How scammers pulled off the biggest cryptocurrency hack in the world

How the scammers behind the biggest cryptocurrency hack in the world pulled it off

Time

Utica College senior Daniel Wilcox is prepared to join the cutting edge of law enforcement after he graduates this spring.

No, theres no RoboCop-like cyborg technology involved, not even cool new weapons. Just investigators sitting at computers following the money trail of cryptocurrency through cyberspace.

Wilcox, who is majoring in fraud and financial crimes investigation with minors in accounting and criminal justice, already has earned a C.T.C.E. credential, which stands for CipherTrace certified examiner. CipherTrace is a cryptocurrency intelligence company.

The designation means that Wilcox has taken an eight-hour training course offered at Utica College for the first time last fall and is ready to investigate crimes involving cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Cardano and Ripple.

Wilcox said he likes the puzzle-solving side of trying to solve financial crimes.

I definitely want to have a career at some point in the public sector doing actual criminal investigation, Wilcox said, with the FBI or the IRS criminal investigations division.

The CipherTrace training and his accounting minor set him apart from his peers interested in law enforcement careers, Wilcox said.

He and the 70 or so Utica College students who have taken the training are relatively early entrants into what experts say is the up-and-coming field of investigating crimes involving cybercurrencies.

Its only a matter of time before cryptocurrency becomes an everyday usage thing, Wilcox said.

For most Americans, though, cryptocurrency remains, well, cryptic. More than 10 percent of adults never heard of cryptocurrencies, according to a February survey by The Harris Poll for Bloomberg.

Of those who have heard of them, 61 percent said they had little or no understanding of how they work, according to the poll.

But to understand the significance of cryptocurrency criminal investigation, you have to understand a bit about cryptocurrency.

All money is an abstract concept; pieces of paper and stamped metal have very little inherent value. But cryptocurrency, which is digital only, takes abstract to another level.

Like fiat currency money that is issued by a governmentbut not backed by a commodity cryptocurrency is not backed by a commodity. But unlike fiat currency, it is not issued by a government and is completely decentralized. It is not overseen by a government, by banks or by any other central authority.

That means that crypto transactions are made directly from person to person.

Crypto is really the transfer of value, said Suzanne Lynch, professor of practice in economic crime at Utica College, who spent years for companies including MasterCard Worldwide, Goldman Sachs and Comerica Bank.

There are many different kinds of cryptocurrency, including Bitcoin, Ethereum, Litecoin, Cardano and Monero. A few cryptocurrencies, such as Tether, are tied to the value of a fiat currency, the U.S. dollar in Tethers case.

What gives me value in cryptocurrency is my ability to spend cryptocurrency, saidPamela Clegg, director of financial Investigations and education forCipherTrace.

Or, it has value because the people who use it say it has value. But that means that the price of most cryptocurrencies can be voluble with prices shifting as supply and demand rise and fall. The exception is currencies like Tether that are tied to another currencys value.

The usefulness of crypto is pretty much in the eye of the beholder. It can be used as a long-term investment; it can be traded for profits based on price fluctuations; it can be converted into fiat currency, gold or another kind of asset; and it can be spent. Some users choose crypto because they dont trust banks.

It resembles money, stock, foreign currency exchanges, commodities and property, and gets regulated by the agencies overseeing all of those things, Clegg said.

It really depends whos looking at it, she said.

It might be a while before you can hit the stores in your hometown with only cryptocurrency.

Theres still not a whole lot you can buy, Clegg said.

But there are coffee shops in New York City that accept crypto, and she read that a Burger King in Germany will be taking Bitcoin, Clegg said. And Paypal and Square have adopted Bitcoin, for example, she said.

And more big companies keep joining in. Tesla invested $1.5 billion in Bitcoin in February and said it would soon accept Bitcoin as payment for its cars. And earlier this month, Morgan Stanley became the first big bank to offer Bitcoin investment to its wealth management clients.

In a wallet, of course. The wallet can kept on a computer or other device. Or it can be kept in a wallet, a device that looks like a portable charger, Wilcox said.

A key opens the wallet so the currency can be spent. Lose the key (a password, not a physical key) and youve lost your cryptocurrency. The same goes if you lose your wallet or the device its on.

Cryptocurrency ATMs are becoming more common with 16,000 worldwide and 14,072 in the United States, Clegg said, citing statistics she saw on a website. These machines let users buy cryptocurrency, sending it to the address for the users wallet. And some convert cryptocurrency into cash after users sent their crypto to an address the ATM provides.

The secret to cryptocurrency and its security, anonymity and speed of transfer is a technology called blockchain, a digital ledger that links blocks of data, or transactions, together.

In theory, blockchain is a secure way to transfer information,"Lynch said.

Blockchain contains a record of every transaction made with a cryptocurrency. Instead of relying on a central server, the blockchain is verified by a network of computers around the world. It is difficult, possibly impossible, to hack or cheat the blockchain.

It has many potential applications, not just recording cryptocurrency transactions.

The vast majority of crypto transactions are legal, Clegg said. Some estimate that illicit activity accounts for less than 1percent of crypto transactions and some put the number higher, but still in the single digits, she said.

But yes, criminals have discovered that cryptocurrency allows for quick transactions, works anywhere in the world and offers complete anonymity, making crypto harder to trace than fiat currency.

On one side, its trying to become more mainstream, Lynch said. And then on the other side, its being used in nefarious ways.

Crypto is becoming the currency of choice for dark market activities, whether drugs, human trafficking or the sale of stolen data. Its used to funnel money to terrorists, pay kidnapping ransoms and to launder money. And its used in all the same scams Ponzi schemes, romance scams, send-money-overseas emergency scams as other kinds of payments.

It really is every kind of crime you can imagine with traditional money being done with cryptocurrency as well, Clegg said. Its not new to the criminal. Its just another payment mechanism for them to utilize.

The blockchain contains a record of every transaction, including an address for the payor and the payee.

We just dont always know who is behind those addresses, Clegg said.

So she considers crypto to be pseudonymous rather than anonymous, she said.

Picture it as a bank vault full of safe deposit boxes, Clegg suggested. The blockchain makes the boxes transparent, so you can see everything thats in each box and you can see where it came from, she said.

You just dont know who owns Box 25, she said.

What we do is, we begin to chip away at the pseudonymous aspect of it, Pam said.

Investigators work on figuring out who owns each box, or, outside the analogy, the addresses in the blockchain, she said.

Any federal agency that investigates money laundering and financial crimes needs people who know how to look into cryptocurrency, Clegg said. So do companies like CipherTrace, which will investigate matters involving too little money for federal investigators to take on, she said.

Banks, cryptocurrency exchanges, companies who have adopted crypto and law firms handling cryptocurrency-related cases also arehiring, Clegg said.

All of these need to be able to have the ability to carry on investigations and to apply (anti-money laundering) to the cryptocurrency that they are touching and transactions so that they can be in compliance per the regulations that they have to adhere to.

CipherTrace is trying to build capacity in a new, niche industry, Clegg said.

Theres nobody out there that can possibly have more than five or six years of experience, she said.

CipherTrace chose Utica College as its second college partner because of its strong programs in financial crime, money laundering and cybercrime, a good sign that theyll be a large pool of students interested in the training and well versed in the subject, Clegg said.

Upperclassmen and graduate students who take the training, which CipherTrace started offering at Utica College in the fall, can then join the CipherTrace Defenders League to start working on cases while still in school.

This is an absolutely perfect opportunity for our students to work real-life cases, Lynch said, and help people out.

Amy Roth is the health and education reporter for the Observer-Dispatch.For unlimited access to her stories, please subscribe at the top of the uticaod.com homepage or activate your digital account today. Email Amy Roth at aroth@gannett.com.

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Local students learn to solve crimes of future at Utica College - Utica Observer Dispatch

Six people were arrested in FBI raids in New Hampshire Tuesday as part of a crackdown on an allegedly unlicensed cryptocurrency exchange business based in Keene, authorities said.

Federal prosecutors say the New Hampshire residents operated a virtual currency exchange, in which people exchange cryptocurrency like Bitcoin for fiat currency like the U.S. dollar, but did so in violation of federal laws and rules that prevent money laundering. Some of the accused allegedly tried to hide the scheme as a religious institution.

Some of the accused "engaged in substantial efforts to evade detection of their unlawful virtual currency exchange scheme by avoiding answering financial institutions questions about the nature of the business and misleading financial institutions into believing their unlawful virtual currency exchange business was instead a religious organization receiving charitable contributions," according to the U.S. Attorney for the District of New Hampshire's Office.

In-depth news coverage of the Greater Boston Area.

All six of the people arrested in coordinated raids in Keene, Manchester, Nashua, Derry and Alstead face conspiracy to operate an unlicensed money transmitting business charges, prosecutors said. Some are facing wire fraud, money laundering and financial crimes charges.

Bitcoin and other crypto-currencies are all the rage, but what exactly are they, and how do they work?

Among the people arrested were Keene residents Nobody, who tried to run for mayor in 2019, and Aria DiMezzo, a Libertarian who secured the Republican nomination for sheriff of Cheshire County last year as a Satanist anarchist, according to The Boston Globe. DiMezzo lost in the general election.

Also arrested were Ian Freeman, a 40-year-old from Keene; Colleen Fordham, a 60-year-old from Alstead; and Renee Spinella, 23, and Andrew Spinella, 35, of Derry, prosecutors said.

It wasn't immediately clear if they had attorneys who could speak to the charges; they were due to appear before a federal judge Tuesday afternoon.

Their cryptocurrency exchange business, which wasn't named in a news release, started in 2016 and has exchanged over $10 million for virtual currency, prosecutors said.

Cryptocurrencies like Bitcoin and Ethereum have been gaining value in recent years as people find new ways to use them, as well as because of speculating on an expanding market. Their value is derived from their scarcity -- a set amount of Bitcoins exist, for example -- and the transparency they provide, since each transaction is recorded on a public ledger called the blockchain.

But the regulatory status of cryptocurrency remains in flux.

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FBI Arrests 6 Over NH Cryptocurrency Business - NBC10 Boston

Geltrude & Company founder Dan Geltrude provides insight into how cryptocurrency is taxed.

The phenomenon of underground cryptocurrency and its economic boom is raising questions as to how, or if, earnings are taxable.

Geltrude & Company founder and CPA Dan Geltrude explained to Cavuto: Coast to Coast Thursday that if crypto earnings areconsideredcapital gains, then they must be filed as such on a tax return.

Every time you use, lets say, Bitcoin, youre actually potentially triggering a taxable transaction, he said. Because when you use that Bitcoin if youre getting value greater than what you paid, what the basis was, its like a stock. You now have a gain and its taxable. So its got to be reported.

BITCOIN HITS $60,000 IN RECORD HIGH

According to Geltrude, the Internal Revenue Service (IRS) is hot on the issue. The Fraud Enforcement Office has launched Operation Hidden Treasure in search of unreported income in the form of transactional cryptocurrency.

1040 tax return forms for 2020 now question taxpayers if they have transacted in cryptocurrencies, Geltrude added, and prompt a signature under penalty of perjury.

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For Americans who have been paid in cryptocurrency, Geltrude explained thosetransactions becomea basis as would any other form of payment.

When you got paid, its no different than getting paid by credit card or cash, so whatever profit you had in the transaction, you pay there, he said.

Now youve received the Bitcoin, now you have to track what your basis is as of that transaction. Because when you go to use the cryptocurrency, you are creating potentially another taxable event. Its going to be nuts!"

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How will cryptocurrency earnings be taxed? - Fox Business

Nischal Shetty, founder and CEO of WazirX took to cryptocurrency after his previous business was hit by actions of global tech giants. A software engineer from Mumbai, Shetty shares his story with Mint. Edited excerpts:

Tell us about your background

Im a software developer. I grew up in Mumbai and studied engineering in Mangalore. I worked in a company in Bengaluru for 2 years before being hired by a start-up in Mumbai called Burrp.com in 2010. This is how I got introduced to the world of startups and entrepreneurship. On weekends I used to try different coding projects, just as a hobby. One of these was an app to manage social media, called Crowdfire. This was the early days of social media networks like Facebook and Twitter and we were able to spot ways in which users could improve their social media following. To give you an example, our app could identify all the followers of your competitors and follow them - thus making them aware of you and migrate to you. Crowdfire grew rapidly and I was able to quit my regular job and shift to managing it. Eventually however the western tech giants changed the rules and now you cannot really grow your social media following without paying them in some way. Crowdfire of course still exists in B2B format, but its previous individual-facing avatar is no more. It is this situation - dependence on centralised giant corporations that got me interested in cryptocurrency and blockchain which are by definition decentralised.

Why did you launch WazirX?

I began dabbling in crypto in 2017 and towards the end of the year I had identified several gaps in the market. There were long waiting times to buy bitcoin and spreads were too high. Bitcoin exchanges were faceless and this created a trust problem. I decided to launch an exchange and enter this space towards the end of that year. In this exchange, I was a very visible face and was available on social media from the inception. Initially I just put up a page announcing the launch and asking users to sign up - I got 20,000 signups with just that! WazirX was launched in March 2018, shortly before the RBI ban on crypto related payments. The ban actually became our opportunity. Established exchanges folded up or left India. We pivoted to a crypto-to-crypto model. Traders could still convert rupee to crypto and back on our exchange - it's just that the transactions were carried out through an escrow route rather than directly through our bank account. For example, if A wanted to buy crypto from B, the seller B would have to deposit crypto at our exchange which we held in escrow. Once B gave us confirmation that he had received the funds, we would release the crypto to A.

Tell us about why you sold the exchange to Binance in 2019

I was looking for global expertise and Binance fit that bill. There wasnt much innovation in crypto in India but there was plenty happening abroad. The Binance acquisition gave me access to all that. I also wanted to grow rapidly and growth needs capital. Binance was able to provide that. The acquisition has paid off in retrospect. Within 3 months of the it in December 2019, the Supreme Court lifted the RBI ban on crypto payments. Our users and volumes have exploded since then 20 to 30 times over. People were stuck home during the lockdown and took to crypto investing in a big way. We now have around 17 lakh users and weve added around 2 lakh even after the news of another alleged ban came out in February. In that month our volume was USD 2.5 billion and I expect around 60-70% of that was rupee-crypto volume and not just crypto-crypto.

Why shouldnt India ban cryptocurrency?

Cryptocurrency works on network effects and those effects have already begun working, without Indian participation. Network effect means that as more and more people use a thing, applications and use cases related to it become more and more cost effective, in turn spreading it further. Secondly cryptocurrency is a 1.7 trillion USD market, just a little short of Indias current GDP. If we really want to reach a $5 trillion economy, can we do it without participating in this vast market? Third, our nations success in the past 3 decades has come from software. I dont think that we can continue to be a software powerhouse if we neglect the next big shift in tech - blockchain and cryptocurrency. Last but not least, around 1 crore Indians have already invested in cryptocurrency and around 10,000 crore worth of Indian assets are in it. Around 340 startups in India are in this field. There is an entire ecosystem around cryptocurrency in India - do we really want to destroy it? Coinbase an exchange that is supposed to go for an IPO soon in the US is valued at $68 billion. India should also create billion dollar startups. If cryptocurrency isnt banned in India, WazirX could be Indias first crypto unicorn.

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Anger against tech giants led me to cryptocurrency: Nischal Shetty of WazirX - Mint