Federal Agents Face Arrest for Alleged Silk Road Bitcoin Theft

How To End The Cryptocurrency Exchange "Wild West" Without Crippling Innovation


In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.



Many of you have limited time to read the full proposal, so here are the highlights:

Offline Multi-Signature

Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.

Regular Transparent Audits

Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.

Insurance Requirements

Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.


Background and Justifications


Cold Storage Custody/Management
After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems:
• Funds stored online or in a smart contract,
• Access controlled by one person or one system,
• 51% attacks (rare),
• Funds sent to the wrong address (also rare), or
• Some combination of the above.
For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program.
The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms.
• 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective.
• The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated.
The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II.

On The Subject of Third Party Custodians
Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems.
However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies.
There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both.

On The Subject Of Insurance
ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC.
However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline[] to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance.
In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework.
A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians.

On The Subject of Fractional Reserve
There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds.
There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past.

Proof of Reserves/Transparency/Accountability
Canadians need to have visibility into the backing on an ongoing basis.
The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users.
Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit.
The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided.
Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense.

Hot Wallet Management
The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets.
However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process.
A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage.
Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.

Current Draft Proposal

(1) Proper multi-signature cold wallet storage.
(a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet.
(b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time).
(c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.
(d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds.
(e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers.
(2) Regular and transparent solvency audits.
(a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row.
(b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored.
(c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process.
(d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify.
(e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible.
(3) Protections for hot wallets and transactions.
(a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets.
(b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy.
(c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage.
(d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange.
(e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.

Steps Forward

Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized.
The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges.
The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.
submitted by azoundria2 to QuadrigaInitiative [link] [comments]

Tether and the Global Markets Challenge

Disclaimer - Read the disclaimer.

The U.S. regulatory agency, SEC, regularly works with foreign countries governments and regulatory agencies when enforcing laws on foreign companies. There is more than ample case law and literature that will verify this. That does not apply to all, or even most U.S. or other countries laws. Most laws do not give jurisdiction to one country over another. We will use the example of the world famous KimDotCom and his website Megaupload.

As a Non U.S. citizen, the U.S.'s Department of Justice does not have the jurisdiction to send their agents to New Zealand to arrest him for violating US copyright. They must legally have New Zealand extradite him. This is obvious, or should be to most people. Which is exactly why he is still in New Zealand and not in the U.S. either in court or jail. He has been able to fight extradition for the last 6 years, and hopefully that's how it stays. However, there are certain things which does fall under the jurisdiction of foreign countries. I'm not even going to try to list them here as that isn't important.

The most important thing however is how the U.S. extends jurisdiction when they should have absolutely no legal grounds. Specifically this falls under the Dodd-Frank Act. "Under the Dodd-Frank Act, U.S. courts have jurisdiction over claims of securities violations brought by the SEC or DOJ that involve: 1) Significant steps in furtherance of a violation that occurred in the United States even if the transaction took place outside the United States; or 2) Conduct outside the United States that has a “foreseeable substantial effect” within the United States.”

The U.S. has on more than one occasion claimed jurisdiction over a foreign cryptocurrency exchange. Once for a lawsuit against Mt. Gox (Japan) from 2014 which is still ongoing in the state of Illinois in federal court. More details can be found here.

Again last year when the SEC and DOJ sought charges against BTC-e, a Russian Exchange, and it's owner Alexander Vinnik. Accordingly BTC-e's assets including domain, etc. was seized by the U.S. and charged with operating an unlicensed money service business, money laundering, and related crimes. Details of this case can be found here.

We now also have BCC lawsuits happening. Two have already been filed and a U.S. Judge issued an order to freeze their assets, they were provided 10 days to turn them over. If they decide to not do it since they can’t just be forced as the banking system can, they will then face criminal charges; Not just a lawsuit. More information here.

Now you know shit is serious when the U.S. Government acts faster on something than any other time in the last 200 years. Look no further than Tether and Bitfinex. Most exchanges pair the USDT coins and not USD. This is done so foreign exchanges don't have to worry about U.S. banking laws that any company dealing with USD is legally obligated to do but they are still able to pair things against the US dollar which we all see it listed as USDT/BTC. A vast majority of people will never notice nor even give this a second thought. Exchanges do this specifically because using the USD would subject them to U.S. banking laws but since Tether "USDT" is a coin and not money, exchanges don't have to follow U.S. banking laws. This creates an extra layer of protection for exchanges and they are able to operate much easier without accidentally breaking those or other U.S. money-laundering, know your customer, etc. laws; While they are still able to pair coins with USD thanks to the coins being set 1:1 with the U.S. Dollar.

Many in the community remember last year when Bitfinex announced they announced they were stopping all user activity for U.S. citizen accounts. This was done for a very specific reason, and if you research what Bitfinex did after the last hack of $70 million USD, you will understand why. I'm sure a lot of people that weren't around when the hack occurred wouldn't believe what the exchange did to their customers.

Anyway back to subject on hand. Including using the aforementioned way that exchanges protect themselves by pairing with USDT and not USD; Tether further protects itself by separating itself into multiple entities; Tether Limited (“TLTD“) for U.S. citizens, Tether International Limited (“TIL“) for all Non U.S. citizens for the purpose of issuing, use, etc. of the Tether coin. Tether "TIL", Tether "TLTD" and Bitfinex (owned by iFinex Inc.) are incorporated in Hong Kong. Last but not least, and most important. Tether Holdings founded in 2014, and iFinex Inc. are both based in British Virgin Islands. These are the only parts of Tether and Bitfinex that receive real money, actual US dollars, Euro's, Yen, etc.

Any exchange, wallet, etc. that accepts actual money payments dealing with cryptocurrency knows that by accepting real money they must follow AML/CTF laws of whichever jurisdiction that would apply. Hence why most all exchanges pair with USDT and not USD. Furthermore, most people are also aware that the British Virgin Islands, Cayman Islands, etc. are considered tax havens which is where both holding companies are incorporated. There is much more about Tether if anyone wants to look further. Information released in the Paradise Papers links both companies and finally sheds light on the people behind this. It should be easy for anyone following along to see the possible implications. For our purpose, all we need is know how the companies are structured. Which is why the media just reported on January 31st 2018 that the U.S. issued subpoenas to both Bitfinex and Tether.

 

NOTE: NEW INFORMATION FROM TODAY SHOWS SNAPSHOT OVERVIEW

 

If you didn't know what company it was that was structured in this way with multiple sister corps, parent corps, locations, etc. Most people would be baffled as to why any company would go through all that trouble. What practical reason could a cryptocurrency company, in a unregulated world, have to do that in the first place? Fraud is rampant and no one seems to ever go to jail. Even if doing the same thing in any other business would likely result in criminal charges. So why would any company go through all that trouble if they had nothing to worry about. Even if their entire goal is to defraud people such as "B-Connect", why would any foreign company dealing with crypto go through that much trouble in such an unregulated market? Number one that is substantially more expensive financially and also much more work that would have to be done. Not including the additional time and cost to hide that stuff

This is where we need to ask ourselves a question. Putting aside any thought of Tether committing fraud or whatever else is alleged. Let's just look at the basic facts: If foreign exchanges, etc. aren't subject to outside laws because they are located in a different country. Why would any of them use a coin in place of real money for pairings? Wouldn't it be easier no matter what to just pair listing against the dollar. USD/BTC or whatever fiat currency is paired against cryptocurrency. That would just create more accounting and unnecessary additional steps to convert crypto to fiat? No business would adopt a model like that if there was not a fundamental need for the extra work/cost/etc.

We first had to ask that question before we can even ask the next one. So if exchanges are protected from foreign country laws just by using USDT. Why would Tether, Bitfinex, "B-Connect" International for that matter, stop doing business with U.S. citizens if they use USDT and are not based in the U.S.? Why would it matter then if they do business with them? Maybe the reason they ensure that no U.S. citizen can do business with them is because U.S. law does still apply to them if they transact with them. By now everyone knows "B-Connect" was a Ponzi scheme, and if you have paid any attention, the U.S. is going after them tooth and nail. Yes "B-Connect" did have U.S. locations however "B-Connect" International which is the holding company of the new "B-ConnectX" is already up and running and is unable to be shut down since US citizens are not permitted to use that service now.

There is a much more serious risk at hand. A risk that will make the 2014 Mt. Gox crime, which destroyed market cap by over 80% and didn’t recover until 2017, look like a weekend robbery at a convenience store. From 2014 until January 2017 a total of 10 million USDT had been created. No one would even question if they had 10 million USD in a bank account to back each coin up. When Well’s Fargo terminated them as a customer at the end of March, start of April, the total USDT supply increased to 44 million. December 1st when the Paradise papers were released 440 million Tether. Apparently within a week subpoenas were issued, that right there should indicate the severity of the problem.

December 31st 2017 supply was well over 800 million USDT. Fast forward a month and the total is 2.2 billion USDT at the end of January 2018 when the MSM finally picks up on it. NYTimes was the first to have an article of the US mainstream news. To add to the horror show playing out in front of all of us Tether is now issuing a new USDT and EURT on the Ethereum blockchain. The 2.2 billion are on the omni layer protocol which on the Bitcoin blockchain. Note: The new ERC20 USDT and EURT are not intended to replace the USDT that are bitcoin based but rather to compliment.

The implications of this reach much further than the cryptocurrency markets. If you are unaware how Market Capitalization works I will simplify this. If the entire cryptocurrency market capitalization is 500 billion that does not mean that the equivalent amount of money has been put into the system. According to a previous report from JP Morgan since 2009 a total of 6 billion $USD actually entered into the cryptocurrency market and that gave it a 300 billion market capitalization. If you want a more detailed explanation of market capitalization you can look here.

Now what does this all mean? What does this have to do with you or anyone else? You might be saying I don’t have any USDT so why do I even need to care or pay attention. Well simply explained, if $6Bn USD can create a 300 billion market cap. $2Bn USD that technically isn’t there could remove much, much more than $2Bn of hard assets and money from the cryptocurrency market.

 

TL:DR

 

Tether is acting as if they are the U.S. Federal Reserve without having to guarantee the USD like the Federal Reserve and U.S. government. In the last few months leading up to the recent all time high’s (ATH) many stories came out of people taking out second mortgages so they could invest in Bitcoin. Multinational corporations have become involved. Even governments have either knowingly or unknowingly invested into it. One of the key players here was also a key player in the 2008 global financial collapse. Only a couple things can happen:

1. Tether has 20%-100% of the USDT backed up with US dollars. Everything should be okay except cryptocurrency now has a central bank.

2. They don’t have US dollars to back it up. Exchanges lock the doors as everyone creates a run on the bank trying to get out before or during the crash, investors lose everything, all $$$ in the system is extracted out by Tether. That will have a detrimental effect on global markets and could trigger the collapse of the stock market bubble which will also take out the housing bubble.

Conclusion:

No matter what, this is going to be a very painful ride. Even if they do have the money, the US will make sure it doesn’t continue. Chances of them having the $3Bn as one of their insider friends stated are slime to non existent.

On the bright side, we will witness the greatest theft mankind has ever seen.

Disclaimer:
Last updated: February 02, 2018
This is not legal or financial advice and as such Author assumes no liability. Always consult with a licensed attorney or legal representative concerning any laws that may be applicable in your jurisdiction.
Author assumes no responsibility for errors or omissions in the contents on the Service.
In no event shall Author be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the Service or the contents of the Service. Author reserves the right to make additions, deletions, or modification to the contents at any time without prior notice
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submitted by PissedOfMiner to u/PissedOfMiner [link] [comments]

Legal Reason Why Foreign Cryptocurrency Exchanges, etc. Fall Under U.S./Foreign Laws.

First let me issue a disclaimer. This is not directed at any specific company or exchange and is intended for educational purposes only. This is not legal advice and as such I cannot be held liable accordingly. Always consult with a licensed attorney or legal representative concerning your local laws regarding what may or may not be applicable in your jurisdiction.
 
The U.S. regulatory agency, S.E.C., regularly works with foreign countries governments and regulatory agencies when enforcing laws on foreign companies. There is more than ample case law and literature that will verify this. That does not apply to all, or even most U.S. or other countries laws. Most laws do not give jurisdiction to one country over another. We will use the example of KimDotCom.
 
As a New Zealand citizen, the U.S.'s Department of Justice does not have the jurisdiction to send their agents to New Zealand to arrest him. They must legally have New Zealand extradite him. This is obvious, or should be to most people. Which is exactly why he is still in New Zealand and not in the U.S. either in court or jail. He has been able to fight extradition for the last 6 years, and hopefully that's how it stays. However, there are certain things which does fall under the jurisdiction of foreign countries. I'm not even going to try to list them here as that isn't important.
 
The most important thing however is how the U.S. extends it's jurisdiction when they should have absolutely no legal grounds. Specifically this falls under the Dodd-Frank Act. "Under the Dodd-Frank Act, U.S. courts have jurisdiction over claims of securities violations brought by the SEC or DOJ that involve: 1) Significant steps in furtherance of a violation that occurred in the United States even if the transaction took place outside the United States; or 2) Conduct outside the United States that has a “foreseeable substantial effect” within the United States."
 
Currently the U.S. has on more than occasion claimed jurisdiction over a foreign cryptocurrency exchange. Once for a civil claim against /Mt. Gox/(Japan) from 2014, in U.S. Federal court. I haven't fully looked in to all the details of this particular case in the State of Illinois. More details can be found here.
 
This was used more specifically last year when the U.S. SEC and DOJ sought charges against BTC-e, a Russian Exchange, and it's owner Alexander Vinnik. Accordingly BTC-e's assests including domain, etc. was seized by the U.S. and charged with operating an unlicensed money service business, money laundering, and related crimes. Details of this case can be found here.
 
To make sure that I'm not wrong and offer evidence showing that it is being taken that seriously, all you have to do is look at Tether and Bitfinex. NOTE: all information regarding the following companies is not my opinion but are the facts that have been released in accordance with the leaked Paradise Papers and other information. Whatever the financial status of any and all parties involved does not imply any guilt and should not be taken as such. For the purpose of this article, it is used only as an educational tool.
 
Most exchanges pair the USDT and not USD. This is done so foreign exchanges don't have to worry about reporting and banking laws that any company dealing with USD is legally obligated to do but they are still able to pair things against the US dollar which we all see it listed as USDT/BTC. A vast majority of people will never notice nor even give this a second thought. Exchanges do this specifically because using the USD would subject them to U.S. banking laws but since Tether "USDT" is a coin and not money, exchanges don't have to follow U.S. banking laws. This creates an extra layer of protection for exchanges and they are able to operate much easier without accidentally breaking those or other U.S. money-laundering, know your customer, etc. laws.
 
Many in the community remember last year when Bitfinex announced they announced they were stopping all user activity for U.S. citizen accounts. This was done for a very specific reason, and if you research what Bitfinex did after the last hack of $70 million USD, you will understand why. I'm sure a lot of people that weren't around when the hack occurred wouldn't believe what the exchange did to their customers. Long story short, Tether lost U.S. banking relations which caused people to question what was really going on. That's why we have the information we do now.
 
Anyway back to subject on hand. Including using the aforementioned way that exchanges protect themselves by pairing with USDT and not USD; Tether further protects itself by separating itself into multiple entities; Tether Limited (“TLTD“) for U.S. citizens, Tether International Limited (“TIL“) for all Non U.S. citizens for the purpose of issuing, use, etc. of the Tether coin. Tether "TIL", Tether "TLTD" and Bitfinex (owned by iFinex Inc.) are incorporated in Hong Kong. Last but not least, and most important. "Tether Holdings" founded in 2014, and iFinex Inc. are both based in British Virgin Islands. These are the only parts of Tether and Bitfinex that receive real money, actual US dollars, Euro's, Yen, etc.
 
Any exchange, wallet, etc. that accepts actual money payments dealing with cryptocurrency knows that by accepting real money they must follow AML/CTF laws of whichever jurisdiction that would apply. Hence why most all exchanges pair with USDT and not USD. Furthermore, most people are also aware that the British Virgin Islands, Cayman Islands, etc. are considered tax havens and the U.S. can't do a damn thing. No government can. There is much more about Tether if anyone wants to look further, it should be easy for anyone following along to see the possible implications. For our purpose, all we need is know how the companies are structured.
 
Now this part is not asking anyone to make any loose connections, or even try to connect all the dots together. We are going to look at this from a dumbed down point of view. If you didn't know what company it was that was structured in the exact same way with multiple sister corps, parent corps, locations, etc. most people would be baffled as to why any company would go through all that trouble. What practical reason could a cryptocurrency company, in a unregulated world, have to do that in the first place?
 
Fraud is rampant and no one seems to ever go to jail. Even if doing the same thing in any other business would likely result in criminal charges. So why would any company go through all that trouble if they had nothing to worry about. Even if their entire goal is to defraud people such as Bitconnect, why would any foreign company dealing with crypto go through that much trouble in such an unregulated market? Number one that is substantially more expensive financially and also much more work that would have to be done. Not including the additional time and cost to hide that stuff
 
So putting aside any thought of Tether committing fraud or whatever else is alleged. Let's just look at the basic facts: If foreign exchanges, etc. aren't subject to outside laws because they are located in a different country. Why would any of them use a coin in place of real money for pairings? Wouldn't it be easier no matter what to just pair listing against the dollar. USD/BTC USD/ETH NZD/BTC NZD/ETH or whatever fiat currency paired against crypto. That would just create more accounting and unnecessary additional steps to convert crypto to fiat? No business would adopt a model like that if there was not a fundamental need for the extra work/cost/etc. Everyone should have no problems understanding why exchages list pairings in USDT and NZDT and not USD and NZD.
 
Alright that was very easy and was not meant to insult anyone's intelligence. We first had to ask that question before we can even ask the next one. So if exchanges are protected from foreign country laws just by using USDT. Why would Tether, Bitfinex, Bitconnect International for that matter, stop doing business with U.S. citizens if they use USDT and are not based in the U.S.? Why would it matter then if they do business with them? Maybe the reason they ensure that no U.S. citizen can do business with them is because U.S. law does still apply to them if they transact with them. By now everyone knows Bitconnect was a ponzy scheme, and if you have paid any attention, the U.S. is going after them tooth and nail. Yes Bitconnect did have U.S. locations however Bitconnect International which is the holding company of the new BitconnectX is already up and running and is unable to be shut down since US citizens are not permitted to use that service now.
 
Finally, to wrap this up, even if you still think I have no clue as to what I'm saying. You only need to explain why a known fraudulent company and another giant clusterfuck, which worst case scenario is possibly the largest theft in human history. Why would they go through that much work? Why would any of the multitude of fraudsters, scammers, criminals, and anyone else looking to take advantage of other people even bother doing extra work or spending more.
 
I hope everyone was able to learn something because this took a while to put together. If anyone wants I can post more information about the Tether issue. I'm sure you'll have no trouble finding plenty on that though.
submitted by PissedOfMiner to Cryptopia [link] [comments]

Educational explanation "US Law & Foreign Entities, Jurisdiction of US extraterritoriality"

First let me issue a disclaimer. This is not directed at any specific company or exchange and is intended for educational purposes only. This is not legal advice and as such I cannot be held liable accordingly. Always consult with a licensed attorney or legal representative concerning your local laws regarding what may or may not be applicable in your jurisdiction.
 
The U.S. regulatory agency, S.E.C., regularly works with foreign countries governments and regulatory agencies when enforcing laws on foreign companies. There is more than ample case law and literature that will verify this. That does not apply to all, or even most U.S. or other countries laws. Most laws do not give jurisdiction to one country over another. We will use the example of KimDotCom.
 
As a Non U.S. citizen, the U.S.'s Department of Justice does not have the jurisdiction to send their agents to New Zealand to arrest him. They must legally have New Zealand extradite him. This is obvious, or should be to most people. Which is exactly why he is still in New Zealand and not in the U.S. either in court or jail. He has been able to fight extradition for the last 6 years, and hopefully that's how it stays. However, there are certain things which does fall under the jurisdiction of foreign countries. I'm not even going to try to list them here as that isn't important.
 
The most important thing however is how the U.S. extends it's jurisdiction when they should have absolutely no legal grounds. Specifically this falls under the Dodd-Frank Act. "Under the Dodd-Frank Act, U.S. courts have jurisdiction over claims of securities violations brought by the SEC or DOJ that involve: 1) Significant steps in furtherance of a violation that occurred in the United States even if the transaction took place outside the United States; or 2) Conduct outside the United States that has a “foreseeable substantial effect” within the United States."
 
Currently the U.S. has on more than occasion claimed jurisdiction over a foreign cryptocurrency exchange. Once for a civil claim against /Mt. Gox/(Japan) from 2014, in U.S. Federal court. I haven't fully looked in to all the details of this particular case in the State of Illinois. More details can be found here.
 
This was used more specifically last year when the U.S. SEC and DOJ sought charges against BTC-e, a Russian Exchange, and it's owner Alexander Vinnik. Accordingly BTC-e's assests including domain, etc. was seized by the U.S. and charged with operating an unlicensed money service business, money laundering, and related crimes. Details of this case can be found here.
 
To make sure that I'm not wrong and offer evidence showing that it is being taken that seriously, all you have to do is look at Tether and Bitfinex. NOTE: all information regarding the following companies is not my opinion but are the facts that have been released in accordance with the leaked Paradise Papers and other information. Whatever the financial status of any and all parties involved does not imply any guilt and should not be taken as such. For the purpose of this article, it is used only as an educational tool.
 
Most exchanges pair the USDT and not USD. This is done so foreign exchanges don't have to worry about reporting and banking laws that any company dealing with USD is legally obligated to do but they are still able to pair things against the US dollar which we all see it listed as USDT/BTC. A vast majority of people will never notice nor even give this a second thought. Exchanges do this specifically because using the USD would subject them to U.S. banking laws but since Tether "USDT" is a coin and not money, exchanges don't have to follow U.S. banking laws. This creates an extra layer of protection for exchanges and they are able to operate much easier without accidentally breaking those or other U.S. money-laundering, know your customer, etc. laws.
 
Many in the community remember last year when Bitfinex announced they announced they were stopping all user activity for U.S. citizen accounts. This was done for a very specific reason, and if you research what Bitfinex did after the last hack of $70 million USD, you will understand why. I'm sure a lot of people that weren't around when the hack occurred wouldn't believe what the exchange did to their customers. Long story short, Tether lost U.S. banking relations which caused people to question what was really going on. That's why we have the information we do now.
 
Anyway back to subject on hand. Including using the aforementioned way that exchanges protect themselves by pairing with USDT and not USD; Tether further protects itself by separating itself into multiple entities; Tether Limited (“TLTD“) for U.S. citizens, Tether International Limited (“TIL“) for all Non U.S. citizens for the purpose of issuing, use, etc. of the Tether coin. Tether "TIL", Tether "TLTD" and Bitfinex (owned by iFinex Inc.) are incorporated in Hong Kong. Last but not least, and most important. "Tether Holdings" founded in 2014, and iFinex Inc. are both based in British Virgin Islands. These are the only parts of Tether and Bitfinex that receive real money, actual US dollars, Euro's, Yen, etc.
 
Any exchange, wallet, etc. that accepts actual money payments dealing with cryptocurrency knows that by accepting real money they must follow AML/CTF laws of whichever jurisdiction that would apply. Hence why most all exchanges pair with USDT and not USD. Furthermore, most people are also aware that the British Virgin Islands, Cayman Islands, etc. are considered tax havens and the U.S. can't do a damn thing. No government can. There is much more about Tether if anyone wants to look further, it should be easy for anyone following along to see the possible implications. For our purpose, all we need is know how the companies are structured.
 
Now this part is not asking anyone to make any loose connections, or even try to connect all the dots together. We are going to look at this from a dumbed down point of view. If you didn't know what company it was that was structured in the exact same way with multiple sister corps, parent corps, locations, etc. most people would be baffled as to why any company would go through all that trouble. What practical reason could a cryptocurrency company, in a unregulated world, have to do that in the first place?
 
Fraud is rampant and no one seems to ever go to jail. Even if doing the same thing in any other business would likely result in criminal charges. So why would any company go through all that trouble if they had nothing to worry about. Even if their entire goal is to defraud people such as "B-Connect", why would any foreign company dealing with crypto go through that much trouble in such an unregulated market? Number one that is substantially more expensive financially and also much more work that would have to be done. Not including the additional time and cost to hide that stuff
 
So putting aside any thought of Tether committing fraud or whatever else is alleged. Let's just look at the basic facts: If foreign exchanges, etc. aren't subject to outside laws because they are located in a different country. Why would any of them use a coin in place of real money for pairings? Wouldn't it be easier no matter what to just pair listing against the dollar. USD/BTC USD/ETH NZD/BTC NZD/ETH or whatever fiat currency paired against crypto. That would just create more accounting and unnecessary additional steps to convert crypto to fiat? No business would adopt a model like that if there was not a fundamental need for the extra work/cost/etc. Everyone should have no problems understanding why exchages list pairings in USDT and NZDT and not USD and NZD.
 
Alright that was very easy and was not meant to insult anyone's intelligence. We first had to ask that question before we can even ask the next one. So if exchanges are protected from foreign country laws just by using USDT. Why would Tether, Bitfinex, "B-Connect" International for that matter, stop doing business with U.S. citizens if they use USDT and are not based in the U.S.? Why would it matter then if they do business with them? Maybe the reason they ensure that no U.S. citizen can do business with them is because U.S. law does still apply to them if they transact with them. By now everyone knows "B-Connect"was a ponzy scheme, and if you have paid any attention, the U.S. is going after them tooth and nail. Yes "B-Connect"did have U.S. locations however "B-Connect"International which is the holding company of the new "B-ConnectX" is already up and running and is unable to be shut down since US citizens are not permitted to use that service now.
 
Finally, to wrap this up, even if you still think I have no clue as to what I'm saying. You only need to explain why a known fraudulent company and another giant clusterfuck, which worst case scenario is possibly the largest theft in human history. Why would they go through that much work? Why would any of the multitude of fraudsters, scammers, criminals, and anyone else looking to take advantage of other people even bother doing extra work or spending more.
 
I hope everyone was able to learn something because this took a while to put together. If anyone wants I can post more information about the Tether issue. I'm sure you'll have no trouble finding plenty on that though.
submitted by PissedOfMiner to btc [link] [comments]

A Brief History of People Losing their Cryptocurrency

A Brief History of People Losing their Cryptocurrency
The history of cryptocurrency is fraught with people losing their coins, whether through carelessness, greed, bad luck, or some combination of the above. Some ignored the first rule of crypto: “never leave your crypto on an exchange.” When their exchange failed, their crypto went with it. Others were negligent with their storage solutions, misplacing old hard drives, using software wallets on malware-ridden PCs, forgetting the passwords to hardware wallets. Some were greedy and lost their coins to a Nigerian Crypto Prince or a Ponzi scheme. And some were just plain unlucky. These unfortunate tales remind us to be careful with our crypto, and underscore the need for new solutions to storing crypto safely.
Buying cryptocurrency used to be a risky prospect. There weren’t many exchanges, they often required you to deposit fiat via a third party, you certainly couldn’t use your credit card, and there was hardly any regulation. It was considered unwise to leave your cryptocurrency on the exchange after you bought it. Many people today feel safe buying some crypto on Coinbase or Binance, without transferring it to a personal wallet, but in those wild years you absolutely wanted control of your private keys. If the exchange had the keys, you were trusting your crypto to the reputation of a small company, located who-knows-where, that made its revenue by exchanging speculative, unregulated digital currencies between anonymous traders. One such company was Mt. Gox.
Mt Gox was a Tokyo based Bitcoin exchange. Led by CEO Mark Karpelès, who was also majority shareholder and lead developer, Mt Gox expanded quickly. Founded in 2010 and bought by Karpelès in 2011, Mt. Gox quickly dominated the Bitcoin market, responsible for 70% of BTC volume in 2013, with 1.1 million active accounts. But despite the outwards success, there were some signs that all was not well internally. Karpelès refused to allow any updates to the exchange software, without approving changes to the source code, meaning needed updates could languish for weeks. In June, 2011 the exchange lost $8.75 million in Bitcoin to a cyberattack, and the site went offline. According to friends of Karpelès who flew in to help get Mt. Gox back online, Karpelès seemed surprisingly relaxed about the affair, even taking the weekend off.
Mt. Gox was brought back online, but soon after US Federal agents seized $5 million from the company’s US account, and former business partner CoinLab sued for $75 million. Karpelès seemed more focused on creating a Bitcoin Cafe in the Mt. Gox building than on addressing these many issues. After an internal memo was leaked disclosing the disappearance of 850,000 BTC (worth about $460 million at the time), Mt. Gox collapsed into bankruptcy. It is still in bankruptcy proceedings today.
https://preview.redd.it/ycurk9dlnj611.jpg?width=800&format=pjpg&auto=webp&s=7b8199c3dc1e58536f9813918b46cca43a4edec4
One might be tempted to dismiss the failure of Mt. Gox as a lesson learned by the crypto community, a mistake that wouldn’t be repeated. Sadly, exchanges continue to lose their customers’ crypto with startling regularity. A less spectacular but much more recent loss was $150 million of Nano stolen from exchange Bitgrail in February. Bitgrail’s management blamed the Nano blockchain software for the theft, but has refused to release any evidence. Nano, for its part, has vigorously defended itself against Bitgrail’s claims, showing that the missing Nano was stored in a hot wallet (one that is accessible online) instead of a cold wallet, which would have been more protected. Whoever’s to blame, if you had Nano on Bitgrail, it’s gone. Similarly, if you had any crypto on Korean exchange Youbit, you’re down 17%, which was stolen in a hack in December. Or if you used Bitconnect, you’ll find your Bitconnect tokens became nearly worthless after the company shuttered in January.
https://preview.redd.it/c9yvtynqnj611.png?width=800&format=png&auto=webp&s=907e45703cc7e3e9e823f1cce1700a68c54075f6
“Dozens of exchanges have failed since the creation of Bitcoin, taking many small fortunes with them. This should serve as a reminder to never leave your cryptocurrency on an exchange; however there are other ways to lose your coins,” according to Saifu co-founder Evgeny Vigovsky.
In October of 2017, a new cryptocurrency was created called Bitcoin Gold. Bitcoin Gold is a fork of the Bitcoin blockchain. This meant that anyone who owned Bitcoin was now entitled to an equivalent amount of Bitcoin Gold. Many were eager to claim their share, and some found a Bitcoin Gold online wallet called mybtgwallet.com. This helpful site offered to assist users claim their Bitcoin Gold, instructing them to enter their wallet’s seed or private key. The seed is a series of words, usually 24, that can be used to recreate a wallet if it’s lost or corrupted. Giving someone your wallet seed or private keys is akin to giving them the keys to your safe deposit box, and the victims of mybtgwallet found their wallets were quickly emptied of whatever cryptocurrencies they held. More than $3 million in Bitcoin was stolen.
https://preview.redd.it/e5btpnfunj611.png?width=800&format=png&auto=webp&s=e2fa9a011de23e4f223d815567b061e3d2bc7625
MyEtherWallet is a popular online wallet for Ethereum and other tokens built on the Ethereum blockchain. The wallet is free to use, and as far as online wallets go, it’s secure, requiring users to take steps to protect themselves. In December, the MyEtherWallet iOS app hit the #3 spot on the App Store in the finance category. Unfortunately for the thousands of users who bought the app for $4.99, this app was just another scam. MyEtherWallet doesn’t have an app (and Apple doesn’t allow wallet apps on the App Store). Suspicious users alerted the MyEtherWallet team, who alerted Apple. Two days later, Apple responded and removed the app from the app store.
https://preview.redd.it/jcokfj6ynj611.png?width=519&format=png&auto=webp&s=903ea36e5e749a1854ae8fcacabc19032276ed04
Less colorful but more insidious, there are a plethora of malware that targets cryptocurrency wallets. These programs run quietly in the background, searching for wallet software on your computer and uploading your credentials. A particularly nasty bit of malware was the Pony botnet, discovered in September 2014. The Pony botnet used a trojan virus to compromise about 700,000 accounts, including email accounts, website login credentials, and other sensitive information. Bitcoin totalling 335 were stolen from 85 different wallets; those Bitcoin are worth about $2.7 million today.
Some classic scams have been updated for cryptocurrencies, including a variation on the Nigerian prince con, harnessing social media to attract victims. In the classic Nigerian prince scam, the victim would receive an email from a Nigerian prince who needs help to move his wealth to the United States. The prince needs someone to deposit a check for him, then wire out the funds. They pay the wire fee but get to keep part of the funds from the deposited check. Typically the victim’s bank informs them that they’ve deposited a bad check well after they’ve wired out the funds for the “Prince.”
In the new variation, scammers impersonate well-known figures of the tech world like Elon Musk or John McAfee, often on Twitter. They use a name similar to the celebrity, and their picture. They claim to be giving away cryptocurrency to the first 100 people to respond to the tweet, but there’s a catch; respondents need to send a small amount of crypto to pay for the “fees.” Naturally, the scammer just keeps these small bits of crypto and does not send anything in return. Here’s “Elon Msk” giving away some free Bitcoin:
https://preview.redd.it/jwasx3v3oj611.png?width=622&format=png&auto=webp&s=d1a9da3a2cc9859527e3b7939c61c61428a71a85
Thankfully, crypto security is steadily improving. The rise in value and mainstream adoption have attracted established cybersecurity players, and innovative new storage solutions are being created with increasing frequency. Our firm Saifu has developed its own crypto storage hardware in partnership with Thales. “Users’ crypto keys are stored in Thales hardware security modules, which cannot be accessed remotely. Even if we were ever hacked, our customers’ cryptocurrencies are protected. As it becomes safer and easier to buy and use cryptocurrencies, we believe mainstream adoption will skyrocket. The crypto revolution is just beginning,” Vigovsky, the Saifu co-founder, says.
submitted by Saifu-Lola to saifu [link] [comments]

Educational explanation "US Law & Foreign Entities, Jurisdiction of US extraterritoriality"

First let me issue a disclaimer. This is not directed at any specific company or exchange and is intended for educational purposes only. This is not legal advice and as such I cannot be held liable accordingly. Always consult with a licensed attorney or legal representative concerning your local laws regarding what may or may not be applicable in your jurisdiction.
 
The U.S. regulatory agency, S.E.C., regularly works with foreign countries governments and regulatory agencies when enforcing laws on foreign companies. There is more than ample case law and literature that will verify this. That does not apply to all, or even most U.S. or other countries laws. Most laws do not give jurisdiction to one country over another. We will use the example of KimDotCom.
 
As a New Zealand citizen, the U.S.'s Department of Justice does not have the jurisdiction to send their agents to New Zealand to arrest him. They must legally have New Zealand extradite him. This is obvious, or should be to most people. Which is exactly why he is still in New Zealand and not in the U.S. either in court or jail. He has been able to fight extradition for the last 6 years, and hopefully that's how it stays. However, there are certain things which does fall under the jurisdiction of foreign countries. I'm not even going to try to list them here as that isn't important.
 
The most important thing however is how the U.S. extends it's jurisdiction when they should have absolutely no legal grounds. Specifically this falls under the Dodd-Frank Act. "Under the Dodd-Frank Act, U.S. courts have jurisdiction over claims of securities violations brought by the SEC or DOJ that involve: 1) Significant steps in furtherance of a violation that occurred in the United States even if the transaction took place outside the United States; or 2) Conduct outside the United States that has a “foreseeable substantial effect” within the United States."
 
Currently the U.S. has on more than occasion claimed jurisdiction over a foreign cryptocurrency exchange. Once for a civil claim against /Mt. Gox/(Japan) from 2014, in U.S. Federal court. I haven't fully looked in to all the details of this particular case in the State of Illinois. More details can be found here.
 
This was used more specifically last year when the U.S. SEC and DOJ sought charges against BTC-e, a Russian Exchange, and it's owner Alexander Vinnik. Accordingly BTC-e's assests including domain, etc. was seized by the U.S. and charged with operating an unlicensed money service business, money laundering, and related crimes. Details of this case can be found here.
 
To make sure that I'm not wrong and offer evidence showing that it is being taken that seriously, all you have to do is look at Tether and Bitfinex. NOTE: all information regarding the following companies is not my opinion but are the facts that have been released in accordance with the leaked Paradise Papers and other information. Whatever the financial status of any and all parties involved does not imply any guilt and should not be taken as such. For the purpose of this article, it is used only as an educational tool.
 
Most exchanges pair the USDT and not USD. This is done so foreign exchanges don't have to worry about reporting and banking laws that any company dealing with USD is legally obligated to do but they are still able to pair things against the US dollar which we all see it listed as USDT/BTC. A vast majority of people will never notice nor even give this a second thought. Exchanges do this specifically because using the USD would subject them to U.S. banking laws but since Tether "USDT" is a coin and not money, exchanges don't have to follow U.S. banking laws. This creates an extra layer of protection for exchanges and they are able to operate much easier without accidentally breaking those or other U.S. money-laundering, know your customer, etc. laws.
 
Many in the community remember last year when Bitfinex announced they announced they were stopping all user activity for U.S. citizen accounts. This was done for a very specific reason, and if you research what Bitfinex did after the last hack of $70 million USD, you will understand why. I'm sure a lot of people that weren't around when the hack occurred wouldn't believe what the exchange did to their customers. Long story short, Tether lost U.S. banking relations which caused people to question what was really going on. That's why we have the information we do now.
 
Anyway back to subject on hand. Including using the aforementioned way that exchanges protect themselves by pairing with USDT and not USD; Tether further protects itself by separating itself into multiple entities; Tether Limited (“TLTD“) for U.S. citizens, Tether International Limited (“TIL“) for all Non U.S. citizens for the purpose of issuing, use, etc. of the Tether coin. Tether "TIL", Tether "TLTD" and Bitfinex (owned by iFinex Inc.) are incorporated in Hong Kong. Last but not least, and most important. "Tether Holdings" founded in 2014, and iFinex Inc. are both based in British Virgin Islands. These are the only parts of Tether and Bitfinex that receive real money, actual US dollars, Euro's, Yen, etc.
 
Any exchange, wallet, etc. that accepts actual money payments dealing with cryptocurrency knows that by accepting real money they must follow AML/CTF laws of whichever jurisdiction that would apply. Hence why most all exchanges pair with USDT and not USD. Furthermore, most people are also aware that the British Virgin Islands, Cayman Islands, etc. are considered tax havens and the U.S. can't do a damn thing. No government can. There is much more about Tether if anyone wants to look further, it should be easy for anyone following along to see the possible implications. For our purpose, all we need is know how the companies are structured.
 
Now this part is not asking anyone to make any loose connections, or even try to connect all the dots together. We are going to look at this from a dumbed down point of view. If you didn't know what company it was that was structured in the exact same way with multiple sister corps, parent corps, locations, etc. most people would be baffled as to why any company would go through all that trouble. What practical reason could a cryptocurrency company, in a unregulated world, have to do that in the first place?
 
Fraud is rampant and no one seems to ever go to jail. Even if doing the same thing in any other business would likely result in criminal charges. So why would any company go through all that trouble if they had nothing to worry about. Even if their entire goal is to defraud people such as Bitconnect, why would any foreign company dealing with crypto go through that much trouble in such an unregulated market? Number one that is substantially more expensive financially and also much more work that would have to be done. Not including the additional time and cost to hide that stuff
 
So putting aside any thought of Tether committing fraud or whatever else is alleged. Let's just look at the basic facts: If foreign exchanges, etc. aren't subject to outside laws because they are located in a different country. Why would any of them use a coin in place of real money for pairings? Wouldn't it be easier no matter what to just pair listing against the dollar. USD/BTC USD/ETH NZD/BTC NZD/ETH or whatever fiat currency paired against crypto. That would just create more accounting and unnecessary additional steps to convert crypto to fiat? No business would adopt a model like that if there was not a fundamental need for the extra work/cost/etc. Everyone should have no problems understanding why exchages list pairings in USDT and NZDT and not USD and NZD.
 
Alright that was very easy and was not meant to insult anyone's intelligence. We first had to ask that question before we can even ask the next one. So if exchanges are protected from foreign country laws just by using USDT. Why would Tether, Bitfinex, Bitconnect International for that matter, stop doing business with U.S. citizens if they use USDT and are not based in the U.S.? Why would it matter then if they do business with them? Maybe the reason they ensure that no U.S. citizen can do business with them is because U.S. law does still apply to them if they transact with them. By now everyone knows Bitconnect was a ponzy scheme, and if you have paid any attention, the U.S. is going after them tooth and nail. Yes Bitconnect did have U.S. locations however Bitconnect International which is the holding company of the new BitconnectX is already up and running and is unable to be shut down since US citizens are not permitted to use that service now.
 
Finally, to wrap this up, even if you still think I have no clue as to what I'm saying. You only need to explain why a known fraudulent company and another giant clusterfuck, which worst case scenario is possibly the largest theft in human history best case is wonderful for the community. Why would they go through that much work? Why would any of the multitude of fraudsters, scammers, criminals, and anyone else looking to take advantage of other people even bother doing extra work or spending more.
 
I hope everyone was able to learn something because this took a while to put together. If anyone wants I can post more information about the Tether issue. I'm sure you'll have no trouble finding plenty on that though or if you need more documentation on anything I covered.
EDIT: With today's news about a subpoena for Tether's records. They were only able to do this since they requested it during the same year Tether had US customers.
submitted by PissedOfMiner to Bitcoin [link] [comments]

Summary of the criminal complaint (of the undercover agents)

The government had multiple investigations into the Silk Road marketplace, an underground black market that allowed vendors and buyers to conduct illegal transactions over the intemet. One of these investigations was conducted in the Southern District of New York, and the other was conducted out of Baltimore in the District of Maryland. Both FORCE and BRIDGES were assigned to the Baltimore investigation and not the New York investigation. The two investigations were conducted independently of each other.
Throughout 2012 and 2013, both FORCE and BRIDGES had significant responsibilities related to Baltimore’s investigation. In this capacity, FORCE was the lead undercover agent in communication with DPR. the owner, administrator and operator of the Silk Road website.l BRIDGES was the computer forensics expert on the Baltimore investigation. In their capacity as members of the Baltimore Silk Road Task Force, both FORCE and BRIDGES had significant exposure to and developed expertise in the digital currency known as Bitcoin.
As will be described further herein, FORCE and BRIDGES abused their positions as federal agents and engaged in a scheme to defraud a variety of third-parties, the public, and the government, all for their own financial enrichment. With respect to former Drug Enforcement Administration (DEA) Special Agent FORCE, the investigation has revealed among other things that:
a. FORCE created certain fictitious personas - that were not officially sanctioned - to communicate with DPR, the target of FORCE’s investigation. Using one of these personas, FORCE sought to extort DPR by seeking monetary payment, offering in exchange not to provide the government with certain information if DPR paid $250,000;
b. FORCE acted outside the scope of his official role on the Baltimore Silk Road Task Force and created a fictitious persona named “French Maid.” Operating as “French Maid,” FORCE fraudulently represented to DPR certain information concerning “French Maid’s" true identity and offered to sell DPR information about the government’s investigation into Silk Road in exchange for approximately $100,000 worth of bitcoin, which DPR paid and FORCE deposited into his own personal accounts;
Until October 1, 2013, DPR was known to FORCE and the rest of the Baltimore Silk Road Task Force only by his online moniker “Dread Pirate Roberts” or “DPR.” Ulbricht was known on the Silk Road site by the moniker “Dread Pirate Roberts” (DPR) and is referred to hereafter interchangeably as “DPR” and “Ulbricht.”
c. FORCE stole and converted to his own personal use a sizeable amount of bitcoins that DPR sent to FORCE in FORCE’s official undercover capacity and rather than turning those bitcoin over to the government, FORCE deposited them into his own personal accounts;
d. FORCE engaged in a series of complex transactions between various Bitcoin accounts (known as Bitcoin addresses), his personal digital currency accounts, and his personal bank accounts, including a $235,000 wire to an overseas account in Panama, all in an effort to launder and conceal the true source of the ill-gotten proceeds;
e. FORCE used his official position as a DEA agent to illegally run criminal history checks on individuals for the benefit of a third-party digital currency exchange company, CoinMKT, in which FORCE had personally invested approximately $110,000 worth of bitcoin;
f. FORCE functioned as the de facto Chief Compliance Officer for CoinMKT all the while employed as a DEA agent, even allowing himself to be featured in CoinMKT’s “pitch decks” to venture capital investors and allowing himself to be listed as CoinMKT’s anti- money laundering and/or compliance officer in order to benefit CoinMKT (a company in which FORCE had invested);
g. FORCE improperly directed CoinMKT to freeze one of its individual customer’s accounts containing a large amount of digital currency, worth approximately $297,000, even though he lacked a sufficient legal basis on which to do so, and FORCE then illegally seized those funds and transferred them into his own personal account; and
h. FORCE used his supervisor’s signature stamp, without authorization, on an official US. Department of Justice subpoena and sent the subpoena to a payments company, Venmo, directing the company to unfreeze his own personal account, which had been previously frozen due to certain suspicious activity. FORCE then sought to conceal evidence of his improper use of an official subpoena by directing the company not to contact the DEA and attempting to destroy copies of the subpoena. When the company did not comply, FORCE asked another agent on the Baltimore Silk Road Task Force. an IRS agent, to collaborate with him on seizing that company’s bank accounts.
With respect to former US. Secret Service (USSS) Special Agent BRIDGES, the investigation has revealed among other things that:
a. In late January 2013, members of the Baltimore Silk Road Task Force, to include BRIDGES and FORCE, gained access to a Silk Road website administrator account as a result of the arrest of a former Silk Road employee. On January 25, 2013, the Silk Road website suffered a sizeable theft of bitcoins, bitcoins which were moved into Mt. Gox, a digital currency exchange based in Japan;
b. On February 12, 2013, BRIDGES formed and registered a personal limited liability company called “Quantum International Investments, LLC,” (Quantum), and on February 22, 2013, BRIDGES opened an account at Fidelity Investments (Fidelity) in the name of Quantum;
c. According to records obtained from Fidelity, BRIDGES funded his Quantum Fidelity account exclusively with wire deposits from Mt. Gox in Japan. Specifically, between March 6, 2013 through May 7, 2013, BRIDGES’ Quantum Fidelity account in the United States received nine wire transfers from Mt. Gox totaling approximately $820,000;
d. Despite having personally benefitted in the amount of $820,000 from a Mt. Gox account and receiving a large wire on May 7, 2013 from Mt. Gox, just two days later on May 9, 2013, BRIDGES served as the affiant on a multi-million dollar seizure warrant for Mt. Gox and its owner’s bank accounts; and
e. Upon learning of the government’s criminal investigation into the Baltimore Silk Road Task Force based in the Northern District of California, and following an interview by the FBI as part of the criminal investigation, BRIDGES transferred over $250,000 out of his Quantum Fidelity account via wire transfers into another bank account held by himself and a third-party.
Because this affidavit is for the limited purpose of establishing probable cause for the crimes proposed to be charged at the present time, it does not include certain additional facts known to me and the govemment’s investigation continues.
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