Paper 30 - How To Be A Criminal In Crypto
How it just got easier to be a criminal in crypto
Contents
How To Be A Criminal In Crypto
This Week in NFT World
Thought of the Week
Meme of the Week
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1. How To Be A Criminal In Crypto
In the game of cat and mouse, who would you rather be?
When I watched Catch Me If You Can when I was younger, I found it fascinating to watch Tom Hanks, the police officer, run around after Di Caprio, the serial fraudster. Both had found what they enjoyed: one as a pursuer, the other as the pursued.
As a litigation lawyer I helped people at both edges of the legal sword: sometimes we chased, sometimes we evaded.
I have to say there was something quite wicked, quite devilish, and quite entertaining about the evasion. (In complex cases, it’s almost never the case that we thought “this company is definitely engaged in illegal / criminal activity, but we are going to defend them anyway” - things are complex).
In the web3 space people tend to be of a libertarian bent which prioritises independence and self-sovereignty. This makes people want to flee the perceived stranglehold of government oversight/regulation.
One of the web3 protocols with which I had been excited to experiment was Tornado Cash. Tornado Cash is a virtual currency mixer that operates on the Ethereum blockchain and helps to facilitate anonymous transactions by obfuscating their origin, destination, and counterparties.
As a former lawyer that specialised in media law and privacy, I was interested to see how this protocol worked to provide privacy to an otherwise transparent blockchain.
It worked by you putting some money into Tornado, mixing it with a bunch of other money put into Tornado, and then sending it to a desired recipient - so nobody can connect to whom you actually sent the money because your funds were mixed with all the other funds deposited into Tornado.
That is now no longer possible.
Last week the US government sanctioned Tornado Cash for, in essence, providing an opportunity for criminals to launder their money.
“While the purported purpose is to increase privacy, mixers like Tornado are commonly used by illicit actors to launder funds, especially those stolen during significant heists.”
US Treasury Press Release, 8 August 2022
The interesting thing about this is that the government has sanctioned the code: this is the first time this has happened (normally sanctions are against legal “persons” ie people or corporations).
As a consequence, individuals and/or companies who interact with that code could now be in violation of the law - and thus be branded criminals.
On the one hand, it is true that many scammers use Tornado Cash to get away with funds. On the other hand, there are many reasons - which are not illegal - why you may prefer not to have your transactions public (see the Idea of the Week section below).
This is not an atypical dilemma for thinking about certain tools: many tools have the potential of being used for both good and bad. (You can use a hammer to ensure a nail is fixed onto a table, or hammer a person to death.)
The main problem regulators face is how to enforce against code. My understanding is that code is recognised as speech - in a legal sense.
This would mean that sanctioning code might be in violation of the 1st Amendment, and also open the door to the sanctioning of other code - what other software might the government like to prevent in future?
Whilst being an actual criminal in crypto probably hasn’t got much harder (there are other ways to cover your tracks), becoming a criminal by using some code has just got easier.
Remember folks, there are far safer ways to launder your money.
2. This Week in NFT World
The Weeknd goes on a 40 ETH ($70,000) Fvckrender NFT spree - The Weeknd bought 47 pieces from fellow Canadian artist, Fvckrender. The shopping spree included a 1/1 of SuperRare, and other pieces from the FVCK AVATAR and CRYSTAL collections, respectively.
8liens NFT release on same model as Cryptopunks - Launched by many prominent people in the NFT space, the 8liens were released for free, without a secondary royalty, with 10% of the supply held back for the founders.
OpenSea introduce a new stolen items policy - People who have an NFT stolen can now file a police report within 7 days so that the stolen NFT remains untradeable on OpenSea. If no report is filed, the NFT will become tradeable again.
SudoSwap becoming increasingly popular to trade NFTs - SudoSwap will release a token. They are essentially like UniSwap but for NFTs. You can make liquidity pools for NFTs. We are probably going to create a tutorial for this as part of our Airdrop Szn 1 NFT offering.
We spoke about all of this and more in this week’s episode #14 of NFT World.
3. Thought of the Week
It should not be alien to anyone that there might be reasons why you don’t want all of your bank statements public.
People who use crypto much less struggle to apply this thinking to crypto because they don’t understand the extent to which some people’s financial details would be revealed.
So I present this thread by Reza who nicely summarises some reasonable reasons why anyone might like to use a service like Tornado Cash without being branded a criminal.
Three of the strongest points in summary:
you’re bothered by the thought that everyone who knows your address knows more about your wealth than most of your close friends and family members
you get paid in crypto and don’t want your employer to know all of your financial details
people track your wallets and you don’t want people to make financial decisions on the back of your on-chain activity
4. Meme of the Week
Love to see people doing their own research and taking responsibility for their funds, large or small. Shoutout @alancarroII
Have a great week,
B
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Disclaimer: The content covered in this newsletter is not to be considered as investment advice. It is for informational and educational purposes only.
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congrats on the 30th issue mate!!