BITCOIN, Heists, Thefts, Hacks, Scams, and Losses

[Vanadium 50]

However, is there not the equivalent to FDIC insurance for crypto brokerages

Of course not (and you could have looked that up). If the whole point of crypto is to get away with all that icky government interference. Like the FDIC.

 

[Melbourne Guy]

But a company offering exorbitant returns with no identifiable basis/reason is probably a Ponzi scheme, even if the company doesn't even know it.

OneCoin appears to have been an example of that, @russ_watters, with the added mystery that founder, Dr Ruja Ignatova, has vanished, purportedly with much of the poor rubes investors wealth socked away. Whether OneCoin really was a cryptocurrency is debatable, but it was certainly promoted as such, allowing the scam artists founders to hoover up some $4B in deposits.

Jamie Bartlett writes about this in "The Missing Cryptoqueen", it's an interesting tale for our times.

 

[Astronuc]

I had to look up her and OneCoin.

Missing Cryptoqueen: FBI adds Ruja Ignatova to top ten most wanted​

https://www.bbc.com/news/world-us-canada-62005066

A bureau notice published on Thursday offered a $100,000 reward for any information leading to the arrest of Ms Ignatova, who was charged in 2019 with eight counts including wire fraud and securities fraud.

Mr Bartlett, who has been investigating the case for years, said one of the reasons it had been so difficult to track down Ruja Ignatova is that she disappeared with at least $500m (£411m), helping her to hide from the law.

"We also believe she has high quality fake identity documents and has changed her appearance," he added, as well as raising the possibility that she may no longer even be alive.

OneCoin victim Jen McAdam told the BBC back in 2019 that she and her friends and family had thrown a quarter of a million euros away.

Ms McAdam said it all started from a friend's message about an unmissable investment opportunity. Sitting at her computer, the Glaswegian clicked on a link and joined a OneCoin webinar.

 

[Vanadium 50]

If someone turns her in, will the reward be in Bitcoin?

 

[Drakkith]

There was another one explaining, with lots of details, why Bitcoin isn't anonymous, but it's not as transparent as it seems either.

My understanding is that bitcoin is only an anonymous as the wallet addresses are. That is, everyone can see all the transactions into or out of wallet AxX76TTcF (or whatever the wallet address is), but they don't know who actually controls that wallet and there's no way to find out by purely looking at the blockchain. But if I link a wallet address to, say, Coinbase, who I think require an ID verification, then Coinbase knows that I control that wallet and thus the transactions aren't entirely anonymous anymore.

 

[Melbourne Guy]

But if I link a wallet address to, say, Coinbase, who I think require an ID verification, then Coinbase knows that I control that wallet and thus the transactions aren't entirely anonymous anymore.

"Know your customer" law is the weak link in the libertarian blockchain ideal, @Drakkith. Exchanges are increasingly bound by banking regulation in order to convert between crypto or into fiat currency, so your point is absolutely spot on.

Even where people try and obfuscate their ownership by chaining crypto transactions and spreading the load, the trail can usually be traced because there are fewer truly anonymous options available. And as most investors are not libertarian zealots, industry participants are yielding to regulation because otherwise, their business model is too sketchy for the serious money investors such as hedge and 401(k) funds.

 

[fluidistic]

What you say is true Drakkith, but that's just the easy part. In reality, it is much more complicated than this. I wish to find the website.

To Melbourne guy, as I mentioned, for some blockchains (such as ethereum), there's a Tornado cash possibility. If a hacker gets stolen funds in a wallet without passing through any exchange, then he can send the funds to a Tornado cash address. This will be visible to all of us. What happens next, however, cannot (at least shouldn't) be traceable. The stolen funds will be sent to many wallets (mostly from the hacker, but possibly not exclusively), at different random times, and with different amounts. The hacker wins.

 

[Melbourne Guy]

The hacker wins.

They often do, @fluidistic, and it seems the immaturity of crypto is one reason we're seeing significant theft, but do you think that if hacks and scams continue to plague the crypto world, the hype phase will pass and use / acceptance will start to wane?

 

[fluidistic]

They often do, @fluidistic, and it seems the immaturity of crypto is one reason we're seeing significant theft, but do you think that if hacks and scams continue to plague the crypto world, the hype phase will pass and use / acceptance will start to wane?

I don't think so, I think crypto has a bright future.
Today, many hacks are done because smart contracts are being written in a way allowing exploits, the programmers are noobs who don't have a solid background in computer science and/or math. Then, as far as I know, the general populace who sign those contracts, cannot undetstand them. Either because the programming language is low level like assembly, or because we see a decompiled version which makes it extremely hard to decipher. Most people just blindly trust.the contract. A hacker would spend.the time to decipher it and exploit it. If this point would be improved on, then less hacks would be performed, I think.

 

[Office_Shredder]

What you say is true Drakkith, but that's just the easy part. In reality, it is much more complicated than this. I wish to find the website.

To Melbourne guy, as I mentioned, for some blockchains (such as ethereum), there's a Tornado cash possibility. If a hacker gets stolen funds in a wallet without passing through any exchange, then he can send the funds to a Tornado cash address. This will be visible to all of us. What happens next, however, cannot (at least shouldn't) be traceable. The stolen funds will be sent to many wallets (mostly from the hacker, but possibly not exclusively), at different random times, and with different amounts. The hacker wins.

If all the tornado address does is take stolen bitcoin and distribute it to other wallets, then we still know all those other wallets contain stolen bitcoin. Nothing has been obfuscated.

 

[fluidistic]

If all the tornado address does is take stolen bitcoin and distribute it to other wallets, then we still know all those other wallets contain stolen bitcoin. Nothing has been obfuscated.

I would have hoped a little bit more research. It's not the known smart contract address that redistribute parts of the stolen funds. There are relayer addresses, I would guess they are similar to nodes in the Tor network. Anyone is free to set up such wallets.

 

[Rive]

If all the tornado address does is take stolen bitcoin and distribute it to other wallets, then we still know all those other wallets contain stolen bitcoin. Nothing has been obfuscated.

You can't request a proof of origin for every piece you receive. With putting everything in a common pool somewhere and distributing it among random transactions the traces are messed up just sufficiently.

 

[Melbourne Guy]

I would have hoped a little bit more research. It's not the known smart contract address that redistribute parts of the stolen funds. There are relayer addresses, I would guess they are similar to nodes in the Tor network. Anyone is free to set up such wallets.

Latest news on Tornado Cash is a blacklist status from the US Treasury that is likely to catch up honest retail investors and likely to be applied to other sites that provider similar services:

"In blacklisting Tornado Cash on Thursday, the Treasury Department said it was going after criminals, who used the service to launder more than $7 billion worth of virtual currency since it launched in 2019."

Regulators do not appreciate 100% transaction privacy because it is commonly utilised by bad actors who avoid taxes and fund nefarious parties.

https://www.cnbc.com/2022/08/08/tor...reasury-punishes-honest-crypto-investors.html

 

[Astronuc]

https://www.msn.com/en-us/money/markets/largest-cryptocurrencies-fall-as-cardano-plunges/ar-AA10Q82k

Polkadot plunged 11.52% to $7.47, and Uniswap plunged 11.14% to $7.05.

Dogecoin plunged 11.14% to 7 cents on Friday, while Litecoin tumbled 10.72% to $54.63 and Ripple plunged 11.02% to 34 cents.

Bitcoin Cash and Ethereum fell 10.60% to $119.42 and 9.96% to $1,690.01

Bitcoin rounded out the decreases with an 8.50% decline to $21,427.93.

In crypto-related company news, shares of Coinbase Global Inc. shed 8.03% to $76.77, while MicroStrategy Inc. fell 9.40% to $293.90. Riot Blockchain Inc. shares declined 9.24% to $7.52, and shares of Marathon Digital Holdings Inc. plunged 11.76% to $13.76.

As of 2000 EDT

Symbol	Last Price	Change	% Change
BTC-USD Bitcoin USD	20,882.00	-2,319.29	-10.00%
ETH-USD Ethereum USD	1,613.30	-232.46	-12.59%
USDT-USD Tether USD	1.0000	+0.0001	+0.0150%
https://finance.yahoo.com/quote/BNB-USD?p=BNB-USD Binance Coin USD	279.68	-18.30	-6.14%

 

[Astronuc]

FBI issues new warning for investors on DeFi hacks
https://finance.yahoo.com/news/fbi-says-cyber-criminals-exploit-de-fi-to-steal-crypto-152235403.html

The FBI is warning investors of the risks decentralized finance (DeFi) platforms face from hackers stealing cryptocurrency, and is urging both investors and platforms amp up efforts to ward off attacks.

"Cyber criminals are increasingly exploiting vulnerabilities in the smart contracts governing DeFi platforms to steal cryptocurrency, causing investors to lose money," the FBI said in a new public service announcement. "Cyber criminals seek to take advantage of investors’ increased interest in cryptocurrencies, as well as the complexity of cross-chain functionality and open source nature of DeFi platforms."

In a smart contract, the terms of the agreement between the buyer and seller are written directly into lines of code on a blockchain network.

Cyber criminals have been trying to manipulate the complexities of blockchain and DeFi platforms to their advantage. The FBI warned criminals have exploited signature verification on DeFi platforms, allowing the actors to steal all of the platform’s investments, resulting in millions in losses.

 

[Drakkith]

Solana DeFi Exchange Accidentally Bricks Itself, Locks Up $661K Forever
https://decrypt.co/108585/solana-defi-exchange-optifi-bricks-itself-loses-661k

Options-trading decentralized exchange OptiFi announced on Monday that it had accidentally closed down its program on Solana’s mainnet, which means that all funds within the app are now permanently inaccessible. The damage? Some $661,000 worth of USDC stablecoin in total.

661k USDC is locked in the PDAs, luckily 95% of the fund is from our team member

 

[kyphysics]

https://finance.yahoo.com/news/fbi-says-cyber-criminals-exploit-de-fi-to-steal-crypto-152235403.html

The FBI is warning investors of the risks decentralized finance (DeFi) platforms face from hackers stealing cryptocurrency, and is urging both investors and platforms amp up efforts to ward off attacks.

"Cyber criminals are increasingly exploiting vulnerabilities in the smart contracts governing DeFi platforms to steal cryptocurrency, causing investors to lose money," the FBI said in a new public service announcement. "Cyber criminals seek to take advantage of investors’ increased interest in cryptocurrencies, as well as the complexity of cross-chain functionality and open source nature of DeFi platforms."

In a smart contract, the terms of the agreement between the buyer and seller are written directly into lines of code on a blockchain network.

Cyber criminals have been trying to manipulate the complexities of blockchain and DeFi platforms to their advantage. The FBI warned criminals have exploited signature verification on DeFi platforms, allowing the actors to steal all of the platform’s investments, resulting in millions in losses. . .

Chainalysis found in a separate report that crypto lost from hacks has surged in 2022, with more than $202 million stolen in August in addition to the $1.9 billion of investor funds lost through the end of July, a 37% increase from last year.

$1.9 billion is a lot of value (granted, total crypto market cap has hovered at $1-$2 trillion the past 12 months).

I wonder if this has slowed the pace of investors buying into crypto? What amount of stolen/lost $$ would prompt a retail investor from buying back in? $1,000 . . .$10,000? . . .$100,000?

Or, even getting divorced?

 

[russ_watters]

Solana DeFi Exchange Accidentally Bricks Itself, Locks Up $661K Forever
https://decrypt.co/108585/solana-defi-exchange-optifi-bricks-itself-loses-661k

I don't understand what actually happened there. Sure, I sometimes accidentally close a program without saving, but why did closing the program brick the funds? Isn't the data on who owns what in a database that the program is just accessing? Heck, even if the database got corrupted, couldn't they go to a backup?

 

[russ_watters]

https://finance.yahoo.com/news/fbi-says-cyber-criminals-exploit-de-fi-to-steal-crypto-152235403.html

$1.9 billion is a lot of value (granted, total crypto market cap has hovered at $1-$2 trillion the past 12 months).

I wonder if this has slowed the pace of investors buying into crypto? What amount of stolen/lost $$ would prompt a retail investor from buying back in? $1,000 . . .$10,000? . . .$100,000?

2% of the market being stolen a year sounds like an awful lot. I don't know what it is for normal money/investments, but it can't be a significant amount of money. When was the last time you heard of a bank getting robbed of all its money? Part of the issue is that unlike banks, it seems like knowing which crypto exchange is going to be the next to get robbed (or collapse due to being a scam) is a blind game of Russian Roulette.

 

[Drakkith]

I don't understand what actually happened there. Sure, I sometimes accidentally close a program without saving, but why did closing the program brick the funds? Isn't the data on who owns what in a database that the program is just accessing? Heck, even if the database got corrupted, couldn't they go to a backup?

I don't know either. At least almost all of the lost funds were from themselves.

 

[kyphysics]

2% of the market being stolen a year sounds like an awful lot. I don't know what it is for normal money/investments, but it can't be a significant amount of money. When was the last time you heard of a bank getting robbed of all its money? Part of the issue is that unlike banks, it seems like knowing which crypto exchange is going to be the next to get robbed (or collapse due to being a scam) is a blind game of Russian Roulette.

For theft, it's a lot.

I don't know if that'd deter desperate, enthusiastic, gambling, etc. crypto investors, though. Lots have a "HODL" mentality.

 

[Office_Shredder]

I don't understand what actually happened there. Sure, I sometimes accidentally close a program without saving, but why did closing the program brick the funds? Isn't the data on who owns what in a database that the program is just accessing? Heck, even if the database got corrupted, couldn't they go to a backup?

My rough understanding is Solana let's you deploy software onto a blockchain. If you close the software it shuts the program down and returns to you all your native Solana currency that the program had access to. If you want to restart it you can just upload the program again.

How this connects to the program using usdc I don't really know. It seems like a flaw in the system you can't recover that as well. The program must have had access to a crypto wallet that no one could know about (I'm not sure how this would work in practice) and that key was lost with the closure.

 

[Vanadium 50]

t seems like knowing which crypto exchange is going to be the next to get robbed (or collapse due to being a scam) is a blind game of Russian Roulette.

Oh, I dunno.

Suppose I were a cryprocriminal. I short..un...lets call it Friendlycoin, and then I hack it. I don't need to make off with all that much money, just enough for people to lose confidence in Friendlycoin. It tanks, and I make a ton of money.

Of course, there are no criminals involved in crypto - just technologists and civil libertarians. No criminals at all, nosiree.

 

[fluidistic]

Here's a slightly more detailed explanation of what happened to solana's incident.https://halborn.com/explained-the-optifi-glitch-august-2022/
I think that in theory the devs could revert the faulty transaction, without asking the community's opinion (solana is centralized and.the main dev had hidden premined a ton of coins so he got rich quickly. It's also very innefficient, etc. that's beside the scope). In practice he may not do that, otherwise people will realize anything can be done on that ''insert pejorative word'' blockchain.

 

[fluidistic]

2% of the market being stolen a year sounds like an awful lot.

It's 2 billions out of a marketcap a thousand (or 500 times these days) times bigger, so that would be about 0.1 percent.
I'm not sure it's accurate to call ''market'' the daily crypto marketcap though.
What hurts is not.the relative amount of.crypto that.gets stolen, it's the irreversibility of the transactions that aren't allowed even by a 3rd party. I mean, the FBI can do it, when it is lucky enough to find and torture the malicious person, but it's not a given.

 

[BWV]

Get your official Dead Queen NFT while they last!

https://protos.com/crypto-project-marks-passing-of-monarch-with-a-skeleton-queen-nft/

 

[russ_watters]

Anyone have any thoughts on the Etherium merge? I don't understand the new "proof of stake" model, but at face value a 99.9% reduction in energy consumption sounds like a really good thing. It does beg some questions though:
Doesn't this make Eth vastly superior to other cryptocoins? Shouldn't that drive all the rest of them to zero? So, why are Eth and Btc still trading in parallel?

 

[Melbourne Guy]

Doesn't this make Eth vastly superior to other cryptocoins? Shouldn't that drive all the rest of them to zero? So, why are Eth and Btc still trading in parallel?

Speculative investments are not necessarily comparable, @russ_watters, even if they're in the same asset class, and 'superior' depends on your perspective. BTC seems a better hold for value, but ETH offers smart contract / app features that BTC does not support, and ETH has higher name recognition than most other coins with comparable features, so it's likely 'superior' in that regard.

There is talk of extending BTC to support more features, I'm not sure how that will go, but I do expect their proof-of-work model to be legislated out of existence in many jurisdictions over the next three years, esp. now that ETH has proved a merge is technically feasible.

Anyone have any thoughts on the Etherium merge? I don't understand the new "proof of stake" model, but at face value a 99.9% reduction in energy consumption sounds like a really good thing.

From an energy consumption this is a terrific move, even though it's been a long time coming. From a fundamental business model move, though, it's gutsy...and perhaps fatal.

Miners have taken a serious revenue hit, and I've seen some commentary that the new proof of stake model does not covering operating costs for some of the larger ones. I've not validated that directly, but it seems a likely outcome, even if the initial squawking is probably overstated.

But the revenue hit and slump in ETH value since the merge will expose ETH to more competition from other coins and undermine its market dominance. On the other hand, lower gas fees may drive more users, and if ETH can shift focus from the volatility of its coin and show revenue growth providing blockchain app fabric, it may transition to a more widely-used platform with general industry adoption.

 

[russ_watters]

Speculative investments are not necessarily comparable, @russ_watters, even if they're in the same asset class, and 'superior' depends on your perspective. BTC seems a better hold for value, but ETH offers smart contract / app features that BTC does not support, and ETH has higher name recognition than most other coins with comparable features, so it's likely 'superior' in that regard.

I'm not asking why they are different, I'm asking why they aren't different, because that's what the reality seems to be in terms of how they are behaving. The markets are treating them as if they are nearly exactly the same thing. As it turns out, basically everyone who is driving the market doesn't think either is superior to the other at all.

There must be a reason why none of those features seem to matter at all. I have a theory of course: it's that they actually don't matter and the people moving the market know that.

From an energy consumption this is a terrific move, even though it's been a long time coming. From a fundamental business model move, though, it's gutsy...and perhaps fatal.

Yeah, that's part of what I don't understand about the new model. If mining drives the perceived value, then removing it should remove perceived value. And certainly with any major change should come uncertainty about the future. That should cause Eth to behave differently from other cryptos...if any of those things matter.

 

[Melbourne Guy]

I'm not asking why they are different, I'm asking why they aren't different, because that's what the reality seems to be in terms of how they are behaving.

Aha! Sorry, I missed your intent. Sure, all coins are viewed as a generally equivalent asset class because they pretty much are.

The fact that Ethereum supports smart contracts is moot because those smart contracts are not yet - and may never be - viewed as anything more than a sideshow to arbitrage windfalls in the coin price. We see spikes in retail investors chasing the latest meme stock, but overall, ETH and BTC drive the markets because of their heft.

Yeah, that's part of what I don't understand about the new model. If mining drives the perceived value, then removing it should remove perceived value.

Well, the merge only just happened but the first response was the price of ETH plummeting, so the market very much removed value. Maybe, over the longer term, reduced issuance could drive individual token prices up, but nobody knows at this stage. As for ETH being different...it isn't, until / unless it can develop as an app platform and show significant recurring revenue for participants.

There's a lot of hope that it will, but Ethereum's few million transactions daily is a rounding error compared to what the large financial institutions process, so there is no surprise it's viewed as just another crypto coin at the moment. It is also perceived to be an expensive platform, per transaction, which is not helping it capture market share.

 

[fluidistic]

All crypto prices are highly correlated to one another once they are listed on major exchanges.
Note that many people had staked their ETH tokens and they couldn't retrieve them before the merge (they had agreed to this, even if the merge would never happen). They suddenly had the opportunity to sell, and most of them bought at level below 1k usd, I suppose that's why it went down.

PoS doesn't make ethereum anything special, there are thousands of other cryptos that already were PoS. If you are really curious, you would see that many have a different implementation of PoS. Ethereum isn't as top notch as it seems. It gets beaten hands down by others in many aspects, even though the price isn't a revelator.

 

[Drakkith]

Yeah, that's part of what I don't understand about the new model. If mining drives the perceived value, then removing it should remove perceived value.

Mining isn't really a driver of value in my opinion. Miner influence in the market usually shows up as selling pressure, since miners typically have to sell some proportion of their mined BTC to pay for expenses. If the price of BTC fell 99% and stayed there, most miners would shutdown, reducing the hash-rate of the blockchain until the algorithms caught up and reduced the mining difficulty. The remaining miners would then be able to mine more BTC (proportionally to what they used to be able to do) and remain in business.

 

[russ_watters]

Well, the merge only just happened but the first response was the price of ETH plummeting, so the market very much removed value.

Well, it just looks to me like it is just acting 50% more volatile than Bitcoin: down 30% to BTC's 20% in that time, but up 6% to BTC's 4% today. I haven't taken a deep dive, but I don't see much to indicate a divergence yet.

As for ETH being different...it isn't, until / unless it can develop as an app platform and show significant recurring revenue for participants.

There's a lot of hope that it will...

Sure, returning value/revenue is ultimately what matters in the end. But before that what drives an asset is belief that it will. I guess what the market is saying is people don't believe that it will, and that surprises me.

 

[fluidistic]

It's not like mining was removed from ethereum and nothing else replaced it. Now they have validators (a validator needs at least 32 ETH), essentially a proof of stake system was put into place. It's not an energy hungry system anymore, but eating energy isn't the only way a cryptocurrency can ''gain'' or has its intrinsec value set (if that even makes sense).

 

[Melbourne Guy]

But before that [generating returns] what drives an asset is belief that it will. I guess what the market is saying is people don't believe that it will, and that surprises me.

Investors across most asset classes believe that the gravy train has pulled out of the station, and since the belief that crypto was disconnnected from the traditional economy has evaporated, it is no surprise the market has lost its mojo. But that's across the board, so trying to untangle exactly what's driving one asset compared to another in the same class can get complicated.