Monthly Archives: July 2017

Greek police have arrested one of the central figures in the Bitcoin exchange BTC-e on suspicion of money laundering. Russian citizen Alexander Vinnik was arrested in Greece at the request of US law enforcement, according to a Reuters report.

The BTC-e exchange has long been a favorite of criminals, as its headquarters in Russia places it outside the reach of US and European law enforcement. Recent Google research found that 95 percent of ransomware cash-outs occurred through the BTC-e exchange, although its unclear whether the exchange itself would be liable for those payments.

Those payments have made BTC-e one of the largest bitcoin exchanges, regularly handling more than 3 percent of total Bitcoin transactions. The exchange has been down since Tuesday evening.

Our chief suspect for involvement in the Mt Gox theft

The charges against Vinnik are still sealed, and are likely to remain sealed as prosecutors attempt to extradite him to the US. However, law enforcement officials indicated that as much as $4 billion is suspected to have been laundered through the platform.

Some analysts also believe Vinnik is connected the massive theft that brought down the Mt Gox bitcoin exchange in 2014. In a report released shortly after the arrest, the security firm Wizsec described Vinnik as our chief suspect for involvement in the Mt Gox theft (or the laundering of the proceeds thereof). Analyzing transactions on the blockchain, the group claims to have seen the proceeds from several high-profile Bitcoin thefts pass through wallets listed under Vinniks name.

Mt Gox was the most popular exchange of early Bitcoin users, until it was revealed to be catastrophically insolvent as a result of a long-running theft, which made off with as much as $400 million in bitcoin. The culprit has never been identified, and has remained a subject of intense speculation throughout the bitcoin community.

Previous analysis of the theft indicated the crucial compromise occurred as early as 2011, with subsequent withdrawals going unnoticed until years afterward. BTC-e was founded in July 2011.

Sarah Jeong contributed additional reporting to this article.

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Bitcoin exchange chief arrested amid new questions about Mt Gox theft - The Verge

Depending on whom you believe, Ted Price of Hatfield is either one of the most audacious cybercriminals to hit the internet in almost a decade or a drug-addled fabulist with delusions of grandeur.

Federal investigators and the unemployed 30-year-old himself say he pulled off one of the largest bitcoin thefts in the short history of the supposedly fraud-proof virtual currency, stealing the equivalent of nearly $50 million.

He also claimed, during a rambling confessionto Homeland Security investigators July 12, to have developed hacking exploits for use by foreign governments and to have plotted his escape with the use of a fake passport and a private jet.

But his lawyer and family contend that the jet-setting expert hacker described in the story Price spun for investigators bears no resemblance to the man they know a jobless addict who they say still relies on his parents for gas money, and who was high on oxycodone and other opioids at the time of those damning admissions.

More details are expected to emerge Thursday, when both sides will ask a federal judge to weigh in on the likelihood that Prices claims are true at a probable cause hearing in Philadelphia. The judges decision onthe strength of the evidence willdetermine the future of what could be one of the most significant cybercrime prosecutions in years one that already has drawn interest from cybersecurity experts.

If this guy actually did what he said he did, thats breathtaking, said Edward McAndrew, a former federal cybercrimes prosecutor who now helps to lead Ballard Spahrs privacy and data security group. If he could actually pick the bitcoin wallets of this many people, that really calls into question the security of the system.

Yet there is reason for doubt, his lawyer Catherine C. Henry said at a hearing in federal court in Philadelphia last week chiefly, that the man who contends he has access to currency worth millions and a private jet to aid his escape initially came to the attention of authorities as a suspect in a string of petty thefts.

A review of Prices history in various online forums for bitcoin enthusiasts and hackers reveals that his screen name, cited in court filings, had relatively little activity in those worlds prior to this spring. It is possible that he used other online monikers in the past.

If he is a millionaire and has a private jet, then of course hes a flight risk, Henry said in court last week while arguing for her clients release. But if thats made up and if, on the other hand, he has no income, lives with his parents, and has a 7-year-old child, then these are just grandiose statements.

Police in Northampton Township, Bucks County,began probing Prices background this month after the parents of an ex-girlfriend accused him of stealing two laptops and a gold necklace from their home.

Officers later recovered the missing items from various resale shops where Price had sold them, according to the arrest affidavit filed in his case. His ex-girlfriend discovered the evidence of his alleged cybercrimes including 105 printed pages listingstrings of alphanumeric code later identified as bitcoin keys in two laptop bags she retrieved from Prices family condo when she went to confront him, the affidavit said.

Authorities concede that theyre not yet sure whether Price has the ability to access the bitcoins he claims to have stolen.

Although they initially charged him July 13 with one federal count tied to his alleged bitcoin thefts, they later withdrew the charge and refiled the case based on charges tied to dozens of stolen credit-card numbers also found in Prices laptop bag that he said hed bought from hackers on the dark web.

Investigators say they have been unable to verify Prices story in other ways, including locating the fake passport Price claimed he obtained to flee the country under the name of Jeremy Renner, an actor he says he admired after seeing him in the 2012 Marvel movie The Avengers.

And yet, said Assistant U.S. Attorney Lesley Bonney, the investigation continues and additional charges could be added by the time Prices case goes before a grand jury.

Most people dont carry around hundreds of pages of bitcoin keys with them, she said at a court hearing July 19.

Bitcoin, a decentralized, virtual currency existing entirely on the internet, quickly drew adherents after its debut in 2009 because it enables anonymous transactions untethered to third-party banks.

The system relies on what experts have described as a fraud-proof public ledger, known as a blockchain, that records every confirmed bitcoin transaction and provides a foolproof way to track currency assigned to the bitcoin wallets ofusers.

A user accesses his or herbitcoin with two strings of complex alphanumeric codes a public key, similar to a bank account number, and a private key, akin to a password or signature that allows the money to be spent or exchanged to a physical form of currency. At the current exchange rate, onebitcoin is worth about $2,600.

But the same qualities that make bitcoin attractive to users have made it a prime target for scammers. Unlike major banks or credit cards, nearly all of which offer some form of fraud protection, bitcoin transactions are irreversible. And although victims of theft might be able to track their stolen funds through the public ledger of the blockchain, the anonymity built into the system makes it nearly impossible to identify the thief.

Price, according to court filings, told investigators this month that he developed a malware program that would surreptitiously divert bitcoins into his own wallet by disrupting the transactions of other users. With the program substituting his own bitcoin keys for those on either end of an exchange, he managed to funnelbetween $40 million and $50 million into bitcoin wallets under his control, he said.

Because the bitcoin wallet address [was] a legitimate address, the user[did] not realize that bitcoin transaction [was] being diverted into a wallet other thantheirs, wrote Emily J. Evans, a special agent with Homeland Security Investigations, in the affidavit drafted for Prices arrest.

Yet now,two weeks after investigators took Priceinto custody, even hisfamily seemsuncertain what to believe. Most of his close relatives either did not respond or declined to respond to requests for comment.

But during a brief conversation outside the condo where he lived with his son, Prices father, Samuel Sr., appeared conflicted.

Its all hearsay, he said when approached by a reporter. The truth will all come out in open court.

Then the elder Price paused.

Did he do what they said, as far as those bitcoins? Probably, he said. But I guess theyre still trying to figure it all out.

Published: July 26, 2017 12:36 PM EDT | Updated: July 26, 2017 3:40 PM EDT

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Feds: Jobless Montco man is no bit player in $50M bitcoin theft - Philly.com

It's a hedge fund savvy enough to have scooped up Bitcoin when it was free. One of its founders is the well-known CEO of AngelList, Naval Ravikant . It's backed by a roster of Silicon Valley's top venture capital firms, and boasts returns of more than 500%. And you've probably never heard of it.

Meet MetaStable Capital, a stealthy startup hedge fund based in San Francisco that invests only in cryptocurrencies such as Bitcoin and Ethereum. Since its launch in September 2014, MetaStable has delivered such eye-popping performance that it apparently lets the numbers mostly speak for themselves; it shuns publicity and never announced its recent fundraising round.

Still, Fortune has learned many of the details. In the spring, Andreessen Horowitz, Sequoia Capital, Union Square Ventures, Founders Fund and Bessemer Venture Partners all invested in MetaStable, according to several of the VCs and other people close to the fund.

Notably, it's only Sequoia's second investment in a blockchain-related company in that venture capital firm's 45-year history; the first was earlier this year, in Polychain Capital , in a $200 million round in which Andreessen, Union Square Ventures and Founders Fund also participated.

In contrast to MetaStable, though, Polychain has been much more welcoming of press (its founder, Olaf Carlson-Wee, is on the cover of Forbes ' latest issue). It also differs in its strategy: Whereas Polychain specializes in investing in other blockchain companies through what's known as an initial coin offering (or ICO)an investment style that has been likened to venture capitalMetaStable invests directly in digital currencies that it believes could become a new form of money.

Now, MetaStable owns about a dozen different cryptocurrencies, including Bitcoin (which one of the fund's co-founders, Lucas Ryan, originally received for free in 2011), Ethereum, and Monero (of which the fund holds nearly 1%, or about $6 million worth, of all outstanding coins), according to a pitch deck seen by Fortune.

Josh Seims, MetaStable's third co-founder, says the fund takes a value investing approach, "sort of what you imagine a Warren Buffett doing, but its kind of oxymoronic to use these terms in the space because everything is so ephemeral." An example in the pitch deck illustrates the fund's skill in "Bitcoin crisis investing," a Buffett-like concept of investing when others are fearful: When Bitfinex, a major cryptocurrency exchange, was hacked last summer, the price of Bitcoin swiftly plunged more than 20% to under $550, and MetaStable took the opportunity to double its Bitcoin position within the next few hours. The price of Bitcoin has since more than quadrupled.

Rather than try to time the market or buy into the newest blockchain trend, MetaStable looks closely at the real-world use cases of various digital currencies, and aims to make at least decade-long bets on the most "credible candidates," Seims tells Fortune . "There's a handful of, say between five and 10 of these major use cases that could be trillion-dollar blockchains," he says. "Its all very long-term focused, and we think were in super early days right now. It really comes down to which do we think is the strong enough technology, that we think can win." (So far, MetaStable has also exhibited an edge in dodging some of the duds: It skipped The Dao's token offering last year, correctly predicting that it would be hacked; and also steered clear of the cryptocurrency Steem, which has largely turned out to be a flop.)

Through mid-March, MetaStable's flagship fund had returned 539% over its short lifetime, including 86% in the first two-and-a-half months of 2017 (a time period in which the Bitcoin price was up almost 28%).

Since then, though, Bitcoin and Monero have each more than doubled; Ethereum, meanwhile, is worth more than five times what it was four months ago. (Year to date, the Ethereum price has risen more than 2,300%.) That means that MetaStable's returns are actually much, much higher than the ones listed in its March presentation documents. A person close to the fund simply says it has "vastly outperformed Bitcoin;" that puts its 2017 returns at a minimum of 170% and likely far greater. Fortune estimates that MetaStable's returns since its inception now exceed 1,000%.

One caveat is that the fund is likely relatively small by hedge fund standards, which makes it somewhat easier to post outsized return figures. Still, in the fledgling industry of cryptocurrency hedge funds, MetaStable appears to be one of the heavyweights. A recent Forbes report listed its assets at $45 million, but that was before the recent surge in cryptocurrency prices over the last few months. MetaStable's portfolio more than doubled in value in May alone, according to a source close to the fund; on June 23, after a Bitcoin and Ethereum price crash , the hedge fund reported total assets of $69 million in a regulatory filing.

It's not clear how much of those assets are venture capital dollars; typically, when VC firms invest in other funds (the startup accelerator Y Combinator, backed by Sequoia, is one prime example), they can choose to invest in the company itself (or "general partner") or in the actual fund that company manages, or both. In the case of Polychain, for one, Union Square Ventures said it backed the firm but also put some money into the hedge fund.

The abundance of capital is also enticing a slew of other cryptocurrency hedge funds to test the waters for themselves. According to Hedge Fund Alert , there are at least 15 such funds already up and running, but as many as 25 more are in the works.

Investors should expect similar restrictions and high fees as the ones that exist with traditional hedge funds: MetaStable requires a minimum investment of $1 million, and has a "2 and 20" structure for one of its funds, charging a management fee of 2% of assets, and a performance fee of 20% of the profits. A riskier fund has a 1.5% management fee and a 25% performance fee.

Continued here:
Sequoia and Andreessen Horowitz Are Secretly Backing This Cryptocurrency Hedge Fund - Fortune