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Blockchain Bites: BlockFi Hacked, Sued, BitMEX Down

Today, BlockFi disclosed a SIM-swapping attack that revealed personal information related to a large swath of the firm’s clients. While customer funds are secure, BlockFi said, their names and addresses were compromised along with their activity histories.

This security breach comes on the heels of a cryptojacking exploit targeting European supercomputers researching COVID-19. Elsewhere, class-action lawsuits have been brought against and chip-maker Nvidia, while the little-known firm BMA is suing BitMEX for allegedly orchestrating the largest financial crime in American history. Here’s the story:

You’re reading Blockchain Bites, the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here. 

Top Shelf

BlockFi Hack
BlockFi said an attacker got hold of users’ data by compromising an employee’s phone and taking control of the person’s phone number through a SIM-swap attack. The New York-based crypto lending platform announced in a memo to users on Tuesday that a hacker – whose identity remains unknown – gained access to some of its retail marketing systems for just over an hour early on May 14. The hacker accessed confidential data such as names, dates of birth, postal addresses and activity histories but was unable to withdraw user funds or access other sensitive account information including bank account details, Social Security and tax identification numbers.

BitMEX Down
The trading engine for BitMEX, formerly the largest bitcoin derivatives exchange measured by open interest, went down on Tuesday, according to the exchange’s status page. BitMEX supported roughly $2.2 billion in bitcoin futures trading volume over the last 24 hours, according to Skew, and is investigating the incident.  

RICO Violations?
BMA LLC, the Puerto Rican company that two weeks ago filed a lawsuit again Ripple, has accused the BitMEX derivatives exchange of orchestrating the largest financial crime in American history. The filing envisions a vast racketeering conspiracy designed to reap billions in illegal profit through wire fraud, money laundering, unlicensed money transmission, interstate transport of stolen property and violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO. CEO Brendan Blumer speaks at the Voice launch event, June 2019. (Photo courtesy of CEO Brendan Blumer speaking at the launch of the Voice social media network (Photo from CoinDesk archives)

EOS Class-Action
A cryptocurrency investment fund has launched a class-action lawsuit against and EOS’ high command, arguing the “fraudulent scheme” failed to deliver on its primary promise of decentralization. In a recent filing, plaintiffs argue CEO Brendan Blumer, CTO Dan Larimer, former Chief Strategy Officer Brock Pierce and former partner Ian Grigg purposefully misled investors and artificially inflated the EOS token price during the yearlong ICO, which raised a total of $4.1 billion between June 2017 and June 2018. Last year, reached a settlement with the Securities and Exchange Commission over running an unregistered security sale. 

Misleading Games
A recent filing shows that disgruntled investors are still pursuing action against Nvidia, the multinational chip-making giant, accused of under-reporting its sales of hardware used to mine cryptocurrency. The shareholder class-action lawsuit accuses CEO Jensen Huang, CFO Collette Kress and Jeff Fisher, senior vice president and head of gaming, of misleading investors by saying increased sales of its chips came from gamers rather than the unsustainable 2017 crypto mining boom. 

Smashing Private Keys
Tornado Cash, a privacy tool for obfuscating the history of ether transactions, is now fully permissionless. Developers used a cryptographic method known as multi-party computation (MPC), to eliminate their private keys and make the protocol completely trustless. 

Vitalik Buterin photo from CoinDesk archives

Monopoly Busting Blockchain
Vitalik Buterin has called for lawmakers to be more accommodating to blockchain protocols, saying they can help antitrust agencies fight monopolies and anti-competitive behavior. Together with a Harvard economist, the creator of Ethereum argued in a newly-published paper that blockchain and antitrust agencies “share a common goal” in decentralizing economies. 

Giancarlo Joins 
Former U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo is advising a coronavirus relief effort. The Open Initiative is prepared to grant more than $200,000 to tech-driven – and preferably blockchain – solutions to the current crisis. 

Libra Hire
Libra has added a former U.S. government official as its general counsel, its second add from the Financial Crimes Enforcement Network (FinCEN). Announced by the Libra Association Tuesday, Robert Werner joins the project with “a wealth of regulatory, financial crime compliance and enforcement experience” from his previous roles as FinCEN director and director of the Office of Foreign Assets Control (OFAC).

European supercomputers programmed to search for a coronavirus vaccine were hijacked last week to mine the privacy crypto monero. The hackers had gained entry via stolen remote access credentials from individuals authorized to operate the machines, and many of the affected computers are still down pending investigation. 

Black Market Mixing
Bitfury’s crypto analytics unit Crystal Blockchain issued a report showing bitcoin mixing services are on the rise. According to the report, the share of bitcoin sent to mixers by darknet entities rose to 20% in Q1 2020 as compared to just 1% in Q1 2019, The Block reports.
DTCC’s Jennifer Peve, image from CoinDesk archives

Eying Blockchain
Depository Trust & Clearing Corporation (DTCC), a giant of financial markets infrastructure, is studying whether distributed ledger technology (DLT) could accelerate its processing of securities. DTCC revealed two projects Monday aimed at integrating DLT with capital markets: Ion, a proof-of-concept alternative settlement service and Whitney, a security token method of private securities issuance and exchange. The corporation handles nearly $2 quadrillion in securities every year, almost the entirety of the U.S. securities market. 

tBTC Bug
After pausing the tBTC protocol, which brought Bitcoin onto Ethereum, developer Matt Luongo clarified his decision without going into detail as to what went wrong. The Thesis team said it discovered a bug, but will not disclose details until all funds have been safely withdrawn from this iteration of tBTC. The team is helping users withdraw deposited BTC.

Proof of Societal Value
“Much ink has been spilled on the question of bitcoin’s energy footprint. But amid the clarifying details and the energy mix calculations we have lost sight of the most important questions,” CoinDesk columnist Nic Carter writes in his latest op-ed. Central to the debate are the inefficiencies baked into the global energy sector, including line-loses and the overbuilding of energy infrastructure in Chinese provinces, as well as bitcoin’s considerable consumption and CO2 externalities. Ultimately, it’s about tradeoffs. The Bitcoin network is an open system, “which is paid for,” both in fees and energy consumption. 

Market Intel

Difficult Adjustments?
Days after the biggest non-event of the year, the Bitcoin halving, holders are counting down to the next milestone on the blockchain: the latest “difficulty adjustment,” expected Tuesday around 5 p.m. ET. This automatic mechanism occurs roughly every two weeks, and is expected to make mining easier. “And like the halving, it’s expected to be uneventful,” the First Mover team said. However, it’s an essential way to regulate the network, enticing miners to stay on, reducing confirmation times and also ensuring more equitable payouts. You can get First Mover in yer mailbox here.

Bitcoin Burst
Wrapped Bitcoin on the Ethereum blockchain in the form of the WBTC ERC20 token has doubled to nearly $23 million worth in tokens in the last two weeks. This follows a vote at Maker to introduce the token as a form of collateral on the protocol. (Decrypt)

Yesterday, Tether, the largest stablecoin tied to the U.S dollar, had fallen below par value for the longest stretch since bitcoin hit 12-month lows in March. This deviation is partially explained by increased demand for bitcoin and bitcoin futures, with investors trading in stable assets for the cryptocurrency. Tether’s dip below $1 also coincides with a brief respite of new token issuances. 

The Breakdown

Albert Wenger on World Historical Shifts
Albert Wenger is a partner at Union Square Ventures and the latest guest on The Breakdown podcast. The conversation touches on core ideas in Wenger’s “World After Capital,” an evolving digital book project that looks at a set of megatrends as the world moves between economic paradigms from the Industrial Age to the Knowledge Age. 

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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.

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Coindesk News

Company That Sued FTX and Ripple Now Sets Its Sights on BitMEX

BMA LLC, the Puerto Rican company that two weeks ago filed a lawsuit again Ripple, has accused the BitMEX derivatives exchange of orchestrating the largest financial crime in American history.

The little-known firm, formerly known as Bitcoin Manipulation Abatement and controlled by Pavel Pogodin, filed suit in the U.S. District Court for the Northern District of California on Saturday, alleging that HDR Global Trading, the parent company of BitMEX, perpetrated a vast racketeering conspiracy designed to reap billions in illegal profit.

This plot featured wire fraud, money laundering, unlicensed money transmission, interstate transport of stolen property and violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO, BMA alleges.

In a statement, an HDR spokesperson said the company was aware of the complaint, “which is clearly rehashed from information culled from the internet,” and that it would be defending itself “vigorously against this spurious claim.”

“BMA has recently emerged as a serial filer of claims against companies operating in the cryptocurrency space, and is widely recognised for operating just like a patent troll,” the statement added. “We will deal with this complaint through a normal litigation process and are entirely confident the court will see the claim for what it is.”

BitMEX’s failure to secure a money transmitter licence and its ties to U.S. customers means it processed $3 billion in illicit finances each day, BMA alleges, “which is the record volume for such unlawful activity in the entire history of the monetary regulation in the United States.”

BMA also alleges BitMEX manipulated the cryptocurrency markets by artificially boosting the price of bitcoin. The exchange allegedly traded against customers, tied its futures indices to illiquid spot market exchanges that it would then manipulate and capitalized on its schemes with staged “technical glitches” that prevented customers from exiting their positions.

Plaintiff fired shots over BitMEX’s 100x leverage trading options and said founder Arthur Hayes was “cryptocurrency’s P.T. Barnum.”

“Describing trading on cryptocurrency as ‘the entertainment business,’ [Hayes] has embraced a role as showman and promoter for the ‘degenerate gamblers he solicits, and encourages speculative trading by flaunting his lavish lifestyle and making bold predictions designed to elicit responses and move the market in a way that is profitable for BitMEX,” BMA claimed in the suit.

BMA and Pogodin have gone after cryptocurrency headliners before. In November BMA targeted FTX on accusations of price manipulation before voluntarily dismissing its case just over a month later. 

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News Veterans Today

Michigan’s Whitmer Sued by ‘Christophiles’; Michigan’s Taliban for Satan – Veterans Today

I don’t know what to think about this crowd. Their point is ????

Health Editor’s Note: Preachers are suing to be able to gather people together and insure the congregations either infect others, become infected, or both with COVID-19.  I ask, what is the purpose of gathering people together to listen to someone speak about…well, whatever is going to be said?  Words spoken from a pulpit are not going to protect people from COVID-19 nor cure them of having it. 

Governors who place stay-at-home orders and then extend those orders are doing what is best for the state.  The governors are waging a battle against more COVID-19 viral infections and deaths. The battle with COVID-19 is a waiting game. Waiting to see who gets it, where it spreads, now many it will infect and how many it will eventually kill. Best guesses are made as to how reopening the state will progress but when you are still seeing new cases and deaths from COVID-19, that is a clear sign that this virus is not taking a rest from creating havoc and taking lives. 

Governors who extend dates for reopening are not being tyrannical, they are simply trying to save human lives, even when this is not meeting the approval of those who think prayer will prevent/cure COVID-19. By the way, Gordon says he does not give a fuck because it would take a howitzer to take him out. That being said, Gordon is not protesting stay at home orders and sees the reason (s) for them…Carol 

Church Leaders Sue Michigan Governor Whitmer Over Coronovirus Stay-At-Home Order

by Meghan Roos/Newsweek

Three church leaders joined a small group in suing Michigan Governor Gretchen Whitmer Wednesday over her recent extensions of the statewide stay-at-home order.

Filed by Great Lakes Justice Center (GLJC) on behalf of three pastors, three churches and one individual, the lawsuit alleged Whitmer’s executive orders prevented the free exercise of religion granted by both the federal and state constitutions.

“The Constitution does not become irrelevant during any emergency, including a pandemic,” GLJC said in a Wednesday news release. “Just because a governor has ink in her pen does not mean the Constitution authorizes her to use it, notwithstanding good intentions.”

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Carol graduated from Riverside White Cross School of Nursing in Columbus, Ohio and received her diploma as a registered nurse. She attended Bowling Green State University where she received a Bachelor of Arts Degree in History and Literature. She attended the University of Toledo, College of Nursing, and received a Master’s of Nursing Science Degree as an Educator.

She has traveled extensively, is a photographer, and writes on medical issues. Carol has three children RJ, Katherine, and Stephen – two daughters-in-law; Suzy and Katie – two granddaughters; Isabella Marianna and Zoe Olivia – and one grandson, Alexander Paul. She also shares her life with husband Gordon Duff, many cats, and two rescue pups.

Carol’s Archives 2009-2013

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Coindesk News

‘Massive Adoption’ Conference Organizer Sued After Refund Delays

The organizer of the canceled Massive Adoption crypto conference, which boasted a potential audience of 1,500, is being sued over allegations that ticket refunds are too slow.

The putative class action lawsuit was filed Thursday in the U.S. District Court for the District of Colorado by Ashley Gentry, a would-be attendee of Massive Adoption, and alleges fraud, breach of contract, conversion and unjust enrichment. The suit is calling for the organizer, Jacob Kostecki, to refund would-be attendees, as well as punitive damages and the costs of the lawsuit. David Silver, the attorney who filed the lawsuit, told CoinDesk he was doing so pro bono, and would not be accepting payment or fees for the case.

Kostecki originally planned Massive Adoption for November 2019, but rescheduled to late February 2020. He canceled the event by the end of January 2020, however, and promised refunds to customers. An update on his website said he had “inadequate funding,” and fewer guests and sponsors than he needed to maintain the event.

A later update on his website, which went down for some time between February 2020 and late April, said, “Due to a series of local conditions, global markets, operator errors and mistakes the conference was cancelled late January.”

Kostecki said in the update that he had begun processing refunds in March, and would continue through July 2020. A countdown clock on the updated site appears to be counting down to Friday, July 31, 2020. Kostecki did not immediately return a request for comment.

Silver told CoinDesk via email that, “we approached Mr. Kostecki several weeks ago with a simple offer to resolve the debts he has already acknowledged he owes to the would-be Massive Adoption attendees.”

In April 2020, Silver tweeted that he would work with any attendees owed under $1,000 for free to ensure refunds. At the time, Kostecki responded, “If you believe that this will accelerate the relief to ticket holders instead of hinder it then that is your decision.”

Kostecki declined the offer, Silver said.

In the new update to his website, Kostecki said “the reaction to Covid-19 has delayed refunds vs internal milestones,” a claim he has also previously made on Twitter.

In his most recent tweet, dated April 26, on an account dedicated to Massive Adoption, Kostecki said “Refunds continue being made,” and that he had been in touch with “dozens of people” over the past two months. He maintained that he would meet his July 31 deadline.

The lawsuit is being filed as a putative class action because some of the would-be attendees have small claims, and may not be able to file individual lawsuits, Thursday’s filing claimed.

“We are still willing to work with Mr. Kostecki on formulating a quick and simple resolution, but the fact that we filed the lawsuit shows that Mr. Kostecki’s hollow Twitter promises are not enough,” Silver said.

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