Inside a $722 million alleged Bitcoin Ponzi
This was a big week for the acceptance of cryptocurrency globally. India, one of the world’s biggest markets, finally saw a 2018 ban on cryptocurrencies being struck down. Additionally, South Korea, one of the most active crypto markets globally, set up clear regulations for cryptocurrency exchanges, wallets and token issuers. Plus, we’ve got news on Libra, the DOJ cracking down on crypto money laundering, and a colorful alleged Ponzi scheme.
If you were excited last week by the news about Caitlin Long’s Avanti Bank, you’ll love this week’s Unchained, featuring a fireside chat I did with Colorado Governor Jared Polis and Wyoming Governor Mark Gordon, two of the most crypto-friendly politicians in the nation. Governor Gordon gives us more details on the special-purpose depository institutions that Caitlin will use to establish Avanti. Plus, on Unconfirmed, we’ve got the fascinating case of the Steemit war with Justin Sun, recounted in detail by Brady Dale of CoinDesk.
This Week’s Crypto News…
The Supreme Court of India struck down a 2018 ban on cryptocurrencies that had made it illegal for banks to deal with cryptocurrency. With that directive deemed unconstitutional, Indian crypto traders can now deposit Indian rupees into crypto exchanges. Since several Indian crypto exchanges shut down following the ban, many expect the industry there to revive. In an opinion piece for CoinDesk, Ajit Tripathi says the next challenge is to create sensible regulation that would help curb widespread scams in small towns and villages, but that he believes that India, because it would likely have one regulator for the cryptocurrency industry, would have “far clearer, efficient and transparent” regulation than the US.
The Information reported that, bowing to pressure from regulators, the Libra Association will be issuing digital versions of fiat currencies in addition to the previously planned Libra, a new token backed by the US dollar, euro, Japanese yen, British pound and Singapore dollar. Also, Facebook will be launching its digital wallet Calibra in October instead of June, as previously planned, and the rollout, “could be restricted to certain countries based on the local currencies that it ultimately supports.”
Cryptocurrencies now have a designated place under South Korea’s legal system. The Korean National Assembly passed an amendment that made clear how cryptocurrency exchanges should comply with know-your-customer and anti-money-laundering requirements, and also specified that exchanges, wallet providers and token issuers must partner with an approved Korean bank to verify participants.
Hudson Jameson, who serves as core developer liaison for Ethereum, wrote an epic blog post in his personal capacity about the debate over Programmatic Proof-of-Work, more commonly known as ProgPoW. He explains that it is proof-of-work algorithms that utilizes almost all parts of commodity GPUs. The goal of switching to it would be to reduce the incentives for others to create ASICs to mine Ethereum. In the post, he recounts the long history of how the proposal got made, who is pushing for it, and the pros and cons. The biggest concern, he notes is that instituting it could cause a network split, if it were to be a contentious hard fork. He says, “In my opinion, ProgPoW isn’t worth it and is dead based on overwhelming evidence of community dissent.”
On Monday, the Department of Justice charged two Chinese nationals, Tian Yinyin and Li Jiadong, with laundering more than $100 million worth of cryptocurrency. DOJ alleges the funds were stolen by North Korean actors, in particular the Lazarus Group, a North Korean state-sponsored malicious cyber group, who hacked into a virtual currency exchange, making off with $250 million. From July 2018 to April 2019, Tian Yinyin and Lia Jiadong engaged in $100 million worth of cryptocurrency transactions, most of them exchanging cryptocurrency traceable to the exchange hack into fiat. One of the crazier details in this story is that about $1.5 million of the BTC was converted to iTunes gift cards.
Last week, I mentioned that Ripple’s been paying MoneyGram to use XRP. Izabella Kaminska of the FT had a hilarious commentary on the deal, in which she points out that when MoneyGram and Ripple made a deal for MoneyGram to use Ripple’s XRP and xRapid platform, that MoneyGram wasn’t in great financial shape. She then talks about how Ripple CEO Brad Garlinghouse crowed about how 10% of MoneyGram’s US-Mexico business was being handled by Ripple systems. Then she wrote, “It turns out Ripple has been paying a significant amount of subsidies” which she then crossed out and replaced with the word “cash to MoneyGram’s business since buying into the company in June.” She ends the piece with a quote from Garlinghouse from a 2019 interview with the FT, in which he said, “We would not be profitable or cash flow positive [without selling XRP].”
This is a couple weeks old, but Westword did a fabulous long-form story on the BitClubNetwork’s alleged Ponzi Scheme, which prosecutors say is one of the largest cryptocurrency frauds ever, scamming hundreds of thousands of investors out of what prosecutors say was at least $722 million. To give you a taste of how juicy it is, just read the first few paragraphs:
“The first time you see Joby Weeks work his magic, you might wonder what the hell is going on. Here he is, serving up financial advice on stage in Acapulco or Aspen or some other place where millionaires roost, and he’s dressed like a frat boy, in cargo shorts, a T-shirt and sandals. He giggles, snorts and waves his arms, as if he’s herding pledges to an endless supply of Jägerbombs.
“But this 38-year-old bro can sell. As he settles into his pitch, it becomes clear that his attire is ideal for the task at hand. It screams casual, comfy, I-don’t-give-a-rat’s-ass sincere. It’s the antithesis of the uniform of Wall Street corporate tools, the pinstripe suit and Hermès tie and John Lobb wing tips. It’s what a bro would wear 365 days a year if he was absurdly rich and didn’t have to impress anybody. And what Weeks is selling, to some extent, is his own legend: The Secret of How to Be Me.
“LIVE A GREAT STORY, one of his T-shirts proclaims. And what greater story is there than the carefully cultivated success story of Joby Weeks?”