Posted on

‘Hope Coin’: The Story of Malaysia’s Crypto Political Fundraising Platform

Crypto fundraising might be a great tool to fight corrupt regimes, but what happens when freedom fighters seize power?

The ongoing controversy surrounding Malaysia’s proposed political cryptocurrency, Harapan Coin, is far from letting up. On Nov. 26, the country’s finance minister, Lim Guan Eng, weighed in on the issue by reiterating that any entity looking to issue a cryptocurrency should first refer to Bank Negara Malaysia (BNM) and the Securities Commission:

“Don’t do it without Bank Negara’s guidelines or directive on the matter to avoid doing something wrong and against the law.”

During the same press conference, Lim Guan Eng also said that he had asked a government official — who has recently made a series of statements in support of the project — to tone down the promotional campaign until the financial authorities comes up with a coherent regulatory framework. The turbulence around the proposed asset, which is touted by its creators as “the world’s first political fundraising platform,” has been heightening throughout the last few weeks, as many of Malaysia’s prominent political actors voiced their doubts and concerns with regard to the project. Meanwhile, many aspects of Harapan Coin’s provenance and functionality remain opaque to the public.

Backstory

Since the proclamation of Malaya’s independence in 1957 and until May 2018, a single political power — a coalition called Barisan Nasional (BN) — has been at the helm of the country’s government. Its three major member organizations represent Malaysia’s dominant ethnic groups: UMNO (United Malays National Organisation) is a party of the Malay majority, while Malaysian Indian Congress (MIC) and Malaysian Chinese Association (MCA) are the political bodies of the country’s Indian and Chinese communities, respectively.

The last decade saw BN’s political dominance erode, due in no small way to a series of devastating financial and political scandals that shook the highest tiers of the government.

Perhaps the most notorious of those is the still ongoing 1Malaysia Development Berhad (1MDB) scandal. In 2015, it was revealed that, as a result of a large-scale, multi-year embezzlement scheme, hundreds of millions of dollars have been siphoned off from the state-owned investment fund 1MBD into bank accounts associated with Prime Minister Najib Razak of Barisan Nasional.

Egregious as it is, this embarrassing episode of high-ranking officials abusing public funds is anything but unusual for Malaysia’s recent history. Before 1MDB, there was the Bank Negara Malaysia (BNM) forex scandal, in which the lack of oversight over the central bank’s adventurous trading activities resulted in the nation’s loss of billions of dollars.

Before the BNM forex wreck, there was the Bumiputera Malaysia Finance (BMF) flop, which involved a Hong Kong subsidiary of a Malaysian state-owned bank generously handing out impressive amounts of money in bad credits to Hong Kong-based property speculators. Long story short, there appears to be pattern indicating a persistent problem with the way Malaysian officials handle public funds — a problem big enough for blockchain-minded people to start thinking of a solution.

Taking on the unjust power of ill-gotten money in Malaysian politics has become the central idea behind the new Harapan Coin (literally, “Hope Coin”), conceived sometime in early 2017. Setting their sights on the 14th Malaysian General Election, scheduled for May 2018, the coin’s creators proclaimed it “The World’s First Crypto-Politic ICO” and marketed it as a means of funding the united opposition to Barisan Nasional.

The manifesto — found on the coin’s website — presented the group behind the project as “patriotic and concerned Malaysian citizens, within and outside of Malaysia.” Several personal accounts by backers from outside of the country featured stories of them not being able to contribute to previous campaigns due to the obstacles created by the allegedly BN-controlled Malaysian financial authorities.

The identities of the people working on Harapan Coin have been concealed all along, citing “the Draconian laws of limiting and non-respecting [sic] individual rights to freedom of expression of the current BN government,” the website contains only their first names, blurred pictures and locations in countries outside Malaysia.

The project’s website offers a mix of inspirational language, suggesting its role in advancing a much-needed political change — “a beacon of hope to supporters seeking a better future” — with some more pragmatic and profit-minded considerations — “Coin[s] collected are expected to rise in price. […] Buy into a new change, invest in a new era of democracy.” The website also explicitly stated that the coin had the “potential to become an official currency if Harapan wins [the] election.”

Post-GE14

May 9, 2018, marked the first regime change in Malaysian history: Following the general election, the Pakatan Harapan (PH) coalition managed to secure 121 out of 222 seats in the Dewan Rakyat — the lower house of the nation’s parliament — keeping Barisan Nasional down to just 79 seats. It is unclear how much of this triumph was due to successful crypto fundraising.

Harapan Coin’s roadmap stated the ambitious goal of collecting $257 million in two rounds of an ICO before the election. While some reports suggest that coin sellers claim to have raised as much as $123 million in the presale and first round, this information is nowhere to be found in the project’s public-facing communications. The only figure available on the website as of late November appears to indicate that the amount of funds raised so far barely exceeds $800.

Harapan Coin was designed to provide the infrastructure to financially support the united opposition to BN in the May 2018 general election. Months after the electoral victory, the project’s website still features headshots of the Pakatan Harapan (PH) coalition’s politicians, accompanied by their campaign statements. It also mentions that the new digital currency is co-founded and supported by Khalid Samad, the Malaysian Minister of Federal Territories. Samad — who has been an MP since 2008 but became minister only with the advent of the new Pakatan Harapan government in July 2018 — is now the main driving force in promoting Harapan Coin post-election.

Now that the anti-BN coalition has prevailed, it looks like Samad is working to repurpose the Harapan Coin infrastructure to serve the fundraising needs of his coalition in the new political environment, where they are the incumbent political power rather than the opposition aspiring to topple a longstanding regime.

While the project’s objectives prior to the election were straightforward, they are now much murkier. Is it now going to be a single political party’s own coin? What about the vague promises of the possibility for the coin to become legal tender if the election was won? The fact that both the white paper and website haven’t been updated since before the May election doesn’t help to illuminate the matter.

Nevertheless, Khalid Samad keeps pushing for the coin to be officially recognized. On Nov. 13, he announced that paperwork for Harapan Coin’s presentation before Bank Negara Malaysia (BNM) and Prime Minister Tun Dr Mahathir Mohamad. A week later, Samad mentioned that the project was under review by a Bank Negara Malaysia taskforce. The minister’s advocacy campaign, however, was met with criticism from all across the Malaysian political landscape.

Pushback

It should come as little surprise that one of the biggest issues that critics take in regard to the design of Harapan Coin is the proposed distribution of the funds raised. The current breakdown stipulates that as much as 30 percent of the money will go to the system’s administrators — who, as mentioned above, remain effectively anonymous. Another 30 percent is meant for Amanah, Khalid Samad’s own political party. Given that the coin is proposed to be state-backed — and possibly even used for paying state fees and fines — this would clearly grant one of the political groups an upper hand over all others at the expense of the government.

This was just one of the concerns raised by the nonprofit Centre for a Better Tomorrow (Cenbet) in a recent statement that warned all the parties involved of the project going “against the principles of good governance.” The group’s representative also stressed that the way the coin’s design facilitates political donations from overseas may open up the Malaysian political system to influence from abroad.

While it is hardly unexpected that recently deposed Prime Minister Najib Razak has spoken out against Harapan Coin, the sources of criticism are not confined to Samad’s political opponents. Fahmi Fadzil, a member of parliament who represents one of the parties that constitute the Pakatan Harapan coalition was among those politicians who admitted to having reservations with regard to a lack of mature regulation of cryptocurrencies, as well as potential issues associated with anonymity.  

One more blow to Harapan Coin’s prospects came from a somewhat unexpected direction. Dr. Zulkifli Mohamad Al-Bakri, mufti of the federal territories and one of Malaysia’s most authoritative experts on Islamic law, has recently stated that Bitcoin (and, by extension, other cryptocurrencies) should be considered haram, or forbidden. This could mean a lot in a country where over 60 percent of population practices Islam. Minister Samad hopes to address the mufti’s concerns by establishing a governing body to oversee Harapan Coin’s operations and ensuring its compliance with the religious authority’s vision.

Dim prospects

Overall, Harapan Coin in its current shape does not particularly look like an endeavor that is bound to succeed in the near future. Although it is aggressively promoted by a resourceful co-founder who happened to find himself in a high office, it is decried by civil society groups and religious authorities, while the financial arm of the government examines it with great caution. Neither does it enjoy political support from the national leader or members of the governing coalition outside of Khalid Samad’s own party.

Whereas the idea looked appealing at the time when the unified opposition forces were bracing themselves to overturn the incumbent regime, the subsequent victory has made the divides within the triumphant Pakatan Harapan coalition even more pronounced, and at the same time obscuring the need for an alternative political fundraising infrastructure.

It would help if Harapan Coin’s backers could clearly articulate their renewed plans and objectives, yet no such information seems to be publicly available. From what could be inferred about the project now, it is designed to blur the boundaries between the state and political parties, while lacking a clear definition of the mechanics of the proposed system, information about its developers and any particular checks on power abuse embedded into its design. For a country with a long history of financial wrongdoings at the hands of the powerful, this combination hardly makes for a strong pitch.

Posted on

California Is Open to Allowing Crypto Political Donations

Candidates for public office in California may soon be able to accept cryptocurrencies as donations.

The California Fair Political Practices Commission met on Thursday to discuss a number of election issues facing the Golden State, including whether candidates for public office can accept cryptocurrencies as part of campaign donations.

Ultimately, the commissioners didn’t make a decision to adopt any of the proposed amendments during the hearing, acknowledging that they don’t understand the issue fully. Back in 2014, the Federal Election Commission ruled that federal election law allows for candidates to accept cryptocurrencies like bitcoin as an in-kind donation.

During the hearing on Thursday, chairwoman Alice Germond indicated that a set definition for a “cryptocurrency” is needed, remarking:

“I would be inclined to think that bitcoin is a thing that is not U.S. money but is more like a currency, like the euro. But I would like to hear more to develop my thinking on this.”

More time to study

A public comment from Nicolas Heidorn – policy and legal director of the nonpartisan political advocacy organization California Common Cause – suggested allowing cryptocurrency donations until the commission has further studied the matter. In the end, the commissioners disagreed with the idea.

Commissioner Allison Hayward, in particular, pushed back against the idea of banning cryptocurrencies as donations outright, saying that she would like to gather more information before making a decision.

“I think cryptocurrencies are obviously new and designed to be confidential but the blockchain technology I think might ultimately be a very robust tool in tracing activity,” Hayward said, adding:

“I don’t think we’re there yet, but I would hate for something we do to forestall that later on. I don’t know what that would be but … blockchain might be a very useful tool for us and I’d hate to prevent that.”

Commissioners Brian Hatch and Frank Cardenas both said they disagreed with the concept of an outright ban, but in the case of Hatch, the issue of fraud remains a paramount one. He raised the prospect of a candidate claiming a crypto-donation that came from within the state, when, in reality, it actually had a different point of origin.

The commissioners came to a brief agreement that a cap of roughly $100 per donation may be appropriate for this year’s midterm elections. The commission would then be able to continue studying the matter in 2019, when there wouldn’t be an immediate election to consider.

However, this suggestion was not formally adopted during Thursday’s meeting. The commission will meet again next month to discuss the issue.

Image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Bitcoin-Friendly US Senate Candidate Defeated in Republican Primary Elections

U.S. Senate candidate Austin Petersen, who is known for his Bitcoin (BTC) advocacy, lost the Republican primary election Aug. 7.

According to unofficial results published by the Missouri Secretary of State, Petersen lost the battle to Attorney General Josh Hawley, who received 58.6 percent of the 663,553 votes. Hawley will go on to face to Democratic Missouri Sen. Claire McCaskill in the general election. Petersen tweeted:

“Sorry I couldn’t pull out a win for us, friends. My faults as a candidate are my own, and not the fault of our activists. I am not a perfect messenger. One day soon I believe we will see more leaders who rise up and fight for our cause more fiercely and more successfully than I.”

In February, ABC News reported that Petersen’s campaign for Senate received 24 donations in Bitcoin amounting to just under $10,000 total. One such donation was reportedly the largest BTC donation ever received in a federal election.

Upon the receipt on Dec. 20, the contribution of 0.284 BTC was purportedly converted to U.S. dollars. At the time the donation was worth over $4,500, putting the donation over the Federal election limit of $2,700 per individual. The candidate’s website explained that the first $2,700 would go toward activities in the primary election, while the remaining amount would be used in the general election. Petersen’s campaign manager Jeff Carson said on his behalf:

“I think it goes without saying we’re going to see a lot more of [cryptocurrency] in terms of campaign contributions and campaign financing… Austin is personally a fan of competition in the marketplace, even when it comes to our currency. With the rise of cryptocurrencies like Bitcoin, it was a no brainer for us to use those.”

Petersen’s campaign represented an opportunity for crypto advocates to have a lawmaker on their side on Capitol Hill, as some members of Congress call for increased control and others characterize crypto outright as a refuge for “charlatans and scammers.”

Some American lawmakers are taking a more tempered approach to digital currencies, even becoming hodlers themselves. Earlier this week, Cointelegraph reported that the Chair of the Judiciary Committee of the U.S. House of Representatives revealed that he has holdings in Bitcoin, Ethereum (ETH), and Bitcoin Cash (BCH). Congressman Bob Goodlatte (R-VA) reported that he owns between $17,000 and $80,000 in crypto on his mandatory annual Financial Disclosure Statement.

Meanwhile, Libertarian Party candidate for Wisconsin governor Phil Anderson said in July that he will accept BTC donations despite the state’s Ethics Commission’s finding them a “serious challenge” to compliance with state law. Anderson stated that  his decision to accept BTC does not mean his party is “thumbing [their] noses at the [commission],” as he believes they are abiding by the law.

Posted on

Democracy of Two: NEO and the Crypto 'Election' That Wasn't

What constitutes an election?

According those backing ethereum competitor neo, just one candidate and two voters.

The public blockchain project, whose tokens are valued at over $2 billion by crypto investors, went so far as to claim in a July 4 blog post that it had entered a “new era” in which its token holders will have a say in how decisions are on the network are made, but even insiders are skeptical such assertions may be little more than rhetoric.

Case in point, the NEO Foundation, which develops software for neo, announced this month that it had elected the first node to its network, a foundation-funded collective of NEO developers calling themselves City of Zion. Less publicized at the time, however, was that token holders were not allowed to participate in that vote.

As such, even those running the newly elected node aren’t exactly convinced that neo is fully committed to running its blockchain with broad participation from users, at least at this time.

“I would personally disagree with calling it an election,” Ethan Fast, a member of the City of Zion team, told CoinDesk in an interview. “That’s not a word I would choose.”

More broadly, such a conclusion is instructive in that neo is one of a growing number of public blockchains seeking to implement a more centralized model for how blockchains can be managed. Called delegated byzantine fault tolerance (dBFT), neo’s specific idea is that by consolidating decision-making to a small group of nodes, the software can become faster and more useful.

Its a break from bitcoin’s mining model in which any node operator who abides by the rules can compete to approve transactions, and one that has seen a handful of projects including EOS and Tron raise billions with big promises that it can prove viable.

In this way, neo, which has close ties to blockchain solutions company Onchain and the public Ontology project, has adopted technology it believes will address scalability issues — specifically, slow transaction speeds and controversial network upgrades.

“[The] NEO Council values efficiency (quick response and protocol upgrade) over decentralization (sometimes a crypto-political correctness) at this early stage,” the project’s governing body, now called the NEO Foundation, explained in a May post.

However, neo is perhaps unique in that it hasn’t provided much in the way of details on how it aims to do this in a way that will add up to the democratic process its touts.

Neo’s white paper and website do not provide a detailed description of its governance model, and further, the foundation has said in blog posts that it plans to maintain “decision-making power” until the “core protocol stabilizes,” though it has not defined what criteria constitute stability.

Once the foundation is confident in the strength of the network, it says it “expect[s] to see one to a few dozens of consensus nodes to be elected by NEO holders.” But before token holders are able to vote for candidates, the foundation plans to “elect” several private nodes, of which City of Zion is one.

A ‘benevolent oligarchy’

That might be one reason why other supporting language issued by the foundation has positioned the election as the first step in a long process to relinquish some of its power to token holders.

Still, the NEO Foundation’s use of the term “election” to describe the process by which City of Zion became a node at all has triggered some skepticism.

While “election” would arguably imply that a multiplicity of votes were cast, blog posts suggest that the NEO Foundation is currently the only voting entity in the ecosystem. City of Zion’s Fast confirmed that “there was no one from the public that voted in this election besides the NEO Foundation.” Likewise, of the foundation, only project co-founders Da Hongfei and Erik Zhang have the authority to make decisions, according to another blog post.

As such, Fast instead described NEO as “a kind of benevolent oligarchy,” and said that the community has been frustrated that the foundation has been slow to surrender some of its decision-making power.

“Just a small amount of decentralization in the short term is something CoZ has been pushing for for some time,” he said, adding that it “may not be happening as fast as [the community] want[s].”

Dean Eigenmann, founder of blockchain governance startup Harbour, was more critical of the foundation’s “election.”

“Libya had elections under Gaddafi, too,” he said, explaining further of the project:

“It just seems so uninteresting because it’s like they aren’t even trying to decentralize their governance. They were like, hmm this seems too hard. Let’s just keep it centralized.”

Degrees of democracy

NEO is not the only project to be criticized for how it is going about the election of nodes.

Ethereum founder Vitalik Buterin warned in March that blockchains that use “coin voting” seem “to lead to a high risk of economic or political failure of some kind.” Likewise, Kyle Samani, managing partner at crypto fund Multicoin Capital, wrote on Twitter in June that EOS and Tezos, two other project seeking to compete on governance, are both “plutocracies.”

However, Richard Lee, founding partner at crypto fund Global Blockchain Innovative Capital took a more flexible position in an interview with CoinDesk, arguing that “there’s different levels of decentralization.”

“I think the different consensus protocols, at least right now, there’s trade offs in between. Sometimes you have to sacrifice decentralization for speed and efficiency or security,” he said, adding:

“Neo’s trying to address scalability in a different way than ethereum is… Neo has a more centralized approach for that.”

Lee said he interpreted the foundation’s use of “election,” “as more of, the NEO Foundation does not run all the nodes now,” and added, “I don’t see anything malicious or deceitful about that.”

Some participants in neo community forums were nonetheless skeptical of the election, with one reddit user posting, “Decentralization goes way beyond the amount of nodes. It has to do with governance and decision making. If you still have a central entity deciding new features, etc you cannot become fully decentralized.”

However, other comments reflected Lee’s conclusion about the election, with many participants greeting the announcement of the election with enthusiasm.

Whether neo will follow through on its promise to empower token holders remains to be seen.

According to a timeline published in a blog post, the foundation plans to elect Dutch telecommunications company and neo partner KPN and Chinese venture capital firm Fenbushi Capital to operate the next privately held nodes in the network by the end of 2018. It intends to allow token holders to both vote for and campaign to become nodes in 2019.

The NEO Foundation did not respond to requests for comment. 

Image via Neo Community Facebook

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

The Dangers of Perceived Anonymity: Russian Hackers’ Bitcoin Trail

The cryptocurrencies’ potential to facilitate money laundering and financing illicit activities has long informed Bitcoin-insecure politicians’ hawkish postures on crypto regulation. With the release by the Department of Justice (DoJ) of an indictment of twelve Russian intelligence officers last Friday, which includes a count of an alleged conspiracy to launder money ‘through cryptocurrencies such as Bitcoin,’ statesmen of this bent have procured a powerful supplement to their rhetorical toolkit – a formally recorded instance of a Bitcoin-backed interference into a vital sector of domestic affairs.

The only consideration that makes the news look somewhat less haunting for the future of cryptocurrency policies in the US is the power of partisanship in the current highly polarized political climate. While Democratic lawmakers now have all the latitude to exploit the Bitcoin menace in pushing the collusion agenda against the Trump administration, Republicans wishing to blast cryptocurrencies as a national security threat will have to be careful with the evidence produced by the investigation that the president and his allies have repeatedly challenged.

Context

The controversy around possible Russian interference in the 2016 presidential election became a constant in the US public discourse even before the campaign itself has concluded. The hacking of Democratic National Committee’s and Hillary Clinton campaign’s servers, as well as widely publicized leaks of sensitive information ostensibly designed to jeopardize the former First Lady’s bid that followed, stand at the very center of a convoluted web of events, actors, and waves of media frenzy over particular episodes of this ever-sprawling saga. The recent indictment presents a timeline of the hackings in granular detail.

The indictment is a product of a Special Counsel investigation – a probe started in May 2017 under a former Director of FBI Robert Mueller. The scope of its interest includes everything related to the alleged Russian interference in the 2016 election, including the Trump campaign’s possible cooperation and coordination with Russians. The probe resulted in a number of high-profile indictments of Trump’s former aids, avoiding so far allegations of the president’s personal involvement.  Unsurprisingly, many in the Trump camp refer to the investigation as a ‘witch hunt’ and a nefarious scheme of the ‘deep state.’

Substance

The indictment names twelve defendants (all are officers with GRU, a Russian military intelligence agency) and brings eleven federal crime counts against them. Those include a conspiracy to commit an offense against the United States for the purpose of interfering with the 2016 presidential election by the means of releasing hacked documents (Count One); aggravated identity theft against eight victims whose personal details were used as a part of the hacking scheme (Counts Two through Nine); a conspiracy to launder money (Count Ten); a conspiracy to commit an offense against the United States by hacking a number of state organizations and US companies.

The main body of the document details step-by-step the spearphishing attacks on DNC and Clinton campaign computers, theft of officials’ identities and subsequent stealing of electronic documents, followed by their strategic release through the website DCLeaks.com, which the defendants registered for this purpose. They also attempted to pose as a group of ‘American hacktivists,’ and later created a fictitious persona of Guccifer 2.0, a Romanian hacker, to further conceal their connections to the Russian government. Finally, the GRU officers hacked into the computers of several state election boards and software companies to get hold of voter data.

Yet to the greatest interest to crypto community is Count Ten, which specifies the financial infrastructure behind the whole operation. According to the investigators, Russian officials used a variety of sources and currencies, including US dollars, in order to support the scheme, but their primary instrument was Bitcoin due to its ‘perceived anonymity.’ The main use of digital money was to pay for servers that stored stolen documents and for domains used to publicize them. The hackers also bothered to diversify the sources from which they drew the money, from peer-to-peer deals to decentralized exchanges to running their own mining operation. As the indictment’s authors observed, ‘The use of Bitcoin allowed the Conspirators to avoid direct relationships with traditional financial institutions, allowing them to evade greater scrutiny of their identities and sources of funds.’

All the sophisticated efforts to double back proved insufficient, as the conspirators still left back some imprints. For one, they used the same computers to negotiate BTC transactions and to send spearphishing emails. The DOJ investigators were also able to track the Bitcoin that the GRU mining rig produced all the way to the Romanian company that registered the dcleaks.com domain.

Reaction

No bombshell statements by high-ranking officials outside of DOJ itself descended on the cryptocurrency realm over the weekend. However, it is too early to conclude that the threat of moral panic over Bitcoin can be dismissed. Given the contentious and explosive nature of the investigation’s subject matter, it would be reasonable to expect that someone might still be bracing themselves to score political points in an easy attack on what appears to have facilitated a grave threat to national security.

Meanwhile, one of the most heavily interviewed experts in the wake of the indictment news was Jonathan Levin, co-founder and COO of Chainalysis. His firm has built its reputation on exactly what the DOJ officers have done to come up with Count Ten – analyzing the blockchain to trace movement of money and link the nodes and wallets to their owners’ identities.

Levin declined to reveal whether Chainalysis have been involved in the investigation; the official statement only cites the FBI’s cyber teams in Pittsburgh, Philadelphia and San Francisco, as well as the National Security Division as the entities that have contributed to the effort. But since it’s not uncommon for governments to enlist private firms like Chainalysis in blockchain-related probes, it’s not difficult to imagine one or even several private contractors working alongside federal agents on this case.

In crypto subreddits, users habitually call for the media to leave Bitcoin alone and instead ‘mention the Colombian drug lords getting paid billions in USD for selling drugs.’ The notion of cash being a far more pervasive vehicle for money laundering seems to be the most common trope.

Emin Gün Sirer, a Cornell computer scientist, noted that the coverage of the indictment ‘is meant to point out the danger that cryptocurrencies pose.’ But on the flipside, “That danger, and empowerment, is what makes them so exciting.”

Posted on

A US Election Probe Implicated Bitcoin – And the Reaction Was Swift

Rod Rosenstein, the deputy attorney general of the U.S., sparked a social firestorm when he revealed that the dozen Russian military intelligence officers indicted on Friday used bitcoin to fund hacking efforts during the 2016 presidential election.

As CoinDesk reported earlier today, the defendants named in the indictment are accused of gaining access to computer systems utilized by the Democratic Party, including those used by presidential candidate Hillary Clinton, in order to disseminate that information during the election. Notably, the accused used bitcoin – including funds they mined themselves – to pay for web domains and other services utilized during their alleged scheme.

Unsurprisingly, the news quickly spread through social media, inciting a mix of incredulity, suspicion and – in some cases – amusement from observers.

Yet the story also drew the attention of at least one member of Congress, who took to Twitter to argue that “the crypto industry needs to step their game up.”

Rep. Emanuel Cleaver’s tweet, as might be expected, drew swift condemnation from members of the crypto community.

Some background: the Justice Department, under the auspices of special counsel and former FBI director Robert Mueller, is investigating whether Russia sought to interfere in the 2016 election, as well as if members of U.S. president Donald Trump’s campaign conspired on the interference. Today’s indictment was the latest to be handed down, following actions against others including Paul Manafort, Trump’s former campaign manager.

While much of Friday’s social chatter is focused on other elements of the indictment and the broader investigation, the story seems to have elicited remarks from some not normally prone to comment on crypto-related stories.

Hottest takes

Indeed, the news sparked a multitude of responses, from the dismissive to the downright hostile. Some saw it as another scandal to taint the cryptocurrency sphere.

Another interpretation: that today’s indictment was intended to influence an upcoming meeting between Trump and Russian president Vladimir Putin.

There were also some lighter takes in the mix – though how light they are may depend on interpretation.

Lessons to be learned?

Some commentators took the news as a clear sign that the U.S. government is serious about using the public network characteristics of cryptocurrencies like bitcoin to trace transactions.

An investor named Simon Mikhailovich noted that the indictment and the fact that the FBI was able to document virtually every step of the perpetrators should remind all investors that their activities on blockchain are easily traceable and not hidden from view.

Others offered a similar take, but in much terser terms:

Robert Mueller image via The White House/Wikipedia

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

US DoJ Charges 12 Russian Officials With Cryptocurrency-Funded Elections ‘Interference’

The U.S. Department of Justice (DoJ) released an indictment on July 13 charging twelve Russian nationals with committing federal crimes — funded by cryptocurrencies — with the aim of “interfering” in the 2016 U.S. presidential elections.

According to the DoJ’s announcement, Russian officials from two units of the Russian government’s Main Intelligence Directorate (GRU) used cryptocurrencies like Bitcoin (BTC) –– which they allegedly mined and obtained by “other means” –– to fuel efforts to hack into computer networks associated with the Democratic Party, Hillary Clinton’s presidential campaign, and U.S. elections-related state boards and technology companies.

A grand jury in the District of Columbia, along with the FBI’s cyber teams in Pittsburgh, Philadelphia, San Francisco, and the National Security Division allege that the officials used cryptocurrency in order to buy accounts and servers that allowed them to illegally access the associated networks through a spearphishing campaign. The Russian officials allegedly then obtained “thousands of stolen emails and documents” that they released through the domain DCLeaks.com while promoting themselves as “American hacktivists.”

The DoJ reports that the indictment does not claim that the alleged criminal activities “altered the vote count or changed the outcome of the 2016 elections.”

The indictment consists of eleven criminal charges, including the claim that the defendants laundered more than $95,000 through cryptocurrencies in order to fund their hacking activities. The DoJ notes that the bitcoin mining activities that paid for the DCLeaks.com domain also funded the spearphishing attacks.

The DoJ has already been involved in cryptocurrency-related investigations, as the government body opened an investigation into Bitcoin and Ethereum (ETH) price manipulation at the end of May.

Earlier this week, U.S. President Donald Trump released an executive order for a new anti-crime task force that will focus in part on digital currency fraud.

Posted on

Speakers at Congressional Hearing Warn of Crypto Use in Foreign Political Meddling

Witnesses in the U.S. Congress voiced their concerns about the potential for using cryptocurrencies to make illegal campaign donations during a hearing of the Subcommittee on Crime and Terrorism held today, June 26.

The hearing, titled “Protecting Our Elections: Examining Shell Companies and Virtual  Currencies as    Avenues for Foreign Interference,” was led by Senator Lindsey Graham with Scott Dueweke of DarkTower, David Murray of the Financial Integrity Network, and Sheila Krumholz of the Center for Responsive Politics as witnesses.

Dueweke, who is also a director at The Identity and Payments Association (IDPAY), said during his testimony that virtual currencies are “tailor made” for affecting the U.S. political process. Dueweke notes that he includes both cryptocurrencies like Bitcoin (BTC) and other centralized virtual money systems in his analysis, saying that “criminals find the relative anonymity of these systems to be a boon.”

According to Dueweke, the problem with the global reach of virtual currencies is that could lead to “a web of thousands of exchange points that connect every corner of the world to the United States, and potentially into the coffers of political candidates.”

Murray, the Vice President of the Financial Integrity Network, agrees with Dueweke’s assessment of the danger of virtual currency uses by foreigners to circumvent U.S. campaign law. He notes in his testimony that problems of transparency arise when cryptocurrencies are exchanged for other cryptocurrencies:

“Exchangers can hop from jurisdiction to jurisdiction in pursuit of favorable regulatory regimes, and the anonymity that they afford users could be attractive to foreign adversaries seeking to thwart campaign finance laws.”

One of Dueweke’s main concerns is Russia’s use of virtual currencies to affect the U.S. political system, noting that the country’s interest in releasing its own cryptocurrency and its consideration of a 13 percent crypto tax would “potentially plac[e] them in the position to benefit from money laundering using Bitcoin and other cryptocurrencies.”

Dueweke spoke highly of the “incredible possibilities” of blockchain technology, noting that in regards to both crypto and blockchain, “these systems are not inherently bad, no more so than using cash or credit cards, and should not have a stigma attached to them.”

At a different subcommittee hearing in May, one U.S. Congressman referred to blockchain as “world-changing.”

Dueweke advocated for future cooperation on an international level, with a combination of both government bodies and private partnerships working on identifying criminal uses of virtual currencies:

“The Committee would do well to set as a goal for itself to maintain and continuously establish the United States as the world’s leading advocate of Internet payment systems, virtual currencies, and their use.”

Last week, the Ethics Committee of the U.S. House of Representatives issued a memorandum that all House Members must disclose their crypto holdings of more than $1,000.

Posted on

Senator: Cryptos Pose 'Host of Challenges' for Congress

Cryptocurrencies are “tailor-made” for foreign powers hoping to influence American elections, a security consultant told a group of U.S. senators on Tuesday.

Scott Dueweke, director of threat analysis company DarkTower, was one of several witnesses appearing before the Senate Subcommittee on Crime and Terrorism to discuss the potential use of cryptocurrencies by foreign agents in order to influence American elections. He argued that lawmakers must focus on identity solutions to prevent undue foreign influence on upcoming elections.

“There is a global shell game being played now,” by people hoping to bypass financial disclosure rules, he said. As a result, they are purchasing political advertisements and donating to certain parties in efforts to influence elections.

Dueweke added:

“They exchange one form of money for another … fiat currency in and fiat currency out, but in between you’re going to have these multiple layers of cryptocurrency that are going to be impossible to track.”

Another witness, Financial Integrity Network vice president David Murray, noted that cryptocurrencies can be used by foreign entities to avoid detection when donating to political parties or politicians.

He contrasted the use of cryptocurrencies with donations made through financial institutions.

“When donors use financial intermediaries such as banks to execute donations, the location of the financial intermediary is a data point that campaigns can use to identify foreign donors,” he explained.

Senator Sheldon Whitehouse, the ranking Democrat on the subcommittee who lead the questions during the hearing, said that “cryptocurrency can be used for money laundering in elections,” and therefore pose a “host of challenges for Congress and regulators.”

He considered the idea of using legislation to enforce more stringent identity requirements on individuals donating to a political campaign – a push that Dueweke argued is crucial.

“Combining better forensics to understand the source of funds, tied to stronger identity attribution for those placing political ads is critical,” Dueweke said. “We have to be able to identify the people that are fanning these flames.”

Scott Dueweke image via Senate Subcommittee on Crime and Terrorism 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

US Senate Hearing Will Look at Crypto's Impact on Elections

The U.S. Senate is looking to assess the impact of cryptocurrencies on American elections.

The Senate’s Subcommittee on Crime and Terrorism will host a hearing titled “Protecting Our Elections: Examining Shell Companies and Virtual Currencies as Avenues for Foreign Interference” on June 26, according to a scheduled posted on the U.S. Senate Committee on the Judiciary’s website

South Carolina Senator Lindsey Graham will oversee the hearing. Other details on the hearing are sparse and a list of witnesses has not yet been released.

The Federal Election Commission ruled in 2014 that political campaigns and political action committees may accept bitcoin as a donation under existing federal law. The FEC treats cryptocurrency contributions as “in-kind donations” similar to stocks, bonds and other assets, as previously reported by CoinDesk. However, there are strict limits on the amount that can be donated.

It’s possible that the hearing will see a debate about donors contributing cryptocurrencies to campaigns in the U.S.Brian Forde, a former senior advisor at the Obama administration who ran for Congress, raised approximately $200,000 through cryptocurrencies, with more than $5,000 from his own wallet, as Politico reported in May.

Perhaps the most high-profile example came amid the 2016 presidential election when U.S. Senator and then-presidential candidate Rand Paul started accepting bitcoin donations.

Congress image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.