News: India crypto ban, North Korea, BitMEX execs to appear, IBM Blockchain dead, more McAfee charges



I fought the law, and the law won

John McAfee and his bodyguard and business partner Jimmy Gale Watson Jr. have been indicted for fraud and money laundering over their cryptocurrency promotions and pump-and-dumps using McAfee’s Twitter. McAfee is still in jail in Spain on previous tax evasion charges; Watson was arrested yesterday in Texas. [Justice Department press release; indictment, PDF; complaint, PDF; Bloomberg Quint]

Remember the exciting 2018 ICO for Bitcoiin (with two I’s), endorsed by movie martial artist Steven Seagal? The guy behind Bitcoiin, private detective John DeMarr, allegedly staged his own disappearance after making millions off it. The SEC has also charged Kristijan Krstic and Robin Enos. Seagal settled with the SEC over Bitcoiin in February 2020. [Daily Beast; SEC press release; SEC complaint, PDF]

Sometime Bitfinex/Tether money mule Reggie Fowler lost his lawyers as of 25 February, because he didn’t pay them. There’s a conference on 7 April to tell the court what’s going on. Bet he wishes he’d settled now. [Amy Castor; order, PDF]

Two-thirds of 2020 whistleblower reports to Austria’s Financial Market Authority on investment fraud were about crypto-related investment products. FMA sees “a great need for stricter regulation.” [Bloomberg]

From January: a US court rules that the HelbizCoin ICO would definitely have been an offering of securities under the Howey test — but neither the offering nor the plaintiffs were based in the US, so the court decided that just having your ICO run on Ethereum, and some Ethereum nodes being based in the US, isn’t sufficient for US jurisdiction. Spotted by Stephen Palley, who notes that there is contrary case law about US-based servers for centralised services. [Ruling, PDF; case docket; Twitter]



Bitcoin: Be your own bank!
India: Yes.

The Indian government has listed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, for introduction in Parliament. This “seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.” [Bloomberg Quint]

The Reserve Bank of India previously banned banks from dealing with cryptocurrency businesses, in April 2018. The Supreme Court of India ruled in June 2020 that the RBI didn’t have the power to do this — so the government promised to make a law. This is that law.

An anonymous official said that the ban would not be enforced immediately, so that investors can dump their cryptos.

The Securities and Exchange Board of India (SEBI) has told company owners that before they do an Initial Public Offering, they need to sell their crypto. This is not official written advice as yet, but apparently SEBI has been saying it to IPO promoters directly — “the market regulator seems to think that this could become a risk for investors if a promoter holds an asset that is illegal in the country.” [Economic Times]

Pyonyang Tourist Bureau

The case over Ethereum developer Virgil Griffith visiting North Korea to speak at a conference is going ahead. But the prosecution has to meet a high bar — “that (1) Griffith knowingly and willfully joined a conspiracy with knowledge of its unlawful object, i.e. the providing services to the DPRK; (2) that the services were to be more than providing preexisting information; and (3) the services were to be provided without a required OFAC approval.” Point 2 is about a specific claim by Griffith — that he didn’t tell the North Koreans anything that wasn’t already public information concerning cryptocurrencies. [Twitter thread]

North Korea used $316 million in crypto to fund its weapons programme — coins hacked and stolen between 2019 and November 2020 — according to a report sent by sanctions monitors to the United Nations Security Council. [AP]

New US Secretary of the Treasury Janet Yellen keeps telling crypto that use by terrorists is a big problem — and the crypto press keep circling back to Yellen’s talk at the beginning of interesting technology, before the loud “BUT.” [CoinDesk]

Yellen brings CNBC the good news for Bitcoin: “To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.” [CNBC]

Bitpay has been fined $500,000 by US sanctions regulator the Office of Foreign Assets Control (OFAC) for inadequate anti-money-laundering, and allowing $129,000 of payments involving sanctioned entities. [US Treasury, PDF]

Chainalysis says that anti-money-laundering laws are actually working against crypto crimes — criminals got away with $5 billion in 2020, as compared to $10 billion in 2019. [CoinTelegraph]

Bitcoin is green, actually

Inner Mongolia in China is to end cryptocurrency mining, and ban new steel and coke projects — the region failed to meet 2019 energy efficiency targets. We’ll see if they can make it stick. [Reuters]

Pricing the externalities of cryptocurrency (from 2019) — “Results indicate that in 2018, each $1 of Bitcoin value created was responsible for $0.49 in health and climate damages in the US and $0.37 in China.” Bitcoiners seem to hate this paper a whole lot. [Elsevier, paywalled]

New Tim Swanson paper: Bitcoin and other PoW coins are an ESG nightmare. ESG is “environmental, social and corporate governance” — companies claiming to be good on ESG shouldn’t go near Bitcoin.  [Great Wall of Numbers]



Lie dream of a casino soul

BitMEX executives were indicted in October 2020, and three of them went on the lam. Pavel Pogodin, the lawyer bringing a class action against BitMEX, has the news: “Arthur Hayes is expected to surrender to US in Hawaii on April 6. Greg Dwyer declined to surrender and US launched extradition proceedings for him from Bermuda. Ben Delo will surrender in NY before end of March.” [Twitter; Twitter]

There’s sympathetic, and then there’s whatever this ridiculous Vanity Fair puff piece on poor beleaguered (alleged) crook Arthur Hayes is. I read it and went “did a bitcoin write this?” Perhaps Hayes is trying to position himself as the next Ross Ulbricht. He just ran a website! [Vanity Fair, archive]

Greg Dwyer from BitMEX gets written up in his local paper! [Sydney Morning Herald]

In early February, QuadrigaCX came back! Sort of. The website started serving a front page again, which looks like a copy of the site from early 2019. It appears that an aspiring scammer got into Quadriga’s domain registrar account. [EasyDNS]

The Binance cryptocurrency exchange has withdrawn its defamation suit against Forbes. They were allowed to withdraw the suit without prejudice, meaning they can refile — though they won’t, ‘cos they’d get slaughtered in discovery. It remains unclear just who the heck thought that Binance could take this suit anywhere, or who Binance needed to impress by filing it. [Coindesk]

I wrote about withdrawal issues at Australian crypto exchange ACX in 2018, and that post still gets occasional comments from ripped-off users. The exchange finally collapsed in 2020, and Australian Financial Review has a post-mortem. There were some corporate shell games, and the 200 or so users who lost a total of $10 million are pretty sure it was a scam. [AFR]




Craig Wright has sent lawyer’s letters to the developers of Bitcoin and various forks of Bitcoin, demanding that they help him recover 110,000 bitcoins that were allegedly hacked from his PC in 2020. No evidence of Wright’s ownership is included in the letters. You may also wonder what would compel anyone else to run code making a special case for these particular bitcoins. Or for the Bitcoin developers not to just quit. [CoinDesk]

Danny Brewster — who Bitcoin old-timers will remember as the founder of collapsed Bitcoin startup Neo & Bee [Reddit] — has written to Wright noting that the listed coins include bitcoins stolen from Brewster’s Mt. Gox account in 2014. Brewster is being represented by Stephen Palley and Preston Byrne at Anderson Kill. [CoinDesk]

Wright’s public relations firm has told the press: “Please note that personal views on Dr Wright should not cloud the fact disagreeing with his stance on this matter is to allow you and your publication to directly condone crime.” I’m sure that will convince everyone not to call this action a ridiculous publicity stunt. [FT, paywalled]

I heard it on the blockchain

IBM increases staff efficiency on the Hyperledger project to previously unheralded proportions! “There is not really going to be a blockchain team any longer. Most of the blockchain people at IBM have left,” said a person familiar with the situation. [CoinDesk]

Conference gossip as of early 2018 was that IBM Blockchain was told in no uncertain terms to get a customer or face the chop — so they got Walmart and Maersk to set up centralised supply chain systems that used Hyperledger as a back end data store. Looks like it wasn’t enough.

Hyperledger was a perfect IBM project — a Potemkin village open source project, where all the work was done in an IBM office somewhere. I wrote it up in Attack chapter 11.

It was hilarious finding the mailing list messages where IBM was actually surprised when businesses didn’t want all their competitors to know about every deal they made, visible right there on the blockchain. Somehow, they’d got this far without understanding that business involves competition.

Sadly, a fantastic press release game can take you only so far.



It’s very complicated — just trust me, OK

Crypto hedge fund whiz kid Stefan Qin pleads guilty to one count of securities fraud — for stealing and dissipating nearly all his investors’ money, and trying to steal money from a secondary fund to pay the investors back. [Justice Department press release]

Qin used time-honoured and respectable business techniques — he handwaved about non-specific “cryptocurrency arbitrage” in a Wall Street Journal puff-piece about his “brilliance” a few years ago. [WSJ, 2018, paywalled]

“Arbitrage” has long been the go-to excuse for Ponzi schemers. Pirateat40’s 2012 Bitcoin Ponzi scheme also claimed to make its implausibly high yields from (waves hands) “arbitrage.” (Attack, chapter 4.)

Bernie Madoff used this excuse too: [WSJ, 1992, paywalled]

But how did Mr. Madoff rack up his big investment returns? Early investors in the late 1970s were told — and Mr. Madoff confirms — that their money was being used to engage in so-called convertible arbitrage in securities of such companies as Occidental Petroleum Corp., Limited Stores Inc. and Continental Corp. Promised annual returns in this period, one investor said, were 18% to 20%.

If you don’t see how Charles Ponzi gets the yields he does from arbitrage, you just don’t understand International Reply Coupons.

Everybody still hates Ripple

Ripple Labs has filed their response to the SEC action against them over their XRP token. It’s basically the same arguments Ripple used in their response to the SEC’s Wells memo before the case was brought. [press release; filing, PDF; case docket]

The SEC amended its complaint against Ripple, and Ripple has amended their response. Stephen Palley wasn’t impressed — “this is really a nothing burger of a pleading as far as I can see, and unlikely to have much impact on how the case shakes out for Ripple or Garlinghouse & Larsen.” [complaint, PDF; response, PDF; Twitter]

Ripple CEO Brad Garlinghouse has also filed a letter before a motion to dismiss the part of the SEC complaint that’s against him personally. [letter, PDF]

Palley thinks the case is likely to settle — “maybe with an ability to allow trading to commence again in US. SEC probably not entirely deaf to impact on US buyers, nor should it be (whatever one thinks of the company or its head honchos)”. [Twitter]

In its Q4 2020 earnings report, MoneyGram notes that it has suspended the deal where Ripple gives MoneyGram XRP to pretend that XRP has a use case. “The company is not planning for any benefit from Ripple market development fees in the first quarter. Due to the uncertainty concerning their ongoing litigation with the SEC, the Company has suspended trading on Ripple’s platform.” [MoneyGram]

Meanwhile, Ripple is trying to market a private version of the XRP software as a platform for central bank digital currencies (CBDCs). [Ripple]

Carpe Diem

The recent press release saying that Facebook’s Diem (formerly Libra) is launching in late March turns out not to be from Diem at all — it’s from a company called Fireblocks, who say they’re dealing with Uber, Spotify and the other retail Diem partners and will be writing wallet software for them to use. [press release]

Maybe Fireblocks are doing this — but Diem has not said anything, nor announced any specific date to go live.

That said, Fireblocks would be the second official Diem wallet if a Diem member adopts it — ‘cos up to now, the only Diem member working on wallet software has been Facebook’s Novi.

There’s been one sign of life from Novi — they’re the platinum sponsor for the Financial Cryptography and Data Security 2021 conference. [IFCA]

The European Central Bank has issued stark warnings on “Big Tech cryptocurrency projects” — i.e., stablecoins, i.e., Diem. [Euractiv]

China’s DC/EP project — which now seems to be officially calling itself e-CNY — was started because of Libra/Diem, and is likely to be the first result of it to go live. They’re running yet another trial, this time in Chengdu. This one will give out 200,000 red envelopes of 40 million yuan, usable in 11,000 businesses. [Forkast]

Albion! Albion!

Worst crypto sports photo of the year: football stadium advertising that’s just the word “HODL!” with no other branding. plastered these all over St Mary’s Stadium in Southampton. Courtesy Joey D’Urso at The Athletic UK. [Twitter] have Bitcoin-soaked sponsorships with a pile of Premier League football clubs. The market is Chinese gamblers, who love their Premier League, and also love betting on it. This is why so many ads in stadiums are in Chinese. The gambling is done in Bitcoin because the gamblers can’t use real money for the purpose as easily.



Things happen

CD Projekt Red, creators of the game Cyberpunk 2077, are so committed to the ethos of cyberpunk that they got ransomwared. [Twitter]

Bitcoin is still not a neo-Nazi subculture as such, but neo-Nazis still sure do love their bitcoins — because they’ve been kicked off all the other payment platforms. [CNN]

Actual finance managers on Bitcoin: “that volatile garbage? LOL, get outa here.” A Gartner survey of 77 finance managers finds most of them raising Bitcoin’s volatility as their biggest problem with investing in it. []

A few years ago, the only companies offering crypto-backed Visa cards were dodgy as hell, and Visa kicked them as soon as they found out. [FT Alphaville, 2018, free with login] So the interesting news from Visa’s Q1 2021 earnings call is that Visa thinks this risk is low enough to talk up crypto Visas. []

I see the music on the blockchain scammers are now talking up DeFi — so your money can be stolen by hackers instead of by your label. This is before the current NFT craze, which I need to finish an article or two on. (HT patron Alan Graham) [Music Week]

Mike Dudas of The Block gets a day job — he’s working for Paxos as a “vice president and head of stablecoin business development,” on their white-label stablecoin business. You know how Binance USD is actually Paxos Dollars relabeled? That sort of thing. [CoinDesk]



Hot takes

Forget Bitcoin: Inside the insane world of altcoin cryptocurrency trading — with quotes from me. [CNet]

So, you’re going to become a cryptocurrency millionaire? it’s important to tell everyone you meet the legendary stories of people you don’t know making millions of dollars in crypto. [Bell Tower Times]

I am delighted to see that the excellent Current Affairs article on Bitcoin is now up online, as well as in the print edition. Worth every moment of your time. [Current Affairs]



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