August 14, 2022 | Issue 28 GOVERNMENT CRYPTO ENFORCEMENT ACTIONS ARE TOO BROAD A 29-year-old developer of Tornado Cash was arrested in Netherlands on Friday. He allegedly facilitated money laundering through the crypto mixing service Tornado Cash.
This follows the US Treasury’s sanctions this week of adding Tornado Cash and 44 public crypto addresses to the Specially Designated Nationals list. The crypto community expressed outrage. Jack Chervinsky wrote, “We should all be closely watching the situation in Amsterdam, where a Tornado Cash developer has been detained. It’s unclear if there are allegations of illicit conduct unrelated to writing code. If not, this threatens to be the start of Crypto Wars II.” Erik Voorhees tweeted, “The headline: ‘Treasury Sanctions Tornado Cash.’ Reality: Tornado Cash is not a person, nor a business entity. It’s an open source software tool. It cannot be sanctioned, it does not respond to subpoena or legal request. It is privacy-seeking Americans who have been sanctioned.” This week’s Treasury action against Tornado Cash feels like SEC’s enforcement action two weeks ago when it indirectly accused crypto exchanges for selling unregistered securities. The government's mission to protect consumers and prosecute criminals for money laundering is not easy to execute when parties are using cryptocurrency. The US government should tread carefully. The crypto industry welcomes regulation because without it, the industry cannot mature. But that isn’t what we’ve seen over the last few weeks. Instead, we see enforcement actions and sanctions that throw a ridiculously wide net over bad actor while hurting innocent parties, stifling entrepreneurship, and magnifying uncertainty. These actions reinforce that the crypto industry is still new and many issues need to sorted out before it becomes routine. Once that happens, crypto will become more commonplace in real estate transactions.
Each week, I slog through the news and speak with industry insiders. If you'd like me to share what I've learned, contact me. I'm scheduling talks for September and October. Have a productive week and stay crypto curious! Rich Hopen firstname.lastname@example.org | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me.
CRYPTO NEWS ▸ BlackRock Takes Another Big Step In Crypto BlackRock, the world's largest asset manager, announced on Thursday that it launched a private spot, bitcoin trust. This will be an investment vehicle for BlackRock's US institutional investors and it will track bitcoin. The private trust does not solicit investment from retail clients and does not require approval from the US Securities & Exchange Commission. BlackRock's press release stated, "Despite the steep downturn in the digital asset market, we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities. Bitcoin is the oldest, largest and most liquid digital asset and is currently our clients’ primary subject of interest within the digital asset space.” BlackRock captured crypto headlines last week when it announced a partnership with crypto exchange Coinbase. It will allow its customers access to bitcoin through Coinbase.
▸ Ethereum Passes Final Pretest Before The Merge Ether, the cryptocurrency for the Ethereum blockchain, has been increasing in value in anticipation of a major software upgrade. Ether increased in value by 67% since June, whereas bitcoin rose by 15%.
Ether has a market cap of $229.4 billion and the network supports 3,400 applications. The Ethereum Merge, slated to occur on September 19th will restructure the Ethereum network and reduce the energy consumption by 99.9%. This will occur because the blockchain validators will use “proof-of-stake” instead of the complex puzzle solving “proof-of-work” system. According to Vitalik Buterin, the co-founder of Ethereum, the merge will also make the network more secure, speed up transactions, and lower costs.
▸ Going Retro – Blockchain to Banknote
As many crypto exchanges struggle to survive, more crypto holders are feeling less secure about keeping their crypto on exchanges. Exchange customers are removing their private keys from the exchanges and keeping them on a thumb drive device or writing their private key on paper. (A private key is the crypto holder's password. It's similar to bank account password.) A new alternative is a physical banknote with an embedded chip that stores the crypto balance. A startup offering this product, Noteworthy, says that the "cryptonotes marry the familiarity of paper currency with the modernity of digital assets without compromising reliability, scrutiny, or trust." These banknotes look official and the premise is that crypto holders will treat the banknotes more carefully than a thumb drive or a piece of paper.
CRYPTO CLASS – Virtual Currency Mixer A currency mixer, such as Tornado Cash, is an open-source code that mixes crypto currencies. It enables customers to conceal their source of crypto funds when they transact with crypto. Users of the service pay a fee. Legitimate funds could be mixed with tainted funds to obfuscate the sources and destinations of crypto asset. Tornado Cash claims it serviced 40,000 users with more than 150,000 deposits by using smart contracts to send funds to an address with no ether balance and then send to a new public address that is not linked to the original sender. This presents a challenge to governmental agencies seeking to prevent criminals and terrorists from laundering money. The data shows mixers are used by nefarious actors. The US government alleged that North Korea laundered over $7 billion on Tornado Cash. Also, blockchain analytics firm Chainanalysis reported that in April 2022, $51.8 million was laundered through multiple mixer platforms. The US Treasury Department's Office of Foreign Assets Control made it a felony to interact with Tornado Cash.
INFLUENCERS - People to follow BitBoy Crypto – @Ben Armstrong With about 872K followers, BitBoy, is a crypto investor who provides daily insight of the crypto news each night.
RESOURCES – Books, websites, podcasts, interviews, articles, videos
Crypto Casey's YouTube Channel Casey Henry branded herself as Crypto Casey and produces a weekly video on crypto news in the context of macro economic news. She also has terrific videos on the basics of crypto investing.
CRYPTO WORD – Fork When a blockchain’s users make changes to its rules. The original blockchain remains and a new blockchain splits off, or forks.
OH, ONE MORE THING –
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