$530 Mln in XEM Stolen From Coincheck Can Be Traced, NEM Team Confirms
This week, $534 mln worth of XEM, the native cryptocurrency of NEM, was stolen from a major Japanese cryptocurrency exchange Coincheck. On January 27, merely hours after the hacking attack was announced, developers behind NEM created an automated tagging system to track down the funds stolen by hackers.
Stolen funds will be traced
As Cointelegraph reported on January 26, $534 million worth of XEM were stolen from low security hot wallet that lacked multi-signature security measures. During a press conference covered by Cointelegraph, Coincheck executives stated that all of the funds were stored in a hot wallet or an online wallet, which left user funds vulnerable to the security breach.
Shortly after the press conference, NEM representatives and its open-source development community firmly opposed the idea of conducting a hard fork to prevent user funds on a centralized cryptocurrency exchange from being recovered.
A hard fork could have been executed if $534 million in NEM were stolen due to the fault of the NEM blockchain. But, because the security breach was caused by the lack of strong security measures of Coincheck, the NEM development team rightfully refused to conduct a hard fork.
Instead, the NEM development team created an automated tagging system to ensure that all funds stolen from Coincheck are traced. By tagging stolen funds as tainted funds, cryptocurrency exchanges can now easily verify if stolen NEM funds are withdrawn or deposited to regulated trading platforms.
“Hack update: NEM is creating an automated tagging system that will be ready in 24-48 hours. This automated system will follow the money and tag any account that receives tainted money. NEM has already shown exchanges how to check if an account has been tagged. So the good news is that the money that was hacked via exchanges can’t leave,” said a NEM spokesperson.
During an interview, NEM Foundation vice president Jeff McDonald confirmed the development of the tagging system and the work NEM Foundation will lead in the next few weeks to prevent stolen funds from being cashed out or converted to other cryptocurrencies through trading platforms.
As of now, the hackers behind the Coincheck NEM security breach are out of options. It is not possible for the hackers to convert the stolen NEM to other major cryptocurrencies like bitcoin and Ethereum because the automated tagging system will immediately alert exchanges about the tainted funds.
Due to the sheer size of the stolen funds, it is also not likely that the hackers will go through small-scale cryptocurrency exchanges to convert or launder the stolen funds.
At this stage, the only safe option for the hackers is to hold onto the stolen NEM. Because of the technology NEM has developed in light of the recent Coincheck hack, it has become significantly difficult for the hackers to do anything with the funds. It is not possible to cash out the stolen NEM to fiat currencies like the US dollar and it is also not possible to convert the stolen funds to other cryptocurrencies.
NEM, its open-source development community, and the NEM Foundation did not have to develop the tagging system for the benefit of Coincheck, specifically because stolen funds on the NEM blockchain network would still have circulated around the network even if they are not recovered. But, NEM developers have done Coincheck and investors that lost millions of dollars in the hacking attack a tremendous favor by voluntarily creating a solution to a serious problem.
Written by CoinTelegraph
Australian Gold Refinery Announces Plan to Develop Cryptocurrency
Australian Gold Refinery to Develop Cryptocurrency
The chief executive of Perth Mint, Richard Hayes, states that the company has identified a significant opportunity in “bring[ing] investors back to precious metals after a boom in alternative investments such as cryptocurrencies,” the Australian Broadcasting Corporation reports.
“I think as the world moves through times of increasing uncertainty, you’re seeing people look for alternate offerings,” Mr. Hayes stated, adding “And you’re seeing this massive flow of funds into the likes of Bitcoin at the moment because people are looking for something outside of the traditional investments.”
Perth Mint CEO Claims Metal-Based Crypto Potentially Offers Price Stability
Mr. Hayes explained Perth Mint’s decision to develop a gold-backed cryptocurrency, emphasizing the purported benefits of using distributed ledger technology for fast and efficient settlement, whilst potentially affording the cryptocurrency greater price stability than unbacked virtual currencies. The CEO stated that “us[ing] precious metals to back something […] allied to blockchain […] retains its intrinsic value,” adding that unbacked cryptocurrencies “rely on everyone believing that there’s something behind it.”
“With a crypto-gold or a crypto-precious metals offering, what you will see is that gold is actually backing it,” Mr. Hayes stated. “So it will have all the benefits of something that is on a distributed ledger that settles very, very quickly, that is easy to trade, but is actually backed by precious metals, so there is actually something behind it, something backing it.”
Commodity-Backed Cryptocurrencies Proliferate
If successful in launching the cryptocurrency, Perth Mint’s altcoin will join a long list of virtual currencies purporting to be backed by gold. Last year, the initial coin offering (ICO) for Onegram – a purportedly Shariah-compliant, gold-backed, cryptocurrency – garnered significant international media attention for what the company hoped would be a more than $500 million USD token-sale.
At the closure of the first phase of the ICO, Onegram only saw the sale of 16,926 of the 12,400,786 Onegramcoins (OGC) that the company had hoped to sell – comprising less than 0.14% of the company’s goal. Presently, Onegram claims that the platform is still in development, and has given its investors the option to resell their OGC for a meager 25% return should they wish to liquidate their holdings.
Venezuela also recently announced that it will launch a commodity-backed cryptocurrency, the ‘petro’ – a national cryptocurrency purportedly backed by 5 billion barrels of Venezuelan crude oil. In recent weeks, Venezuelan officials have urged neighboring countries to adopt the cryptocurrency. At present, it appears as though the Venezuelan government will seek to sell the crypto in “private placements at a discount of up to 60 percent,” with the sale set to start of February 15.
Written by Bitcoin.com
U.S. Agency ICE Conducts Investigations That Exploit Blockchain Activity
On January 25 the U.S. Immigration and Customs Enforcement (ICE) deputy assistant director, Greg Nevano, explained in a testimony that the agency was using “blockchain exploitation tools” to combat cryptocurrency use in illicit markets. Nevano’s testimony revolved around the growing opioid addiction problem in the U.S., and how the law enforcement organization is fighting the drugs deliveries stemming from international mail carriers.
ICE Is Combating Illicit Activities That Derive From International Mail Deliveries
This week the ICE deputy assistant director Greg Nevano discussed how his department was focused on fight the opioid and fentanyl problem plaguing the U.S. The director’s report explains how ICE is combating illicit activities that derive from international mail deliveries, alongside other cyber-based tactics used for fighting crime. Nevano also details to the U.S. Senate committee that cryptocurrencies are being used to facilitate drug trafficking across multiple borders.
Darknet Field Investigations and Exploiting Peer-to-Peer Cryptocurrency Exchangers
The ICE representative says the agency’s cyber-crime division is providing support to “field investigations” that target “darknet illicit marketplaces.” Nevano says that fentanyl and chemical precursors proliferate within these online markets and are sold for digital currencies. In 2014 the agency launched 37 investigations, and by 2015 the number increased to 100 inquiries. Today the ICE cyber-crime division is working on 600 probes and have over 500 requests for more field investigations.
“The cyber division is providing assistance with the development and management of online undercover personas in furtherance of online undercover operations and collaborates with joint agency strategies in taking down online sources of opioids,” the testimony details.
In support of its diverse financial investigative efforts ICE uses undercover techniques to infiltrate and exploit peer-to-peer cryptocurrency exchangers who typically launder proceeds for criminal networks engaged in or supporting darknet marketplaces.
Training Agents to Understand Cryptocurrency and the Use of Blockchain Exploitation Tools
ICE says that it is training investigators from national and international law enforcement agencies to scrutinize cryptocurrency use that’s tethered to fentanyl/opioid or other narcotic purchases. Nevano’s testimony details that the organization is collecting “communication records such as phone toll records, Internet Protocol (IP) address activity records, email search warrants, and Title III wire intercepts” in these types of investigations. Further, the agency is also using tools that exploit blockchain networks tied to the digital assets used in illegal activity. Nevano states:
ICE leverages complex blockchain technology exploitation tools to analyze the digital currency transactions and identify transactors.
The testimony follows the recent actions taken by governments all around the world attempting to regulate the cryptocurrency economy. Moreover, news.Bitcoin.com reported on the blockchain surveillance company Chainalysis being contracted by ICE several times. Its likely that the Chainalysis blockchain monitoring products are just one of the exploitation tools deployed by the U.S. law enforcement agency. Nevano and ICE believe illicit narcotic smuggling in the international mail environment and cryptocurrencies are playing a role in the world’s opioid epidemic.
Written by Bitcoin.com
Lawyers Are Taking Payment in Bitcoin Despite Conflict of Interest Concerns
Meet the Crypto-Chasing Lawyers
It would be easy to assume that cryptocurrency acceptance in the legal profession is limited to a handful of fringe mavericks and libertarians, but it’s attracted a number of mainstream advocates. A recent article in Law.com (paywalled) quotes several lawyers who now accept crypto including Washington-based lawyer Carol Van Cleef, who helps crypto clients with compliance matters. She explains: “I’ve known for a long time that my opportunity to expand in certain areas has been affected by not taking [cryptocurrency]”.
Historically, lawyers who’ve served the poorest and most marginalized members of society have done so for ideological reasons rather than pecuniary gain. In times gone by, it was not unheard of for defense attorneys to take payment in the form of firewood, food or whatever else their clients could spare. Had Breaking Bad been filmed five years later, it’s easy to imagine wheeler-dealer lawyer Saul Goodman accepting crypto and using it to help Walter White account for his vertiginous pallets of $20 bills.
Tokens for Attorneys
As cryptocurrencies have entered the mainstream, their association with illicit activities has diminished, and so has the stigma of accepting them. Lawyers must tread more carefully than professionals from other sectors however and accepting crypto from startups they’re advising raise possible conflict of interest concerns. It’s common practice for cash-strapped startups to offer team members payment in tokens.
Everyone from web designers to marketers can be pacified with the promise of tokens as soon as the project launches. Any legal expert entering into such an agreement would be obliged to rule that the token constituted a utility and not a security, as to do otherwise would mean they wouldn’t get paid.
Conflict of Interest or Credibility Booster?
If a lawyer has never sent or received cryptocurrency, they seem ill-equipped to advise crypto startups on their structuring model. Cryptocurrency theory is all well and good, but to truly appreciate and understand it, proponents insist, it is necessary to experience it in action, and not just once for test purposes, but as part of everyday life. Lawyers who have gotten their hands dirty, so to speak, by using crypto should be able to understand and explain it more effectively than their counterparts who are still crypto virgins. It would be hard to see bitcoin or ethereum acceptance as presenting a conflict of interest; a lawyer taking tokens for the platform they’re advising on, however, would be a much narrower crypto case, and one that is much harder to defend.
Mainstream media organizations such as the New York Times forbid their bitcoin reporters from owning cryptocurrency, while other news sites expect their journalists to disclose any potential conflict of interest. While scribes such as the NYT’s Nathaniel Popper have earned praise for the quality of their reporting, it’s hard to shake the feeling that by watching from the sidelines, their reporting is in danger of being too detached. Just as Vietnam war journos had no qualms about hunkering down with the troops, crypto reporters with personal experience of the subject matter are likely to be better informed and more attuned to community matters.
Dirty Digital Money
Accepting crypto is “a symbol for the client about how vested you are in the area,” says DC lawyer Carol Van Cleef. Defense attorney Jay Cohen also accepts bitcoin but confesses “We cash it out when it comes in, because of the volatility”. This practice tallies with an opinion delivered by a Nebraska Supreme Court committee which advises lawyers to convert crypto to fiat expeditiously to prevent conflicts of interest caused by lawyers getting vastly over or underpaid due to bitcoin volatility.
There’s another problem though that defense lawyers accepting crypto from their clients must address: ensuring that it has not come from illegitimate activities. Cohen confesses to having to turn down bitcoin payment from a client who was charged with money laundering. Obvious red flag-raising cases aside, there’s nothing to stop lawyers from accepting crypto, as a number of firms in the U.S. and elsewhere do.
Former assistant U.S. attorney Kathryn Haun put it best when she told Law.com via email: “There is no reason to believe that cryptocurrency is illegitimate and criminally-derived any more than any other form of currency or payment. Cryptocurrencies are not special in that regard and I would think would be treated like any other funds.”