UK’s Revenue and Customs agency is ready to invest up to $130,000 towards the development and implementation of a new “cryptoanalysis” tool.
According to a recent report, the United Kingdom’s tax authority, HM Revenue and Customs (HMRC) is looking for, “vendors to showcase their capabilities by demonstrating their expertise in the field of crypto-asset tracing.”
The new software tool will be used to help the tax authority trace several types of cryptocurrency transactions, which are stored anonymously on a blockchain.
Criminal Activity on the Blockchain
Although today, an increasing number of people are using cryptocurrency and digital assets for legal purposes, earning legitimate payments on their digital assets, there is still a looming concern about those who use virtual currencies for criminal activities.
The concern is that, due to the anonymous transactions made possible by blockchain technology, cybercriminals and fraudsters around the world are able to leverage this anonymity for their own nefarious purposes. You Might Also Like:
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In fact, criminal activities, such as illegal gambling services, dark web operations, and tax evasion have been a common theme surrounding the blockchain industry ever since Bitcoin was first created back in 2009.
Along with other government bodies, such as the U.S. SEC and CFTC, which are working tirelessly to bring more safety and security to the industry, the HMRC is now on the hunt to find a suitable tool for their FIS-DSI cybercrime unit to use to monitor blockchain-based transactions within the country’s jurisdiction.
The Hunt for a New Cryptoanalysis Tool
According to the HMRC, they are seeking the “provision of a tool that will support intelligence-gathering methods to identify and cluster crypto-asset transactions into linked transactions and identify those linked to crypto-asset service providers”.
Ideally, the government institution is looking for a software that can track transactions made on other blockchains such as the Monero, Zcash, and Dash blockchains.
But for now, they are mainly concerned with finding a tool to monitor transactions on the most popular blockchains; Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Tether, Ripple, and Litecoin.
While there will always be the concern that criminals can use the blockchain for illegal purposes, projects such as this go to prove that blockchain-based technology has much more to offer than just an alternative form of currency.
The HMRC is currently accepting proposals from prospective tech agencies until the end of January, and have the 17th of February set as the scheduled start date for the project.
How to Hide Your Bitcoin – Opsec, Anonymity, Cold Storage, Brainwallet, Dexes and Non-Custodials
In an era of increasing economic uncertainty, surveillance, specialized cybercrime and hacking, knowing how to hide bitcoin safely has become a paramount concern for crypto holders. Whether it’s by way of taking wise opsec measures, utilizing noncustodial tools, leveraging a DEX, or even storing seed phrases in your brain, there’s no shortage of measures that can be taken to protect your stash. This article seeks to detail some of the best ways anyone can use to ensure their coins remain safe from bad actors.
Safekeeping for Sats
A “satoshi” is the smallest unit of bitcoin, and when it comes to the popular cryptocurrency, keeping one’s stash safe down to the last sat is important. For those new to the space — and perhaps even for more experienced hodlers who’ve overlooked certain security precautions and tips — what follows is a list of ways to ensure your stack of satoshis remains in good hands: your own.
Opsec Best Practices
Opsec, or operational security, is highly important when securing crypto holdings. It’s not sufficient just to have any old two-factor authentication (2FA), for example, as some variants of the measure like SMS-enabled 2FA can still leave easy attack vectors. SIM jacking is one example of this, and all that’s required is an overly cooperative and friendly customer service worker at a cellular provider.
When it comes to hacks like SIM jacking, where an attacker swaps your device data to a new SIM card by way of social engineering, phone number 2FA won’t help, and gives an infiltrator keys to whatever account is secured by that means. Instead, using a 2FA app such as Google Authenticator — and not a phone number, is a better bet. Be sure to disable SMS 2FA on sensitive accounts — especially crypto exchanges — and switch to a more secure option. When a phone number can serve as a key to your crypto safe, hiding bitcoins behind such info is a bad idea.
For account passwords, usernames, pseudonyms, and other such information used for accounts, be sure to use unique and secure choices. Though you may be a huge Guns n’ Roses fan, having “Axl6969” as a password for everything probably isn’t a good idea. Trusted and verified password managers can make maintaining even a long list of unique and strong passwords fairy easy, and quality services allow users to keep their master password stored locally, and not on any central server.
Anonymity and Social Awareness
Where anonymity is concerned, be sure all records, memos, or other account information which might tie your real identity to accounts and usernames are encrypted. Phone numbers should not be given out publicly, and a secure virtual number service can be used to route public calls to your personal device. The more you secure sensitive information, the less likely it is a bad actor or social hacker will be able to connect the dots and gain access to your bitcoins.
Further, simply knowing when to keep quiet is a great tool for keeping bitcoins secure. As mentioned above, sharing a phone number publicly is not a good idea. Nor is exclaiming to the whole bar on karaoke night that you just made huge gains on Binance and are buying everyone a round. The more people know about your holdings, the more potential interest can be piqued in malicious actors who seek to gain as much info as possible to access accounts. This type of openness can even endanger personal safety, as one of the quickest ways to get to someone’s device for criminals may just be to steal it.
Cold storage refers to storing bitcoins and their private keys offline for greater security. With private keys never being exposed to the internet, the security levels of cold storage options can be significantly higher than other avenues. Examples include hardware wallets such as Trezor and Ledger, which allow funds to be spent without private keys leaving the device, paper wallets created offline, and even more extreme options like fireproof seed phrase capsules. Perhaps most James-Bond-like of all the choices is storing a wallet in something hopefully not cold, but undeniably secure: your own mind.
Known as a “brainwallet,” storing a bitcoin seed phrase in your brain is definitely secure, as long as you don’t forget it or get mixed up. Using a mnemonic device such as a colorful, vivid story, particularly sharp bitcoiners can retain a 12-word seed phrase entirely in their heads. As with all such measures though, there’s a trade off. If you’ve got to run from a bad actor or flee the country and can’t take anything with you, this option is undeniably appealing. But beware: once forgotten, no customer service group on the planet is going to be able to help you retrieve the lost mental bitcoins.
Leveraging DEXs, Noncustodial Options
While popular centralized exchanges like Coinbase, Binance and Kraken can make getting into bitcoin easy, and even storing it for day-to-day transactions, it is never advisable to leave bitcoins sitting around online when not trading. Exchanges have been hacked multiple times, are subject to governmental regulation and technical difficulties, and as such are not secure for stashing sats. Once such an exchange is shut down, hacked, or frozen, so is your money.
Better options include decentralized exchanges (DEXs) with open source code and where software and network data is stored locally. Also, such networks allow for greater anonymity with minimal to no registration requirements, and can afford features such as encrypted chats for P2P trade and blind escrow. The Bisq network is one example of such an exchange. Local.bitcoin.com, another, is a peer-to-peer bitcoin cash marketplace where users need only to enter an email to trade BCH privately for a variety of traditional assets.
Where crypto wallets are concerned, noncustodial options (wallets where the private keys are solely in the user’s possession and are not centrally stored) are always best, as a seed phrase can restore the wallet if an accident happens or a device is lost. When it comes to custodial wallets, however, once the provider is compromised, so is the user. Always be sure to verify any wallet you are using is noncustodial, as the whole point of bitcoin is for you — and nobody else — to be in control of your money.
The Less Trust, the Better
Trust between humans can be a beautiful thing, but when it comes to stashing bitcoins, the less trust, the better. Satoshi himself cited this as the central issue concerning traditional financial systems. The Bitcoin creator noted “the inherent weaknesses of the trust based model” in the Bitcoin whitepaper, and developed the cryptocurrency in answer to these challenges.
When hiding your bitcoins, then, it’s always paramount to remember the reason for the asset in the first place: so you don’t have to trust any central entity to keep your money safe. At the end of the day things like customer service laziness at AT&T, human forgetfulness, and having to trust certain tools or developers may always be an issue, but the closer we can get the trust level to zero, the better.
Binance-Backed FTX Exchange Seeks Billion-Dollar Valuation in Equity Token Sale
Derivatives exchange FTX is hosting a public sale for tokenized equity in the hopes it can attain a billion-dollar valuation.
The Binance-backed platform, famed for creating the Shitcoin Index of low-market coins, announced Tuesday its FTX_Equity token sale would welcome investors willing to allocate a minimum $250,000 each.
Each FTX_Equity token, valued at $2 each, represents an ownership stake in the FTX Trading Ltd., the holding company that owns the derivatives exchange. Investors will be able to purchase the tokens directly through an exchange account with U.S. dollars, bitcoin, ether or FTX’s native FTT token.
Although token holders receive dividend payouts into their exchange accounts, they will not have any voting rights and will not be named individually on the shareholder registry. Investors can convert FTX_Equity into conventional FTX equity, but only in batches of 1.25 million tokens.
It isn’t clear what the exchange rate is between normal and tokenized FTX equity. Although FTX will not accept investment from residents of the U.S. and some other jurisdictions, there appear to be no restrictions preventing retail investors from participating in the sale.
An FTX spokesperson told CoinDesk the equity tokens had not been created “just yet.”
The sale is expected to close March 7.
Launching in May 2019, FTX offers futures, options and perpetual contracts on approximately 30 different digital assets. It raised $8 million in a private equity round in August 2019.
At the time Binance acquired a minority stake last December, the exchange processed approximately $170 million in average monthly volume on its bitcoin and ether futures. That has since increased to nearly $355 million in February, according to data analytics site Skew.
FTX CEO Sam Bankman-Fried told Bloomberg at the time of the Binance investment that the exchange was now valued in the “hundreds of millions of dollars.” Although the number of tokens up for sale has not been disclosed, the token equity sale will take FTX’s value into line with its billion-dollar equity valuation, the exchange said.
Speaking to CoinDesk, an FTX spokesperson said a billion-dollar valuation was in line with the valuations of other similar-volume cryptocurrency exchanges. They added that “revenue would justify that valuation with moderate growth, and would justify a significantly higher valuation if we can sustain the high growth rate we’ve been having.”
Lightning Solves Bitcoin’s Speed Problem, But Watch Out for Fraudsters
J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.
I don’t know about you, but the thing that got me interested in bitcoin was its potential to become a popular way to make payments and remittances. Over the years, we’ve been constantly disappointed on this front. Bitcoin payments just never caught on with the masses. Meanwhile, usage of fiat-based person-to-person payment tools like Venmo, Square Cash, Zelle and the U.K.’s Faster Payments have exploded.
Bitcoin’s new lightning layer has rekindled the dream of bitcoin-as-generally-accepted medium of exchange. But lightning is prickly to use. Which is why Zap’s recent announcement of Strike, a new lightning application, caught my interest. Strike aims to popularize bitcoin payments by making lightning more user-friendly.
The idea behind Strike is to create a fiat-based payments app, say like Venmo, except under the hood the payment is conducted in bitcoin. A hybrid fiat-bitcoin payments app is a neat idea. But marrying fiat with bitcoin will involve challenges, too.
A bitcoin payment is special. The bitcoin network is open to everyone, or censorship resistant. It allows for pseudonymous usage. And it provides what Satoshi Nakamoto described as non-reversible digital transfers; like cash, once the stuff is spent, the economic relationship between payer and payee is severed.
Pseudonymity, non-reversibility and openness will cause hassles that regular payments platforms like Square Cash or Venmo needn’t worry about. It remains to be seen whether hybrid fiat-bitcoin platforms like Strike will be able to marry the two systems in a form that still attracts a mainstream user base.
Let’s back up a bit. How does lightning resuscitate the dream of mainstream bitcoin payments? Writing a transaction to bitcoin’s core blockchain takes time. It has to be broadcast to the network and confirmed by miners. On top of that, a processing fee must be paid. This fee can get particularly costly when everyone wants to use the bitcoin network at the same time.
These delays and fees put off mainstream users. By routing around the blockchain, lightning can help regular people be more comfortable making bitcoin payments.
Roller coaster problem
Unfortunately, lightning doesn’t solve bitcoin’s roller coaster problem. After experiencing bitcoin’s crazy price rises and dips, a new user will never want to hold bitcoin again. Or they will be so excited by the ride that they treat it as a betting game. Either way, they won’t use it for payments.
Strike, founded by a smart and affable Jack Mallers, tries to solve the roller coaster problem by letting people load funds onto an app, much like they do with Venmo. But when they make a payment, unbeknown to them Strike (which is still in beta), will route the payment to the recipient via lightning.
Say that you’d like to buy an antique vase for $100 at your neighbor’s garage sale. You don’t have any cash on hand. But you do have your credit card. Needless to say, your neighbor doesn’t have a card terminal set up. But they do have a lightning channel open. Strike allows the two of you to connect. The $100 flows from your bank account to Strike’s bank account, upon which Strike sends 0.01 bitcoins to your neighbor via lightning.
That’s it. Without even knowing it, you’ve paid your neighbor with bitcoin. No volatility. And no need to learn how to use a strange new payments network. The entire experience simply piggybacks off of your existing knowledge of how to use a debit card.
As for your neighbors, with just a lightning address, they can immediately accept non-reversible payments from debit card holders all over the world. That’s neat.
But unless your neighbor has the technical chops, setting up lightning won’t be easy, certainly not as easy as accepting fiat-based payments via Zelle or Venmo. Which means that hybrid fiat-bitcoin payments systems will probably have to reach nooks and crannies that are as-yet unserved by the Zelles and Venmos of the world.
While marijuana is legal in many US states, it is illegal on the federal level. And so banks often disconnect companies that process marijuana payments for fear of losing access to Federal Deposit Insurance, or the Federal Reserve’s settlement system. As a result, many marijuana businesses are forced to turn card-paying customers away.
In a recent blog post, Mallers described how his family’s marijuana store set up a lightning channel, then encouraged debit card-carrying customers to download Strike. Now the store could reconnect to its clients with cards. That’s pretty useful.
Many parts of the world, including Nigeria, are locked out of the U.S. person-to-person payments economy. Venmo and Zelle don’t allow non-U.S. citizens to sign up. As a matter of policy, PayPal doesn’t allow Nigerians to receive money (although they can open an account). If a Nigerian were to advertise a lightning payments channel, however, a hybrid fiat-to-bitcoin system like Strike could connect them to Americans that want to do fiat-based person-to-person payments. The sender needn’t know anything about bitcoin or lightning.
Now for some of the complications of marrying fiat to bitcoin.
One of the problems that person-to-person payments apps like Venmo must deal with is buyer identity fraud. Scammers will often hack Venmo accounts or fund them with stolen credit cards. Then they use the funds to buy expensive goods. Sellers never realize they’ve accepted stolen money until Venmo reverses the payment.
Since a hybrid system like Strike connects to lightning addresses, recouping stolen funds from recipients won’t be possible. Once a lightning payment is made, it’s irreversible. Which means that operators of hybrid systems will have to fund buyer identity fraud out of their own pocket. That could get quite expensive.
Another type of fraud is authorized push fraud. This sort of fraud occurs when a scammer tricks victims into sending money for, say, concert tickets, but never actually provides the tickets and makes off with the money.
Payments options like the U.K.’s Faster Payments, Venmo and Square Cash are rife with push fraud. But they do have tools for combating it, including quickly canceling offending accounts and tightening up the rules for opening accounts. Faster Payments is introducing a new account name checking service to cut down on fraud.
But a hybrid fiat-to-bitcoin system that connects to pseudonymous lightning addresses can’t use tools like identity-checking or account cancellation to combat authorized push fraud. The whole idea behind bitcoin is to prevent this very sort of censorship.
And so, hybrid systems could become popular with fraudsters. A popular scam these days is to ask Granny to get out of her rocking chair, go to Walmart, and buy four $500 Google Play cards. With a hybrid fiat-bitcoin system, scammers can extort her by having her send $5,000 via her debit card, all from the comfort of her chair. The lightning side of the transaction allows the bad guys to stay anonymous and untouchable.
The problem with fraud is that if it gets out of control, it stigmatizes a payments system. This in turn harms the brand, impedes broader usage and may even attract political pushback. Douglas Jackson, the founder of the pseudonymous e-Gold payment system, serves as a good example. According to Jackson, e-gold’s failure to ever become more than a marginal player can be blamed on “self-reinforcing negative reputation” created by criminal abuse. (Indeed, it eventually led to e-gold being shut-down.)
To cut down on buyer identity fraud and authorized push fraud, a hybrid fiat-to-bitcoin system might decide to throw in the towel and do what Venmo and the others do: vet all users. But then it would no longer be doing censorship-resistant money. Gone would be non-reversible transactions. After all, the operator of the payment system could pressure lightning address owners to reverse payments on pain of being taken off of it the operator’s white list.
Strike highlights many of the contradictions involved in developing bitcoin solutions. Lightning is complicated. This prevents regular folks from using it. But simplifying a lightning payment by marrying it to the fiat system introduces a new set of complications. Bringing censorship resistance and non-reversibility to a mainstream audience may be impossible.
Or maybe not. There’s a lot of creativity being brought to bear on this problem. Maybe folks like Mallers will find the sweet spot.