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DeFi carnage, Chef Nomi’s admission and $625K prize to crack Monero

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Coming every Sunday, Hodler’s Digest tracks every important crypto news story from the previous week. Essential reading for all Hodlers!

 

Top Stories This Week

 

DeFi goes boom as top tokens crash by 50%But enjoy a sudden rebound

It was an industry that looked like it was overheating for some time, and finally, at least for a short while, it appeared that the DeFi bubble had well and truly burst.

Half a dozen major DeFi tokens shed half their fiat value, and the sell-offs erased the gains enjoyed by most DeFi markets during August’s volatility.

Some members of Crypto Twitter were unsentimental, to say the least. One of them, Stack Those Sats, wrote: “DeFi is going straight into the ground. Just another series of scams.”

But wait! It wasn’t over yet. The decentralized finance sector dusted itself off on Thursday, rebounding by 19% in just 24 hours. Some tokens, such as Yearn.finance, gained 37.6% over this period alone.

All of this suggests that rumors of DeFi’s demise have been greatly exaggerated. New money continues to flow into existing protocols, and more are being built.

 

Chef Nomi has returned all funds to the SushiSwap community

So, what led to DeFi’s dark week? Well, it may be down to how the anonymous founder of SushiSwap — “Chef Nomi” — withdrew $14 million from the company’s coffers shortly after insisting the money was meant for development and wouldn’t be taken from the company.

It was a recipe for disaster. The SUSHI token sold off almost immediately, with people losing confidence in the project’s viability. It was so swift that it torpedoed the entire crypto industry, taking the rest of DeFi and even Ether and Bitcoin down with it.

Chef Nomi later insisted to Cointelegraph that they did not pull an exit scam, and in a surprising turn of events, they later apologized and returned the cash to the project’s development fund. On Twitter, they wrote: “To everyone. I f—– up. And I am sorry.”

They has now said he will let the community decide how much they deserves as the original creator of SushiSwap, adding that they would like to continue helping develop the project’s tech from behind the scenes. Whether the community will accept this offer remains to be seen.

 

Bitcoin can hit $16,000 but only if this resistance level finally breaks

Bitcoin entered the weekend on a strong footing after a relatively uneventful Friday saw its price continue to fluctuate between $10,200 and $10,400. With BTC consolidating into a tighter range, it looked like traders were readying themselves to test the $15,000 resistance.

According to Cointelegraph analyst Michaël van de Poppe, breaking through $11,800 would mean a potential target of $16,000 would be on the table.

He wrote that the market movements we are seeing now are very similar to what was seen the year before Bitcoin headed to all-time highs of $20,000. But he cautioned: “The current market structure is resembling only the start and build-up of a potential bull run similar to the sentiment and momentum of late 2016.”

Overall, van de Poppe said that the total market capitalization of cryptocurrencies “is showing a healthy correction in an upward trending market.”

And he predicted: “If the total market capitalization holds the $270 billion to $275 billion areas for support, further continuation upward is likely. If a new impulse move occurs, the next resistance and target zone can be seen at $550 billion.”

IRS offers a $625,000 bounty to anyone who can break Monero and Lightning

The U.S. Internal Revenue Service is offering a bounty of up to $625,000 to anyone who can break “untraceable” privacy coins such as Monero — as well as trace transactions on Bitcoin’s Lightning Network. 

America’s taxman is accepting submissions in the form of working prototypes until next Wednesday. Successful applicants will be given an initial payment of $500,000.

They will then be able to use this grant to develop their prototype into a working concept over eight months. Once the pilot test is completed and approved by the government, a further $125,000 grant will be awarded.

It doesn’t take a rocket scientist to figure out why the IRS is so keen to crack Monero. Criminal organizations much prefer XMR to more traceable crypto assets such as Bitcoin, and it’s increasingly being used by ransomware groups.

Blockchain analytics firm CipherTrace claims to have a new tool that can trace Monero transactions, although its capabilities are yet to be confirmed.

Schiff buys more Bitcoin — But there’s a twist

Crypto skeptic Peter Schiff is probably wishing he hadn’t put a poll on Twitter right now.

On Monday, he explained that his 18-year-old son Spencer had just bought more Bitcoin.

He asked his followers: “Whose advice do you want to follow? A 57-year-old experienced investor/business owner who’s been an investment professional for over 30 years or an 18-year-old college freshman who’s never even had a job.”

Just 18.7% of the 82,906 respondents supported the “experienced professional,” while 81.7% backed “the kid.”

Many people were approving of Spencer’s decision, with Quantum Labs CEO Usman Majeed writing: “Your son will be a multimillionaire at least by the time he’s 57 if he keeps buying Bitcoin.”

Morgan Creek Digital co-founder Anthony Pompliano also thought the father and son double act was a work of genius. He wrote: “Using your son to hedge your gold bet is a great idea. Gold goes up, you benefit. Bitcoin goes up, your son benefits. Clever way to be long [on] both assets without publicly capitulating on gold.”

Winners and Losers

 

 

At the end of the week, Bitcoin is at $10,316.65, Ether at $367.77 and XRP at $0.24. The total market cap is at $339,174,021.634.

Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are IOST, Yearn.finance and Flexacoin. The top three altcoin losers of the week are SushiSwap, Celo and Arweave.

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

 

Most Memorable Quotations

 

“Just convinced @jimcramer to buy Bitcoin. Reply to this tweet with your best meme or GIF to welcome the world’s newest Bitcoiner.”

Anthony Pompliano, Bitcoin bull

 

“The crypto people, just about the most enjoyable group of people I’ve ever met. They are f—— crazy. They are crazy on social media, they are crazy on Twitter, they have the same f—— personality I do, they are gamblers at heart, they slant, they laugh at themselves, they just want to make money. I will be in crypto. My heart is crypto. But I just gotta figure it out.”

Dave Portnoy, Barstool Sports founder

 

“History indicates that we may have ample room for higher volatility and gains in the months ahead.”

Kraken report

 

“We have journalists all over the world who care deeply about this industry and the technology and philosophy of blockchain.”

Jon Rice, Cointelegraph’s new editor-in-chief

 

“Against my advice my son @SchiffSpencer just bought even more #Bitcoin. Whose advice do you want to follow? A 57-year-old experienced investor/business owner who’s been an investment professional for over 30 years or an 18-year-old college freshman who’s never even had a job.”

Peter Schiff, crypto skeptic

 

Prediction of the Week

 

Remember, remember Bitcoin tanks in September: Kraken report

The U.S.-based cryptocurrency exchange Kraken has predicted that September will bring excessively negative returns for Bitcoin.

According to its new report, September is historically Bitcoin’s worst-performing month, with an average return of -7%. And given how BTC has underperformed in its average returns for most months of 2020 so far, this month could be even worse than usual.

Moving away from the short term though, it isn’t all doom and gloom. Kraken said a record share of BTC’s supply has not moved in more than 12 months, and “historically, this dynamic has foreshadowed a new bull market.”

However, Kraken’s crystal ball isn’t necessarily what it’s cracked up to be. The exchange recently predicted that a BTC rally of between 50% and 200% was imminent on Aug. 10 when Bitcoin was trading for between $11,500 and $12,000. (Spoiler alert: nothing happened.)

FUD of the Week

 

Bank of France: Stablecoins could impact EU financial sovereignty “for decades”

The governor of the Bank of France has warned that Europe cannot afford to lose momentum in tackling the challenges posed by private sector global digital assets. 

François Villeroy de Galhau’s warning came as five EU governments — Germany, France, Italy, Spain and the Netherlands — called for tough action from the European Commission as it drafts regulations for stablecoins.

All of this could be rather bad news for Facebook’s Libra, which has had little luck in persuading politicians, bankers and regulators in the U.S. and Europe that it’s got what it takes to launch a private currency in a way that wouldn’t destabilize the global economy.

Villeroy de Galhau also stressed that the European Central Bank can’t afford to “lag behind on a CBDC.” This could serve as a hint that we may see some more movement from the eurozone fairly soon.

Chinese authorities charge six people over $5.8 billion PlusToken Ponzi scheme

Six of the 109 people recently arrested by Chinese police in connection with the $5.8-billion PlusToken Ponzi scheme have been charged.

According to officials, they are “suspected of organizing and leading criminal pyramid schemes.”

Of the 109 arrested in July, 27 were believed to serve as executives for the scam, while the remaining 82 were described as “key” promoters. 

PlusToken published its white paper in February 2018, claiming to be a South Korean crypto exchange offering interest-bearing accounts generating returns of between 10% and 30% per month in the form of its native token PLUS.

The scam took in more than 200,000 BTC, 789,000 ETH and 26 million EOS from approximately 3 million unsuspecting investors.

 

Banks failing to identify up to 90% of suspicious crypto transactions

Financial institutions around the world have reported 134,500 suspicious transactions related to virtual currencies over the past two years. But according to CipherTrace, this may just be the tip of the iceberg.

The blockchain forensics firm says many financial institutions have developed inadequate “home-grown” systems for identifying cryptocurrency-related accounts and transactions.

Current strategies result in “many false positives and misses significant, large amounts of funds flows,” its report warns.

Many banks use lists of the names of crypto exchanges to flag transfers associated with cryptocurrency, but CipherTrace estimates that 70% of trading platforms may not be on these lists, meaning up to 90% of actual transaction volume isn’t accounted for.

The problems don’t end here. Many crypto exchanges operate under a business name that differs from their branding, and few financial institutions screen for exchanges outside of the top 100.

 

Best Cointelegraph Features

 

DeFi: A shrinking window of opportunity

With regulators unlikely to change old-fashioned rules in favor of the emerging market, DeFi might be burdened under fraud and new portions of restrictions, writes Oleksii Konashevych.

 

Ethereum 2.0 is coming, unlikely to speed up enterprise DeFi adoption

Ethereum 2.0 is coming this year, and while enterprises won’t use it immediately, Rachel Wolfson says the rise of DeFi will play a significant role for organizations.

 

Bitcoin price balances at $10,000: Discussing BTC’s next big move

As BTC shows stability above $10,000, what’s next for the world’s biggest cryptocurrency? Joseph Young takes a look at what traders are thinking.





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DOJ says use of privacy coins is ‘indicative of possible criminal conduct’

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A new report from the U.S. Department of Justice alleges that crypto traders dealing with coins like Monero, Dash, and Zcash are inherently engaging in “high-risk activities.”

According to the “Report of the Attorney General’s Cyber Digital Task Force” released by the DOJ on Oct. 8, anonymity enhanced cryptocurrencies, or AECs, undermine and even facilitate existing anti-money laundering, or AML, and combating the financing of terrorism, or CFT, regulations put in place by businesses dealing in fiat. The task force cited coins including Monero (XMR), Dash (DASH), and Zcash (ZEC).

“The Department considers the use of AECs to be a high-risk activity that is indicative of possible criminal conduct,” the report stated. “AECs are often exchanged for other virtual assets like Bitcoin, which may indicate a cross-virtual-asset layering technique for users attempting to conceal criminal behavior.”

This is a developing story and will be updated.



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Dash should not be considered a privacy coin, Dash team says

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Once viewed as one of the crypto industry’s top privacy-focused assets, Dash (DASH) no longer operates under that classification, according to the Dash Core Group, the body overseeing the asset and its development. 

When asked if Dash should remain under the category of a privacy asset, Fernando Gutierrez, CMO for the Dash Core Group, told Cointelegraph: 

“No, Dash is a payments cryptocurrency, with a strong focus on usability, which includes speed, cost, ease of use, and user protection through optional privacy.”

Dash launched as a fork of Bitcoin in 2014. Originally called XCoin, before changing its name to Darkcoin, and then finally Dash, the asset positioned itself as a privacy-focused asset. “Dash is the first privacy-­centric cryptographic currency based on the work of Satoshi Nakamoto [Bitcoin’s pseudonymous creator],” the project’s white paper said.

In addition to Dash, two of the market’s other main anonymity-focused assets, Monero (XMR) and Zcash (ZEC), came to life in 2014 and 2016 respectively.  

Evident in Gutierrez’s comment, Dash no longer focuses mainly on privacy, although the asset does still have a feature called PrivateSend, giving users the option of greater anonymity. “The technology that Dash utilizes in our PrivateSend function is CoinJoin, which is a technique for complicating transactions to the point that they’re more difficult for analytics firms to analyze those,” he explained. 

The CoinJoin approach came on the scene in 2013, essentially letting Bitcoin users mix their transactions into a group to make tracking difficult. Dash essentially took this exact same approach and made it a more convenient built-in option for Dash senders, Gutierrez explained. 

In recent days, privacy assets have faced significant scrutiny from governing bodies, as seen by the IRS’ $625,000 bounty for cracking Monero. “Dash Core Group has no stance on the IRS’s offer,” Gutierrez said, adding:

“It doesn’t apply or threaten Dash in any way. Dash’s blockchain is public. There is nothing to break because Dash’s approach to privacy is probabilistic, not based on encryption. In that, it is not different from the Bitcoin blockchain.”

Two blockchain analytics companies, Chainalysis and Integra FEC, recently won the IRS bounty. 



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Will ‘cracking’ Monero reveal treasure or fool’s gold?

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Recently, the United States Internal Revenue Service caused a stir in the crypto community when it put a bounty on the head of anonymity-focused crypto-asset Monero (XMR), offering $625,000 to anyone who could effectively track the purportedly untraceable asset. As the crypto and blockchain industry values anonymity and privacy, questions arise on the result of the effort, not to mention its plausibility.

“As of the current stage of cryptography science today, the Monero protocol is almost impossible to break with necessary certainty,” Pawel Kuskowski, CEO of Coinfirm — a blockchain analytics company — told Cointelegraph. “However, it does not mean that Monero assets tracing is impossible in an effective way,” he said, clarifying:

“Some initiatives can be beneficial to investigating cryptocurrency crime for authorities such as: running a large network of their own Monero nodes, analyzing any data seized by shuttering non-compliant service providers that involve Monero and utilizing spy software and wallets — the latter of which is particularly useful for investigations.”

Monero serves as one of the crypto industry’s most well-known anonymity-focused assets. Cryptocurrencies such as Bitcoin (BTC) post all transactions to a public ledger visible to anyone online. Although BTC transaction addresses remain pseudonymous, various tools and efforts can sometimes link transactions and addresses back to personal identities. Since its inception in 2014, Monero has had the ability to hide transaction values and sender addresses. The asset’s blockchain also conceals transactions and their sums from uninvolved third parties.

A firm alleges XMR-tracking powers

Blockchain analysis firm CipherTrace came forward on Aug. 31 touting supposed XMR-tracking technology, reportedly the first of its kind. “We recently added monero tracing capabilities to our investigative suite,” Dave Jevans, CEO of CipherTrace, told Cointelegraph in a follow-up conversation, adding:

“Our tools do not reveal the identities of the users sending or receiving monero transactions. It is up to law enforcement to find that information from mapping data from addresses, wallets, payment IDs, etc.”

The IRS steps in

The motivation for decoding XMR became more interesting on Sept. 11, however, when the governing tax authority of the U.S., the IRS, publicized its search for anyone capable of breaching Monero’s transaction-hiding technology, offering $625,000 as a reward for such intel. In an industry valuing privacy, helping a government agency with this type of endeavor appears antithetical to the space, in some ways.

“The IRS is offering this money for research and development, which is not as controversial or surprising as many in the media are making it sound,” Jevans explained, adding that the governing body is targeting involvement from a number of entities for the endeavor, only budgeting $1 million toward the effort. Therefore, the IRS publicized a $500,000 payment upfront, with a further performance-based $125,000 paid eight months later. Jevans declined to comment on whether or not CipherTrace plans to work with the IRS.

Kuskowski described the IRS reward as predictable, given the timing of the bounty, which was announced approximately five days after CipherTrace publicized its XMR-tracking tool. Kuskowski, however, did not mention CipherTrace by name, only hinting at the firm by noting the timing of events, as well as the firm’s probabilistic approach, which he described as: “Totally useless for investigations owing to authorities being unable to display clear evidence. In cryptography something either is or isn’t, it is not probable.”

The IRS unveiled two Monero-cracking champions on Sept. 30. Surprisingly, CipherTrace was not one of the two, although the race to beat crypto privacy also involved the government agency’s desire to defeat the privacy held within layer-two blockchain solutions, such as Bitcoin’s Lightning Network. Chainalysis and Integra FEC stood as the victors, beating 22 other applicants.

Doubt regarding Monero-tracking efforts

CipherTrace claims it wields Monero-tracking power, and the IRS, apparently, saw something promising from Chainalysis and Integra FEC, but the effectiveness and depth of such tracking remains up for discussion. “I am highly suspicious of any claims that corporations can trace Monero transactions,” a representative from Monero Outreach told Cointelegraph. As an independent workgroup, Monero Outreach teaches the public about the privacy-focused asset.

“While it may be possible to learn user information from network level metadata that is not concealed with Tor or a similar privacy network layer, they likely cannot trace the wallets or amounts for any transaction,” the representative explained. A common software, Tor facilitates anonymous interactions online. The representative added:

“If this were the case we would have already found out from the handful of research teams who work tirelessly studying Monero and looking for these type of vulnerabilities.”

If the three firms did indeed uncover methods for tracking Monero, the crypto space might actually benefit. XMR boasts a large number of involved developers laboring toward the code’s advancement while fixing any weaknesses that surface, according to the representative. Therefore, the asset improves following any uncovered weaknesses, the representative posited.

XMR loses value if cracked?

As of the time of publication, Monero is the 16th-largest cryptocurrency, based on CoinMarketCap data, sitting at a price of $102.41 per coin — but what happens to the asset’s value if it loses its privacy capabilities? Kuskowski opined:

“We believe that XMR’s value is almost close to zero if its anonymity aspect is removed as currently the majority of businesses that use it or offer it to clients (with the exception of some derivatives products) are on the edge of being legal.”

CipherTrace’s Jevans holds a slightly alternate view. “Monero’s construction is quite different from Bitcoin’s, so most likely, tracing Monero will always be more predictive than completely deterministic; however, a big break-through in reducing Monero’s anonymity would likely cause the price to go down initially,” he said, adding that privacy-seeking owners of the asset might quickly head for the exits, offloading the asset onto the market.

Even if its privacy is cracked, however, Jevans expects XMR will rebound in price once it sees listing on additional crypto exchanges, labeling significantly higher trading volume as the driver. “It’s also worth noting that bitcoin has never been anonymous and it’s always been valued more highly than monero,” he added.

Monero already trades on a vast number of crypto exchanges, providing a potential counterpoint to Jevan’s expectation. Additionally, Monero is known for its privacy-focus, which becomes null if its privacy is broken. In contrast though, delisting Monero has also become a recent trend, decreasing available volume. A number of platforms have delisted the asset for various reasons over the past two years, including Huobi and Bithumb.

Although Chainalysis declined to weigh in on the IRS’ effort to break Monero, the firm did offer up its perspective on XMR’s value if its privacy were broken. Maddie Kennedy, senior communications director for Chainalysis, told Cointelegraph:

“Cryptocurrency users, including bad actors, often have to choose between using a cryptocurrency like Monero for its enhanced privacy and Bitcoin for its convenience, availability and liquidity. Bitcoin already usually wins, especially as exchanges increasingly delist privacy coins in light of regulations.”

It’s also important to note that nefarious characters are not the only parties who value privacy technologies such as Monero. The coin offers a way for the everyday person to take back their privacy in an age filled with digital snooping and data selling. Governments and people in power treat privacy in digital spending as a foreign concept, when in reality, government-printed cash is the most anonymous option available and is used daily for illegal activities.



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