It’s the Netflix script that wrote itself. A story so outlandish that it has stunned the crypto community; an industry accustomed to apparent suicides in Spanish jail cells and auctions of non-expendable tokens for dead rappers.
The plot involves the United States Department of Justice (DoJ), a crypto exchange with a checkered history, a rapper and writer for Forbes magazine, a coupon to buy a new PlayStation, an occasional magician, and $4 billion in Bitcoin (BTC).
Suspected Bitfinex money launderers have kept the internet enthralled since the larger-than-life story surfaced last week. No wonder Netflix has announced that it will bring the story to life.
In essence, a crazed rapper who advises companies on social engineering and fighting cybercriminals named Heather Morgan and her cybersecurity specialist husband Ilya Lichtenstein were caught trying to launder funds stolen from the 2016 Bitfinex hack. The funds were laundered. by purchasing game consoles, Uber rides, and other gift vouchers.
Morgan in an art studio on the Lower East Side of Manhattan. Fountain: Twitter
Despite their nerdy credentials, according to the Justice Department report, law enforcement gained access to the couple’s private keys through a cloud storage account. Yes, they kept their private keys for over $3 billion worth of Bitcoin in the cloud.
But, with so many unanswered questions and bizarre circumstances, the news of Bitfinex’s billions has left Twitter scrambling for pieces of the puzzle, while armchair researchers have their work cut out for them, coming up with even more outlandish theories.
Amidst wild theories and some questionable reports, this article intends to expose the established facts surrounding the Bitfinex attack and what it means now that the Department of Justice now has 90,000 Bitcoin.
Bitfinex hack 2016
Hong Kong-based cryptocurrency exchange Bitfinex was hacked six years ago to the tune of $70 million. The attack was quick: in just two Bitcoin blocks spanning around 20 minutes, Bitfinex wallets in Bitgo custody were emptied of all their funds. In total, the thieves stole 120,000 Bitcoin, now worth more than $4 billion.
As one of the biggest hacks in Bitcoin history, the hack caused a sharp sell-off and the price of Bitcoin plummeted to around $500. It is important to note that the money laundering couple, Morgan and Lichtenstein, are not accused of hacking the exchange, the hackers are still at large.
The Bitfinex team worked tirelessly in response to the hack and came up with an innovative solution to restore investor confidence. Initially, Bitfinex invented and launched BFX tokens and “Recovery Rights Tokens” (RRT). While tokenization is common in 2022, in 2016–17, before the initial coin offering mania, token issuance was radical.
The tokens served as promissory notes for customers affected by the hack and could be redeemed for cash or exchanged for iFinex equity shares (iFinex is the parent company of Bitfinex).
Designed in such a way that Bitfinex could then buy back users’ tokens or offer shares on the platform to compensate, the BFX and RRT solution kept Bitfinex liquid and potentially “compensated investors faster than traditional procedures.”
By April 2017, Bitfinex had recovered enough funds to cover or reimburse all users affected by the hack eight months earlier. Erik Voorhees called the recapitalization “F*cking Amazing,” Bitcoin podcaster Peter McCormack described the process as “socializing losses.”
The hack and subsequent recovery of the quasi-fund is in stark contrast to the infamous Mt. Gox hack of 2014, as the Mt.Gox creditor exchange is only now discussing repayment plans.
Fast-forward five years, and while some of Bitfinex Bitcoin was moved multiple times and effectively laundered over time, law enforcement and blockchain enthusiasts watched the wallets like a hawk.
Given the transparency of the Bitcoin blockchain, hacked coins were blacklisted from crypto exchanges, meaning money laundering would prove difficult.
90,000 Bitcoin, roughly $3.6 billion, moved in early February. The Justice Department was behind the move and the leads, Morgan and Lichtenstein, jumped into the spotlight. The DoJ statement explained that:
“Special agents gained access to files within an online account controlled by Lichtenstein. Those files contained the private keys required to access the digital wallet that directly received the stolen funds from Bitfinex and allowed special agents to legally seize and recover more than 94,000 bitcoins that had been stolen from Bitfinex.”
As a result, the Justice Department now has 94,000 Bitcoin in its possession. The repercussions of the US getting so much Bitcoin are far-reaching, from causing a possible Bitcoin price drop to questions about when, if, and where the funds will be returned.
This is where the Netflix saga takes a breather and speculation takes over. The recovered Bitcoin remains in a wallet, and as the money laundering trial unfolds, the UNUS SED LEO (LEO) token has been over the moon as commentators theorize about the stolen Bitcoin.
As a small piece of the Bitfinex puzzle, but a big part of the bigger picture of the Bitfinex saga, the LEO token is another example of financial ingenuity. In 2019, Bitfinex’s parent company iFinex listed LEO as an exchange utility token.
The token gave merchants lower fees and resolved issues related to iFinex’s payment processors. Crucially, the 2019 token white paper said:
“An amount equal to at least 80% of the net funds recovered from the BitFinex hack will be used to buy back and burn outstanding LEO tokens within 18 months from the recovery date.”
In a bulletin last week, Bitfinex backed the white paper claim, stating: “Bitfinex, within 18 months from the date it receives that recovery, will use an amount equal to 80% of the net recovered funds to repurchase and burn UNUS SED pending. LEO tokens”.
In fact, traders trust these funds to return to Bitfinex. The LEO token has soared, hitting new highs and breaking 50%.
However, while Bitfinex can be confident of recovering the hacked Bitcoin, the Justice Department has not disclosed the next steps.
Is the DoJ a hodler now?
As stated, the stolen Bitcoin remains in a Department of Justice wallet. The blockchain wallet address contains 94,632 Bitcoin, and the last deposit was received on February 11.
A wallet containing more than 94,000 Bitcoin in 2022 is considerable: MicroStrategy holds 125,000 Bitcoin and Tesla has 43,200. We can only assume that the DOJ has better opsec than suspected money launderers and will not store keys in the cloud. .
The Twitter of Bitcoin Treasuries joked that they would add it to their list of Bitcoin treasuries, implying that the United States would become the holder of the recovered funds.
Binance CEO Changpeng Zhao order“if they [Bitfinex] recover the BTC, how should they split it with the LEO holder, or the people who suffered a loss to accept LEO at the time of the attack (and then sold LEO)?
I didn’t have time to investigate it in detail. 2 honest questions.
Did Bitfinex make or lose money from the hack?
If they do get BTC back, how should they split it with LEO holders, or people who took a loss to accept LEO at the time of the attack (and later sold LEO)?
— CZ Binance (@cz_binance) February 8, 2022
In an interview on the WAGMI podcast, Paolo Ardoino, Bitfinex’s chief technology officer, was confident of recovering the funds. He said they are “actively working to return them (the funds) safely,” adding that it may take some time.
Ardoino emphasized the importance of “giving back to the community” and once again reiterated that Bitfinex will use 80% of the funds to buy back LEO, but it is unlikely to be a “market buy”.
A Securities Fraud & Investment Loss Attorney David Silver saying that “Bitfinex is going to fight like hell to keep the money.”
Ultimately, though, he added, “the government will manage the redistribution.” In a boon to privacy, the government may use the opportunity to return the funds to identify and consequently tax the original holders of Bitcoin.
This post Making sense of Bitfinex’s Bitcoin billions
was published first on https://cointelegraph.com/news/making-sense-of-the-bitfinex-bitcoin-billions