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Report: CEO of Largest Romanian Crypto Exchange Arrested on US Warrant

The CEO of Romanian crypto exchange Coinflux was reportedly arrested for alleged fraudulent activity.

The CEO of Romania’s largest crypto exchange Coinflux was reportedly arrested on a warrant from the United States for fraud, organized crime, and money laundering, local news outlet Mediafax reported Dec. 13. Coinflux has subsequently stopped all digital currency exchanges.

Founded in 2015 in the Romanian city of Cluj, Coinflux is an online digital currency trading platform, with reportedly more than 200 million euro worth of Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP) in transactions.

Vlad Nistor, the CEO and founder of Coinflux, was supposedly arrested on the territory of Romania upon the request of U.S. prosecutors. Nistor is accused of alleged fraudulent activity, organized crime and money laundering. The issue of extradition of Nistor to the U.S. will reportedly be heard by the Appeals Court of Bucharest.

Following the purported arrest, Coinflux published an announcement saying that the exchange has temporarily suspended all digital currency exchanges, while the company’s bank accounts have been frozen. Coinflux states that the ongoing investigation has also restricted its access to some parts of the platform.

In July of 2018,  the Ministry of Finance of Romania released a draft Emergency Ordinance, which regulates the issuance of electronic money (e-money). Per the document, any legal entity looking to issue e-money must have a share capital of no less than €350,000 ($395,000), while its members are subject of approval by the Romanian National Bank (BNR).

While the first Bitcoin automated teller machine (ATM) in the country appeared back in 2014, it took Romanian authorities about three years to come up with an expanded comment on cryptocurrencies. In 2017, Ilan Laufer, Romania’s Business, Commerce and Entrepreneurship Environment Minister, expressed his belief in cryptocurrencies, but pinpointed that the area should be officially regulated.

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Ethereum Hacks on the Rise Again as Price Remains Below $100

Hackers are continuing to find exposed mining rigs and wallets, which make easy targets for stealing ETH funds.

A fresh wave of hacks targeting Ethereum (ETH) holdings continues, despite the altcoin’s price trailing at 18-month lows, tech magazine ZDNet reported Dec. 10.

Citing research by cybercrime monitoring company Bad Packets LLC, the publication revealed that the downturn in ETH/USD has failed to stop malicious parties attempting to steal funds from miners and investors.

Scanning the network, hackers are trying to identify mining rigs and wallets with an exposed port 8545, which ultimately allows them to gain control and redirect ETH funds elsewhere.

“Despite the price of cryptocurrency crashing into the gutter, free money is still free, even if it’s pennies a day,” Bad Packets co-founder and security researcher Troy Mursch commented.

Cointelegraph originally reported on the Ether scanning phenomenon in June this year after one operation netted a reported $20 million in ETH.

Other incidents had occurred previously, joining a spate of various campaigns to divorce cryptocurrency holders from their wealth.

2018 has been a particularly bad year for so-called ‘cryptojacking’ attacks, which Bad Packets also monitors.

Cryptojackers attempt to remotely commandeer devices in order to mine or steal cryptocurrency, with detections rising almost 500 percent this year. “Because this threat is relatively new, many people do not understand it, its potential significance, or what to do about it,” a dedicated report on the problem by the Cyber Threat Alliance said in September.

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Report: Financial Criminal Allegedly Revealed as Figure Behind ‘Blockchain Terminal’ ICO

The man behind the “Blockchain Terminal” ICO has been ousted as a convicted financial criminal who concealed his former identity.

The man behind the “Blockchain Terminal” (BCT) Initial Coin Offering (ICO) has been ousted as a financial criminal who concealed his former identity from employees and investors alike. An investigation into the circumstances were published Dec. 11 on news outlet The Block Crypto

The BCT project and its affiliated firm, CG Blockchain, are alleged to have raised as much as $31 million in an ICO to launch a crypto-focused version of the ubiquitous “Bloomberg Terminal” — a highly-successful financial data and trading tool for the traditional financial sector.

According to the report, BCT’s glossy “institutional-grade” tool for crypto “trading professionals” had at its helm a man who operated as “Shaun MacDonald,” but was in reality a convicted fraudster, Boaz Manor, who had received a four-year prison sentence in Canada in 2012 for siphoning $106 million from a Toronto-based hedge fund he co-founded.

The Canadian fund reportedly had $800 million in assets under management at its peak from 26,000 investors: Manor was also found guilty of using investors’ money to purchase $8.8 million worth of diamonds that later disappeared.

Having agreed to a lifetime ban from the securities industry, Manor-turned-MacDonald withheld his conviction and identity from his colleagues at BCT, reportedly “growing a beard and [dying] his hair red.” While formally assigning the company’s presidency to Bob Bonomo — former chief information officer at $500 billion asset management firm AllianceBernstein — MacDonald was reportedly the primary driver behind the BCT venture.

Although it marketed its $999 “Blockchain Terminal” to crypto hedge funds — a 32-inch “HD Terminal” with a hardware private key — the company is alleged to have raised most of its funds via a lucrative $31 million ICO for its native BCT token, which launched in September 2017.

One of the project’s purported investors is the high-profile crypto analyst and host of CNBC’s show Cryptotrader Ran Neuner, who tweeted his endorsement of the Blockchain Terminal in June, and is alleged to have invested as much as $1.3 million in the company’s ICO, according to two unnamed sources.

NeuNer yesterday stated he had “lost a ton” of his own cash investing in the BCT “fraud,” but accused The Block of “defamatory” misreporting, and falsely claiming to have reached out to contact him for comment on the story.

NeuNer has not responded to Cointelegraph’s request for comment by press time.

Besides MacDonald’s misrepresentations, the Block reports that Bonomo “quietly resigned” from BCT in summer, following which MacDonald revealed himself as Manor to his employees, and purportedly ceased to pay them. With Manor’s whereabouts “unclear,” BTC has now rebranded as BCT Inc., and announced in late October its Terminal would go on sale in to the public.

In June, the Bloomberg Terminal announced that it would begin listing crypto exchange Huobi’s Cryptocurrency Index, as well as nine crypto-trading pairs.

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New Zealand: Financial Authority Blacklists Another Three Crypto Platforms Marked as ‘Suspected Scams’

New Zealand’s Financial Markets Authority has updated its blacklist with three suspicious crypto-related companies.

New Zealand’s Financial Markets Authority (FMA) has added three more crypto platforms to its blacklist that warns about scams, a release by the FMA reveals Wednesday, Dec. 12.

OneLife Network Limited and its associated entity OneCoin Limited were added to the list because they “bear the characteristics of a scam” and promise unrealistic returns. Moreover, the FMA has learned that the mentioned companies are holding promo events in New Zealand and offering investments, thus breaching the country’s las by acting as unregistered financial services.

Another crypto company, Bitcoin Revolution Limited, was suspected of being involved in a scam as well. As Finance Magnates reports, the crypto trading firm made suspicious claims on its website, such as “Earn up to $1000 per hour or more, starting today.”

Moreover, the FMA recalled its October warning, reminding the public that Bitcoin Revolution Limited falsely claimed that the country’s current or former prime ministers and Treasury officials were investing in Bitcoin (BTC).

As Cointelegraph wrote before, in late 2017, former New Zealand prime minister Sir John Key was rumored on social media to hold $300 million in BTC from his initial investment of $1,000. Key later denied this information and said that the initial news was posted by a fake website pretending to be the New Zealand Herald — the largest newspaper in country.

New Zealand’s authorities are already closely following other crypto scams. In September, the country’s police warned citizens about online scams in general as an investor lost $320,000 NZD ($213,000 USD) to crypto fraudsters.

In October and November, the FMA also blacklisted several crypto-related companies, mostly for promising unrealistic returns or failing to get a required certificate of incorporation from local authorities.

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Chinese Central Bank Governor Defines STOs as ‘Illegal Financial Activity in China’

The governor of the Chinese central bank has stated during a summit that STOs are an “illegal financial activity in China.”

The People’s Bank of China (PBoC), the country’s central bank, highlighted the illegality of Security Token Offerings (STOs) in the country, English-language local news outlet South China Morning Post (SCMP) reports Dec. 9.

A deputy governor of China’s central bank, Pan Gongsheng, reportedly told a summit in Beijing “that ‘illegal’ financing activities through STOs and ICOs [Initial Coin Offerings]  were still rampant in the mainland despite a nationwide clean-up of the cryptocurrency market last year.”

Gongsheng also said that if the government had not stepped in, the chaotic crypto market could have hurt the overall financial stability in China.

The central bank official pointed out that “the STO business that has surfaced recently is still essentially an illegal financial activity in China.” Gongsheng also reiterated the stance that cryptocurrencies are associated with crime:

“Virtual money has become an accomplice to all kinds of illegal and criminal activities.”

According to the article, Gongsheng noted that “most of the financing operations conducted through ICOs in China were suspected of being illegal fundraising, pyramid sales schemes and other financial fraud.”

The article also mentions that the chief of the Bureau of Financial Work, Huo Xuewen, warned against STOs about a week ago. He said:

“I want to warn those who are promoting STO fundraising in Beijing. Don’t do it in Beijing. You will be kicked out if you do it.”

On the other hand, blockchain adoption — the tech behind most cryptocurrencies — has been relatively embraced in China. As Cointelegraph recently reported, a Chinese Internet Court has started using blockchain to protect the intellectual property of online writers.

The legal basis of this development can be assumed to be the Chinese Supreme Court’s ruling from September, which established that blockchain can legally authenticate evidence.

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IT Analyst Jason Bloomberg: What I’m Really Saying Is ‘Shut Down Permissionless Blockchains’

IT industry analyst Jason Bloomberg tells CT why he doesn’t believe in trustless systems and how he sees permissionless blockchains being “shut down.”

This interview has been edited and condensed.

Aside from occasional blisteringly anti-crypto commentary from the likes of Warren Buffett and Bill Gates, one of the crypto industry’s most consistent and vocal naysayers is IT industry analyst Jason Bloomberg.

Bloomberg is a published author, Forbes contributor and president of the firm Intellyx, which helps enterprises integrate new technological developments and trends into their business models.

Bloomberg also devotes a significant amount of his time to attending crypto and blockchain-related conferences and events, speaking and debating with industry leaders. His public stance, however, can be characterized as anti-crypto, but more accurately it is anti-decentralized, permissionless crypto — against the original dream of truly decentralized, peer-to-peer interactions laid out in the Bitcoin (BTC) white paper that captured the imaginations of early adopters.

Last month at BlockShow Americas in Las Vegas, Cointelegraph had a chance to speak with Bloomberg about why he wants to “shut down” decentralized crypto, what he sees as the threat of crypto-related crime and why he comes to blockchain industry events like BlockShow.

What’s wrong with permissionless blockchains

Olivia Capozzalo: So, you have a reputation for saying some pretty bold things about cryptocurrency. This spring you wrote an article in which there was a sentence stating something like “We need to make cryptocurrency as we know it illegal.”

Jason Bloomberg: Right. The challenge that most cryptocurrencies have is that they run on a permissionless blockchain infrastructure. By permissionless, we mean that there’s nobody in charge, right?

In a proof-of-work system, every transaction processor has to process the transactions. Because it’s permissionless, anybody can sign up as a miner, including criminals.

Now, not all miners are criminals, obviously, but criminals are welcome to be miners. There’s nothing stopping them from being miners. As a result, many criminal enterprises, including organized crime syndicates, have gotten into the mining business.

There’s really no way to stop this, aside from moving away from permissionless blockchain-based approaches.

So, when I say, “Shut all the cryptocurrencies down,” what I’m really saying is “shut down the permissionless ones.” If cryptocurrency is going to survive, we’ll have to move to a permissioned infrastructure.

OC: Just hypothetically, if people start taking you up on this call to action, what would that look like? Do you have a vision of how that would start to affect what we know today as the crypto industry?

JB: Well, in practical terms, it would be very difficult to shut down, say, Bitcoin, because it doesn’t exist in any one country. So each country would have to decide what laws it wanted to create in order to make transactions illegal, or whatever it would be.

What I would expect to happen is, over time, as various organizations and governments, as well as banks and Wall Street trading firms realize that permissionless cryptocurrency has these issues, then gradually the trend would be to encourage permissioned systems versus permissionless — and that would drive down the value of Bitcoin and other cryptocurrencies that run on permissionless systems.

So if you drive down the value sufficiently, then it is no longer cost-effective to mine the cryptocurrency. And at certain point, then, essentially it will fall apart.

Nobody will be running transactions because there will be no money made in conducting transactions, and fewer and fewer countries will allow cryptocurrency. And hopefully, other cryptocurrencies that are based on permissioned systems will essentially take the line and investment is going to move to them.

But I would say that the permissionless ones will essentially fade over time. There will be less interest in them, they’ll be less valuable, and fewer and fewer people will want to mine them.

Watch the full interview with Jason Bloomberg here:

Against a trustless system

OC: For many, if not most people in the crypto industry, the fact that anyone can send money from one person to another directly — without intermediaries, without an enterprise, without a bank — is a core value.

What do you say to the people who really care about the decentralized aspect of cryptocurrency when you are talking about shifting the entire value system?

JB: You’re quite right, and this is a very astute point — the whole perspective on decentralized cryptocurrency blockchain versus the centralized permissioned approach. And for many people in this community, it’s all about decentralization, and some of them don’t even see permissioned blockchain as being blockchain at all.

In terms of decentralization, I still don’t see that there’s a way to implement decentralization without opening the doors to criminal enterprise.

And so, all of these people with these libertarian priorities, libertarian visions for a decentralized world with no government intervention — the problem there is that, if you don’t have sufficient regulation, if you don’t have sufficient permissioning of the transaction processors, then essentially, it becomes just a playground for criminal enterprise.

OC: What about the fact that not all cryptocurrencies are proof-of-work, you don’t need to mine all of them. You can have permissionless and proof-of-stake blockchains, right?

JB: Well, this is an important trend away from these permissionless systems to the more permissioned approach. And there could be a lot of different variations, whether it’s proof-of-stake…you know, Ripple is an example of a centralized, permissioned approach — and I would say that is really where the focus will be.

But whether or not there’s a way to solve the crime problem and still be decentralized, I just don’t see that because I think the whole point is that we need to have, essentially, a centralized entity that people put their trust in, who is now extending their trust to the participants in the infrastructure to the miners.

And without that, we are just allowing criminals in. And this has happened over the years with various approaches, right? This is nothing new.

Crypto and crime

OC: In the research that you’ve done, you see that the criminal involvement is increasing?

JB: The criminal involvement in cryptocurrency was one of the original reasons why cryptocurrency took off, so it’s one of the reasons why Bitcoin became as popular as it did in the earlier days.

And now, it’s only continuing to expand. I mentioned in my panel this morning that in 2017, the most active form of hacking of big business was ransomware. Ransomware is only practical when you can pay the ransoms in some sort of cryptocurrency. Before cryptocurrency, there was no ransomware, it just wasn’t feasible. So, cryptocurrency now gave the criminals a way to conduct ransomware.

That was 2017. Ransomware is no longer the most popular. In 2018, the most popular is cryptojacking — or illicit crypto mining — where the hacker puts crypto mining software either in a browser, but increasingly on servers, both in enterprise centers and cloud environments that essentially sucks up electricity and pays the criminal in some sort of cryptocurrency.

This is now the most popular, the most predominant way of hacking a big company.

So essentially, what cryptocurrency has become is not only a way for criminals to get into the mining, but it’s a way to conduct criminal transactions, it’s a way to conduct hacking.

If you look at the dark web, the whole economic context for the dark web is cryptocurrency. The dark web wasn’t really practical — because there was no good way of exchanging funds — until cryptocurrency came along.

OC: But one of the arguments that people make is that crime-related transactions are not the majority of the transactions happening with cryptocurrency.

There’s always going to be crime, so why would you fight the medium of exchange — cash, crypto, whatever it is — rather than looking for other ways to prevent or prosecute crime?

JB: Well, criminals have been using cash since the invention of cash, obviously. But that’s actually a false comparison. You’re saying, “Well, because criminals can use cash, we shouldn’t worry about criminals using cryptocurrency.”

It’s like saying, “Well, if I get stopped for speeding, my argument to the cop should be that other people are speeding,” or, “Other people were going faster than I was.” No cop is going to let you off of a ticket because you said that somebody else has committed a crime. That is not a justification for a crime.

OC: But here’s the comparison. Why can the car go faster than the speed limit? Why don’t they just make cars that can’t go faster than a certain speed?

If you start controlling the means, it restricts people’s freedom. And I think that is a really important thing for people in crypto — it’s like, I want the freedom to be able to send you, transact with you on a peer-to-peer basis. I feel like It’s sort of crushing the dream of a decentralized world.

JB: Well, I don’t think it’s a question of crushing the dream, it’s that the technology that people have come up with does not support the dream. The dream of being able to conduct a transaction as easily as giving you a dollar bill, but be able to do it internationally, electronically — okay, well that makes sense on the superficial level, so why come up with this huge technology infrastructure that is hugely valuable to the criminals and becomes a central element of organized crime, globally speaking.

And this has happened over the years. In fact, I’ve just read some research that came in a newsletter this morning, about how this notion of decentralized network communication — we’ve never come up with a way of doing it without it just ending up being a means for criminal activity.

Back in the 80s, hardcore pornography was hard to come by. The web wasn’t around. You’d go to your local store, you could get Playboy — but that wasn’t hardcore — so this was it. And it was mostly illegal until the Clinton administration relaxed the obscenity rules in the 1990s. Once the Clinton administration did that, mainstream pornography moved to the web, and it’s been there ever since.

Now along comes BitTorrent. We’re now using the internet, internet speeds are going faster, we’re now able to download videos. So, what do we do? We come up with a peer-to-peer, decentralized protocol that allows anybody to exchange big files with anybody else. So, what do you use that for? Well, pirated software, pirated videos and illegal pornography. Because that was the primary use. This is just human nature: If you have a way of exchanging information or files that is hidden from view, then it is going to be primarily used by criminals to conduct criminal activity.

The problem with BitTorrent was that BitTorrent itself was not particularly anonymous — you had to identify your IP address — so it wasn’t very good for organized crime. It became, sort of, a disorganized crime protocol. It also didn’t provide a payment mechanism. It was more about sharing that illegal porn with your buddies than building a business.

What do we need? We needed a way of greater anonymity in the payments and a payment infrastructure. And along came Bitcoin. That’s why Bitcoin exploded, it was because BitTorrent did not have those things.

Now, you add Bitcoin to BitTorrent and now you can build a global, professional black market for illegal contraband and that’s the dark web.

This is the history of distributed technologies — it’s been one of facilitating criminal enterprise. Bitcoin played right into that, and now we have the dark web and now we have hackers who are leveraging the technologies as well.

This is the story. This is the story of cryptocurrency.

And people are pretending or fooling themselves that it’s about some sort of a libertarian ideal, where people are going to behave. No, people will not behave. Criminals are going to come in, and they are going to take over, and it’s going to be the whole reason why we have this stuff.

The cryptojacking threat

OC: You have this arguably pessimistic vision of how this all will turn out. Let’s get back into the nitty-gritty of cryptojacking, that particular type of hacking. What’s the exact harm being done there?

JB: So, with illicit crypto mining or cryptojacking, the early days were all about the browsers — you have some sort of compromised website that would give you some Javascript you would run on your browser. And so, your own computer would spin for a while, and it steals a little bit of electricity and a little bit of processor power from you.

That software has gotten better and now, even when you close your browser, it will still run on your computer. So, it’s sucking up your processor on your laptop. That is relatively minor compared to crypto mining software on a server. You put it on a server, it’s getting more sophisticated, it’s now consuming electricity and processor power on the server. If it’s in the cloud, it’s running up the cloud bill.

So, companies are paying money for their cloud services, including any crypto mining that is running on there. If it’s on premises, it’s still consuming electricity and processor power, and will continue to do so until the miners proliferate and take the entire network down. It’s not just one hacker doing this. If a company is vulnerable, then multiple different bad guys are going to figure this out and put mining software, which is forming itself into botnets.

So, many different computers mining software, consuming electricity and processor power, unbeknownst to the other crypto mining software on the same servers.

Essentially, at certain point, it just uses up all the processing power, the server stops working and this could happen across the entire network. It could take down the entire company’s data center.

But because it is running behind the scenes, the way that criminals make their money is simply processing transactions and they get money from the Bitcoin or Monero infrastructure directly. The money isn’t going directly from the victim to the perpetrators. It’s indirect.

But as a result, it’s catching a lot of the CSOs, the chief security officers, unaware until such time that it takes down their entire network. So, this is already the biggest problem on corporate networks today, but it’s not going to take as much attention as perhaps it should because it doesn’t have the command-and-control link and, in the early days, it doesn’t have much impact.

OC: Okay, I see. And you think the solution, just to clarify, is not to deal with preventing that kind of an attack or mitigating it in some way, but actually shut down cryptocurrency because cryptocurrency is the problem here.

JB: Well, I don’t think this is really a practical solution. It would be great if I could say, “Well, we’ll just shut down cryptocurrency, that’s going to stop crypto mining.” And yes, it would, but I don’t think it’s practical for the reasons I listed: There’s no one country, it’s no one country’s laws.

So, it’s going to take a lot of time. And it’s going to be, really, the economic forces, right? It has to be less valuable to own certain cryptocurrencies over others. And once we shift the economy to the safer cryptocurrencies, then that is going to be a long-term, gradual solution.

In the short term, yes, it’s essentially traditional cyber security methods: malware detection and threat prevention. And this is where a lot of big companies are spending their cybersecurity dollars today.

Why we’re here

OC: Let me ask you a question that’s a little bit pointed, but what are you hoping to do by coming to BlockShow or any other crypto/blockchain-related events? Like, why are you here exactly?

JB: Why am I poking my stick into all these people? Well, I write for Forbes. I am a Forbes contributor, so I write five articles a month for Forbes. I’m always looking for good stories, and that’s a part of the story.

But I’m also, essentially, looking for the gems in the rough. I’m looking for those enterprise blockchain companies that have real solutions, at least in the works — obviously, it’s still early days, so it’s usually proofs-of-concept — but real solutions in the sense that they are solving business problems for companies who aren’t just other companies in the blockchain echo chamber.

Those are the stories that I think are the most important to tell. But yes, I can tell the stories about the flaws of cryptocurrencies or the problems with the libertarian perspective on things, but that only gets you so far.

Really, it’s more important to focus on the positive stories, right? The real business cases for real companies, who are solving real customer problems. And that’s really what I am looking for.

OC: Great, thank you so much.

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Thai Money Laundering Watchdog Looks to Tackle Crypto-Related Crimes

Thailand’s Anti-Money Laundering Office (AMLO) is considering creating its own digital wallet to investigate crypto-related cybercrime, local news outlet The Nation wrote Monday, September 3.

The matter was discussed at a local seminar cryptocurrency crime within the current legal system. According to Witthaya Neetitham, secretary for AMLO, the regulator wants to adapt to the new technology by making it possibly for the government to confiscate crypto involved in fraud. “We have discussed launching our own ‘AMLO Wallet’ to hold or confiscate digital currency from illegal sources,” he said.

Under existing legislation, Thai officials can only jail or extradite those who were convicted of cybercrime or confiscate their physical assets. Nevertheless, authorities are not able to reach digital wallets allegedly involved in a crime, The Nation claims.

Despite new measures, it might still be difficult to track cryptocurrency operators who work outside the current licensing system. “We cannot identify the cryptocurrency operator or receivers when duped victims transfer money to the criminals,” AMLO secretary said.

The Nation also mentions that Thai courts are unlikely to accept evidence on crypto transactions and fraud if it is difficult to identify persons involved.

According to recent statistics published by the United Nations Office on Drugs and Crime, the global cost of cybercrime is approaching $600 bln. In Thailand crypto-related felonies are mostly limited to bogus investments in Bitcoin (BTC), or other cryptocurrencies.

As Cointelegraph reported back in 2017, Alexandre Cazes, a Canadian who allegedly operated the online dark marketplace AlphaBay, had spent eight years in Thailand before being arrested by local police at the request of U.S. authorities.

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BitAngels’ Michael Terpin: Negligence of Major Phone Companies Is Crypto’s Biggest Threat

This interview has been edited and condensed.

Michael Terpin is an American blockchain and crypto investor who has worked with over 100 projects running Initial Coin Offerings (ICOs) since entering the blockchain space in early 2013.

Terpin co-founded  BitAngels in 2013 and, more recently, founded blockchain PR firm Transform Group. The investor and entrepreneur recently hit mainstream and crypto media headlines following his high profile case against U.S. telecom giant AT&T. Terpin is suing AT&T for negligence that allegedly resulted in the theft of over $24 million of Terpin’s crypto holdings.

Cointelegraph sat down with Terpin at BlockShow Americas in Las Vegas to get into the details of the case, discuss the current ICO landscape, the difference between centralized and decentralized cryptocurrencies and where he sees Bitcoin’s price three to five years from now.

Crypto’s Biggest Threat

Olivia Capozzalo: The story that is going on right now with AT&T — can you tell our readers what happened?

Michael Terpin: Sure. So, the entire crypto community has been targeted by gangs — crypto gangs — for quite some time, and it accelerated as the price of Bitcoin and other crypto assets went up.

Right now, the biggest risk to anybody who’s high profile in the crypto industry, and really anybody who has identifiable involvement in the community, is that major phone companies promise you security and don’t deliver it.  

So, I’ve been hacked twice: The first time was last year — it’s all in my lawsuit. I did not lose that much the first time, I thought my crypto assets were already pretty secure because I have all my major assets in bank vaults and Trezors and Ledgers. But as an investor and marketer in this space, I have, you know, dozens of different cryptocurrencies that don’t neatly fit into any of those profiles.

The only reason that they did get in there is because AT&T allowed one of their reps in a store in Connecticut to give my six-digit code that they told me when I requested a higher level of authorization of security.

What they did not say is that any low-level, $10-an-hour store clerk can override that authorization. Normally, when you think that there’s a password that is supposed to be a high-level password to protect you, it would be like a PIN number in a bank.

So, only one of two things is possible: Either the person is a complete idiot and cooperating with the hackers unknowingly — which still shouldn’t have been allowed under the way that they promised it to me — or he’s part of the gang and just got bribed.

And there’s a lot of evidence that this is going on pretty widely right now.

OC: I want to walk through this step-by-step, because I think that helps people also understand how they can prevent this kind of thing, if that’s even possible.

So, what that looks like, you’re saying, is that a person goes into a physical AT&T store and says that they’re you?

MT: That’s correct. Or they pretended someone is in there, and they scanned, you know, a subway card and said it didn’t scan, and then did a manual override.

It’s quite possible the AT&T rep did it with nobody actually in the store at all. You know, case after case is coming out, and there’ve been several arrests in July that all have in common AT&T employees who were basically bribed.

You can watch the full interview here:

[embedded content]

OC: Okay. Say this person gets access to your identity, they’re getting access to your phone number on a different phone, right?

MT: When an AT&T rep turns over your digital identity, they turn over anything that would have access to your phone number.

OC: Basically what happens is that they now have access to change your passwords, because they just confirm with the phone number?

MT: They have access to anything that has the phone number attached to it as a form of verification, which is much broader than wallets.

OC: Right. So, it can be a two-factor thing, but it wouldn’t be Google 2FA…

MT: This was not an exchange. So, there are many other pieces of software that have your phone number as your identity.

OC: Okay, right. So, at the end of the day though, we’re talking about millions, like, $20 million, right?

MT: Correct.

OС: $24 million, I believe. Not to be offensive, but why was that much money in a place that was accessible by a phone number?

MT: It should not have been accessible other than being broken into and being handed over, and having the hackers be able to go and prowl around all sorts of things that were within my network of computers.

Because they were able to get access to that through this. So, it wasn’t as simple as — and it wasn’t, as has been misreported — “Oh, I had a Coinbase account, and they were able to reset that.” That was not an exchange, it was a native wallet.

OC: A native wallet. Because, what you’re saying is that you couldn’t store these currencies in a cold storage?

MT: Nope.

Most of the smaller tokens – anything that’s not Bitcoin, or Ethereum or ERC-20 tokens – are not storable on cold storage; they have to be stored in, you know, in a paper wallet or, in order to be able to stake new tokens, they have to be stored, essentially, in the native wallet.

OC: Okay so, now that you’re going through this nightmare with AT&T, can you give some advice to investors overall?


Sure. I would say, if you are a recognizable person in the crypto industry, you can’t use any of the major four phone companies, period.

If you for some reason need to use them, you have to make sure that any time that you use any piece of software that ever asks your phone number, do not give AT&T or any of the other ones.

So, the ways of getting around this — which is what I do now — is you have to have a Google Voice number.

But you have to have something that does not have a retail store where a $10-an-hour employee can be bribed to give up your information and your digital life.

OC: And you see this as an organized effort, you said, organized crime?

MT: Yes, clearly organized. There are hundreds of millions of people involved.

So, this is not an isolated incident — these are international gangs.

The FBI are very good at sort of following the trail and they’ll do what they do. And I’m certainly working with all of those law enforcement agencies. I have been doing that since the day this happened.

OC: Honestly, before this story came out, I hadn’t really heard of this as like a large-scale problem. The problem I do hear about is crypto-jacking, which you mentioned, via JavaScript malware.

But, just to clarify, do you see this issue with telecom companies as being bigger than crypto-jacking?

MT: Bigger. Much bigger.

It’s SIM-jacking, basically, that’s the biggest threat to individual assets right now.

And it’s something that is surprisingly simple for these telcomm companies to fix — simply: If you’re promising someone, you know, a higher security password, don’t let it be overruled by a $10-an-hour employee, make it mandatory.

Today’s ICO Landscape

OC: You’ve been an investor in the blockchain space for a while, and you have invested in a bunch of ICOs, you mentioned a hundred?

MT: Yes, between PR services and me being an advisor to companies, my firm and I have worked with 103 ICOs.

OC: Wow! A lot of people say the heyday of the ICOs was last year, the year before. Can you sketch out what is happening right now with ICOs that you’re seeing, and if you think it’s a good thing?

MT: You know, I think that when we’re talking about the death of the ICO and this and that, I think it’s too early to say that. I mean, if you take out the infrastructure tokens, I think security tokens will be much larger than utility tokens, because we just don’t have the formats in place right now.

Because there’s no reason why — other than the legacy systems — you can’t buy Google stock easily in France, or why you can’t buy Samsung stock on the New York Stock Exchange.

If you had a token, its global. So, that’s sort of the future that regulators just have to keep up, with how this applies cross-borders.  

But it’s still very early. You know, I like to give the analogy — even though it’s not exact — of the rise of the internet and the rise of blockchain. So, with the rise of the internet, there was a lot of skepticism in the early days, that the internet wasn’t viable.

So, all the stuff that was said about why the internet wasn’t gonna work, insert ‘crypto’ and a lot of things sound a lot the same.

And then, of course, there was a couple of early movements up and down, and then you had this wild ride from like ’98 to the first quarter of 2000, where the Nasdaq went from 1,000 to 5,000 — and, by the peak, when the dotcom bubble popped — you had $5 trillion dollars worth of companies, and that dropped by like 90 percent — a lot of them went out of business.

So, the rising tide lifts all boats, but then, when the water drops to the bottom, you can see all the junk at the bottom of the harbor — and it’s got to be cleared out before it starts going up again.

I think, if you look at the overall chart of Amazon, of eBay, of these other ones, the whole dotcom area now looks like a little tiny blip in the price compared to where it is today. So, I think, similarly, you may be looking at Ethereum, five years from now and seeing this you know 30 cents to $1200 and back down to $300 as a blip, if it’s say $15,000, you know, five years from now, 10 years from now.

I do pretty firmly believe that Bitcoin — it is my own personal belief — will hit a high of at least $50,000 sometime in the next three to five years.

And it seems to be the most predictable thing in terms of the way markets have behaved, that you have a big run-up about a year after the halving, when the supply and demand starts taking root.

Centralized vs. Decentralized

OC: Where do you stand on decentralized versus centralized cryptocurrencies?

MT: I think that when you’re looking at the overall revolution of the blockchain, decentralization is only one of many aspects that makes it revolutionary. Tokenization is just as important.

So, when you’re talking about, say, tokenizing a stock — it’s not decentralized. I think, that decentralization makes the most sense when you’re talking about cross-border payments.

But in terms of the actual technology, the decentralization of Bitcoin is less important than that of cryptocurrencies that base themselves on decentralized consensus, that’s important for the security of knowing that a smart contract cannot be stopped once it gets initiated.

Ideally, the proper way that I think most DApps should work is that you should have a nonprofit foundation that basically is just responsible for having that technology proliferate, and that there should be, then, a for-profit that uses it — that buys the tokens. And that way, you’re sort of keeping the incentives of those who are looking to build a stack separate from those who are keeping the blockchain.

But pure decentralization is tough when you incorporate even some security elements. But I think they’ll develop over time. And again, tokenization is just as important in broad, non-money transference instances.

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Japan’s National Police Agency to Employ New Software to Track Crypto Transactions

In response to a reported increase in the illicit use of cryptocurrencies, Japan’s National Police Agency (NPA) plans to introduce new software which can track cryptocurrency transaction history, Japan’s national public broadcasting organization NHK reported August 30.

In 2019, the National Police Agency will reportedly put special software into service to track the history of virtual currency transactions within the country. The move comes as part of an effort to fight the increased level of cryptocurrency misuse and thefts.

In order to cover the expense of the new software, the NPA is looking to increase its budget by 35 million yen (around $315,000) for the next fiscal year.

The software was developed by a private company, the name of which has not been disclosed. According to the NHK, the software can extract transaction data needed for an investigation, visualize it from open records, and show what crypto exchange operators used the currency for.

Earlier this month, Tokyo-based security software manufacturer Trend Micro found Bitcoin (BTC) automated teller machine (ATM) malware available for purchase online. For the price of $25,000, criminals could purchase BTC ATM malware accompanied by a ready-to-use card with EMV and near-field communication capabilities, allowing fraudsters to receive the BTC equivalent of up to 6,750 U.S. dollars, euros, or pounds.

Last week, the commissioner of Japan’s financial regulator, the Financial Services Agency (FSA), said that the agency wants the cryptocurrency industry to “grow under appropriate regulation,” adding that it has “no intention to curb [the crypto industry] excessively.” The FSA’s goal is reportedly to develop the crypto industry and find a “balance” between consumer protection and technological innovation.

Prior to that, the FSA revealed the results of its on-site inspections of crypto exchange operators, noting that “substantial” ongoing review of registration procedures will be necessary. The FSA probe found that crypto exchanges’ maintenance and control systems had failed to keep pace with exponential growth in transaction volumes.