburn’s oversight, the exchange relied too heavily on off-chain infrastructure in his control.

It’s true that EtherDelta was non-custodial, meaning that users retained control over their private keys and funds when using the Ethereum exchange. However, in many other respects, EtherDelta functioned quite similarly to a conventional crypto exchange. For example, Coburn maintained off-chain order books, which minimized gas fees and improved the user experience but also made it easier for the SEC to claim that he had acted as an unlicensed exchange operator. Additionally, he profited from trading fees and provided customer support on social media.

Time for DEXs to Put on the Suit and Tie?

Friday’s DEX trading data suggests that, at least in the near-term, the SEC charges may have spooked traders. Indeed, the consensus among crypto legal experts seems to be that this was the first of many enforcement actions against DEXs, which in many cases are far more centralized than the acronym suggests. As Stephen D. Palley, a lawyer who specializes in blockchain-related legal matters, so eloquently put it:

Here is the simple take SEC Etherdelta order: if it looks like a duck, and quacks like a duck — it’s a duck. If you’re an exchange or a security and you call yourself a decentralized yada yada, good luck when the law comes calling.

— Palley (@stephendpalley) November 8, 2018

That said, it’s not entirely clear why increased SEC scrutiny would immediately result in lower trading volumes. Since virtually all DEXs allow users to swap tokens while retaining control of their private keys, traders should not have to fear that their funds would become trapped on such platforms, even if the SEC or another enforcement agency executed a full-scale takedown of their DEX of choice.

Nevertheless, it seems increasingly likely that, over time, DEXs with significant off-chain infrastructure will begin operating more akin to centralized platforms by requiring users to submit to KYC/AML verification, blocking users from prohibited jurisdictions, and scrutinizing what tokens are allowed into the order books. This process, as CCN reported, has already begun, with IDEX announcing last week that traders must undergo identity verification and that users in some jurisdictions will be blocked from accessing the platform.

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Bitcoin pioneer Charlie Shrem saw his assets unfrozen yesterday, dealing a major setback to Gemini founders Cameron and Tyler Winklevoss’ quest to reclaim more than $30 million worth of crypto funds they allege Shrem stole from them more than five years ago.

Recent Developments

BitInstant founder Charlie Shrem has seen recent headway in his defense against the Winklevoss twins, seeing his assets unfrozen, according to a Bloomberg report yesterday. “A judge froze Shrem’s assets last month before Shrem found out about the suit, but lifted that order Thursday after a court hearing,” the report said.

Shrem also reportedly moved to dismiss the case, arguing that he never possessed the specified bitcoin in the first place and that they belong to a different, unnamed member of the cryptocurrency space.

Bloomberg states that Winklevoss twins attorney Tyler Meade lobbied for the continuation of the asset freeze, detailing a few of Shrems recent extravagant purchases — including a $2 million house. Shrem supposedly has $12 million in real estate assets.

According to Brian Klein — Shrem’s lawyer — the Bitcoin Foundation founder now holds significantly less in crypto assets. Klein argued that the lawsuit should be valued at the price of the 5,000 bitcoins at the time of the alleged theft — $61,000, compared to their $32 million valuation today. The trial, meanwhile, is set for June 17.

Case History

Charlie Shrem saw jail time for about a year back in 2015, being released the following year. His crimes including selling bitcoin to customers of the famous Silk Road, an online black market dealing in cryptocurrency.

On November 2, CCN first reported on the new court case involving Shrem, which is unrelated to his previous sentence. Bitcoin billionaires Tyler and Cameron Winklevoss registered the lawsuit against Shrem, claiming he robbed them of 5,000 bitcoins, dating back to 2012.

CCN reported that Shrem went to prison with almost no value in assets. But after his release in 2016, his spending habits show otherwise.

“Either Shrem has been incredibly lucky and successful since leaving prison, or — more likely — he ‘acquired’ his six properties, two Maseratis, two powerboats and other holdings with the appreciated value of the 5,000 Bitcoin he stole from” the Winklevoss twins, the original filing said.

Featured Image from TechCrunch/Flickr

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Ethereum token BAT rode the “Coinbase bounce” to a four-month high, but on Friday the cryptocurrency’s price fell back toward earth with a resounding thud.

Ethereum Token BAT Leads Market Pullback

The crypto market as a whole traded down heading into the weekend, with valuations collectively dropping by $6 billion over a 48-hour period. However, no large- or mid-cap cryptocurrency was hit as hard as Basic Attention Token (BAT), the native asset of Brave‘s digital advertising ecosystem.

BAT, which runs on Ethereum as an ERC-20 token, fell more than 18 percent for the day. The majority of that movement occurred late last night, shortly after the BAT price peaked at $0.39 on Binance. The token has shed nearly one-quarter of its value since then and is currently priced just below $0.30, which translates into a market cap of $298 million.

BAT Takes a Hit after Coinbase Hype-Cycle Ends

Friday’s pullback, while not entirely reversing the gains BAT had made this month, nevertheless represented a marked reversal of fortune for the cryptocurrency.

BAT’s early November rally appears to have been virtually entirely connected to the token’s listing on Coinbase, which took place over several steps that saw BAT gradually integrated into the cryptocurrency trading giant’s various platforms.

Initially, BAT was listed on Coinbase Pro, the firm’s order-book cryptocurrency exchange. About one week later, after the exchange had developed a liquid trading market, BAT was listed on Coinbase.com, the brokerage service through which a significant percentage of cryptocurrency investors make their first crypto purchase.

That final listing occurred yesterday, bringing an end to the speculative hype cycle that inevitably surrounds a cryptocurrency’s price when it is listed on Coinbase — or supporters believe that it will be. BAT investors, it seems, bought the rumor and sold the news.

Featured Image from Shutterstock. Charts from TradingView.

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Jeff Garzik, historically one of the major early contributors to the Bitcoin codebase and later a lead developer at BitPay, doesn’t know who created the flagship cryptocurrency. However, he has an educated guess.

Speaking in an interview with Bloomberg, he spoke to his suspicions of the actual creator of Bitcoin. He has one of the less popular theories — the major contenders for the title of Satoshi Nakamoto are Nick Szabo, Adam Back, and/or a group of people likely involving one or both of these people. The hunt for Satoshi Nakamoto is still very much on, despite the possible negative impact it could have on the Bitcoin ecosystem.

A limited and dwindling number of people have bought into the belief that Australian outlier Craig S. Wright, who is spearheading the Bitcoin SV (“Satoshi Vision”) hard fork in 6 days, is actually the person behind the pseudonym Satoshi Nakamoto. The upcoming fork has even pushed Wright and early Bitcoin adopter and evangelist Roger Ver apart. Ver now says that even solid proof of Wright’s identity as Satoshi wouldn’t heal the division.

Jeff Garzik: Dave Kleiman Was [Likely] Satoshi

Garzik told Bloomberg that his “personal theory” places Dave Kleiman, a Florida man who passed away in 2013 and whose estate is currently engaged in a lawsuit against Craig S. Wright, as the man behind the $110 billion currency.

Wright, per the suit, had worked with Kleiman — a computer security expert — as a CCN contributing editor wrote at the time the lawsuit was filed:

“Kleiman and Wright had allegedly acquired these coins by mining them through W&K Info Defense Research LLC. The ownership structure of W&K is in dispute, though Kleiman’s estate claims that he was either the sole owner or held it in partnership with Wright. Either way, they claim that Wright stole at least 550,000 BTC, or 1.1 million if W&K was wholly owned by Kleiman.”

Garzik says that, for him, the dots connect and paint a picture of Kleiman as Satoshi. Kleiman was a self-taught coder who had previously worked for the Palm Beach County Sheriff’s Office. Garzik says:

“It matches his coding style, this gentleman was self taught. And the Bitcoin coder was someone who was very, very smart, but not a classically trained software engineer.”

Craig Wright has previously claimed that Kleiman helped him create Bitcoin. He did not come forward with his assertion that he was Satoshi Nakamoto until after Kleiman’s death. There are several factors that do weigh heavily in the column of Kleiman as being Satoshi, but the world may never know the truth.

Featured Image from Chamber of Digital Commerce/YouTube

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A Swedish man has been found guilty of attempted murder after sending a mail bomb to a bitcoin firm based in London.

According to detectives from London’s Metropolitan Police Service, 43-year old Jermu Michael Salonen sent the mail bomb following a refusal by Hackney-based Cryptopay to change his password.

As initially reported by the City A.M., Salonen had emailed the firm last year in August requesting a password reset, but his wish was denied by the customer service team because it would violate the company’s privacy policy. According to local police, the mail bomb was not a dud.

“Salonen seemingly made and sent a device that had the capability to seriously harm and even kill over something as inconsequential as a change of password,” Commander Clarke Jarrett, the head of the Metropolitan Police Service Counter Terrorism Command, said.

Sheer Luck that Bomb Didn’t Go Off

It is not clear when Salonen sent the mail bomb but the bookkeeping firm, The Accountancy Cloud, which once counted Cryptopay as its client, received the package sometime in November last year. An employee of the accounting firm started opening the padded envelope this year in March but fortunately stopped halfway through when they grew suspicious.

Additionally, the employee’s technique of opening the envelope helped forestall a disaster, according to Jarrett:

“It was due to sheer luck that the recipient ripped opened the package in the middle rather than using the envelope flap which would have activated the device.”

After obtaining DNA from the package, the Met Police were, however, unable to match it to anyone on its database. This resulted in the case being handed to Interpol who matched it to the Swede who was known to the authorities there. A search was conducted in Salonen’s home in Gullspang where various bomb components were found. Salonen was arrested in May and will now serve a six-year jail sentence.

Habitual Threatener

Besides the half a dozen years in jail, Salonen will also serve an additional six months for issuing death threats to more than 20 politicians and celebrities in Sweden last year. Salonen will also face justice over a minor drug-related offense.

Indian Teen Threatens to Blow Up Miami Airport after Losing Bitcoin https://t.co/p4ket9ukHP

— CCN (@CryptoCoinsNews) November 6, 2018

This comes less than a week after an Indian teenager threatened to blow up the Miami International Airport over what he saw as lack of cooperation from the Federal Bureau of Investigations (FBI) in assisting him to get back bitcoin worth approximately US$1,000 that he lost to a fraudster based in the United States.

Unlike the Swede, however, the teenager from the state of Uttar Pradesh only made threatening phone calls to the airport but did not make good his threat or even demonstrate the capacity to carry out the act. He has, however, been charged by Indian police with several offenses including issuing threats.

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