Molly White's Citation Needed - Issue 56 – What are you gonna do, arrest me?

Episode Date: April 25, 2024

The Binance CEO's sentencing draws near, and prosecutors have been busy chasing down other crypto criminals. Also, lawmakers take another stab at stablecoin regulation. Originally published on April 25, 2024.

I'm Molly White, and you're listening to the audio feed for the Citation Needed Newsletter. You can see the text version of the newsletter online at citationneeded.news. Issue 56. What are you going to do? arrest me? The Binance CEO's sentencing draws near, and prosecutors have been busy chasing down other crypto criminals. Also, lawmakers take another stab at stablecoin regulation. This issue was originally published on April 25, 2024. Hey there, tech enthusiasts and skeptics alike. It's your favorite cryptocurrency critic, Molly White, back with another dose of reality.

Oh, sorry. I forgot to turn off the large language model from last issue. How embarrassing. The Bitcoin halving happened right on schedule, though the skyrocketing prices some had predicted did not. I think most people, looking at a chart of recent prices, would have a tough time picking out when the having happened based on price alone. Some continue to predict skyrocketing prices at some vague point in the future. In fact, I just read a piece quoting someone who said that that should happen sometime in the next six months.

Particularly when they don't provide any reason why there would be some sort of delayed onset-having effect, it really seems that such people are just trying to extrapolate from events that have only happened three times in the past to support the number go-up narrative. I don't pretend to know if Bitcoin prices are about to go up or down, but it seems pretty tenuous to point to any price jump over the next six months and go, look, halving. What did skyrocket after the halving were Bitcoin transaction fees. Some clever marketers decided to time their release of Bitcoin runes with the halving,

piggybacking on the excitement. Some combination of traders hoping to get their trades inscribed in the auspicious first post-having block, and traders excited to get in on runes trading caused transaction fees to spike, and a combined 37.626 Bitcoin, or $2.4 million, was spent on fees alone in that single block. A record $80 million in fees would be spent over the ensuing 24-hour period, and although they've come down since that single day high, fees remain noticeably higher on the Bitcoin network. As of today, the average fee for a transaction is around $32, up from pre-having fees in the $10 to $20 range. Not ideal for the currency of the future.

Bitcoin Roons are a new attempt at putting meme coins on the Bitcoin network. Unlike Bitcoin's more NFT-like ordinals, coins issued via the Roons project are fungible. meaning any one coin of the same type is pretty much equivalent to the next. The most popular coins on Roon's release day included uncommon goods, massive pile of shit, and my personal favorite, Pepe Witt Honkers. Finally, I can trade a coin on the Bitcoin network with a logo featuring a breasty Pepe in a rainbow clown wig holding two horns. Sadly, all 69,420 tokens from that project have already been minted.

But fortunately, other projects like Dope Grandma Coin, Pepe Toshay Nakamoto, and Not Here to Fuck Spiders remain available. The weird names are partially because, well, crypto's a weird place. But also, Roons requires coin names to be unique, and those spacers don't count towards uniqueness, and to have between 13 and 28 characters. Every so often, roughly every four months, the minimum character limit will decrease. So far, 2,109 Bitcoins, or around $133 million, have been spent on fees for Bitcoin Roons in these six days since their release. In the Courts, Binance

As we draw closer to Cheng Peng Xiao's sentencing on April 30, we're getting a glimpse at the arguments that will be presented. I mentioned in my video on Binance that sentencing guidelines for a level 14 offense recommended between 15 and 21 months imprisonment for the former Binance boss. However, the probation office reduced the level to 12, based on his acceptance of responsibility, putting the recommended sentence at 10 to 16 months. The DOJ has just filed their sentencing memo,

requesting an above-guidelines sentence of 36 months, or three years. They argue that such a sentence is needed to send a message, quote, not just to Zhao, but also to the world. and to deter those who are, quote, tempted to build fortunes and business empires by breaking U.S. law. Zhao's much-lengthier memo requests he receive no jail time, but merely probation. The document apologizes for his, quote, poor decisions in not focusing on implementing compliance changes at Binance from the get-go, but mostly extols his commitment to his family and his devotion to Binance as a, quote, force for positive change.

He also seems to be trying to DDoS the judge with letters of support, filing 161 of them from family, friends, and various people in the cryptocurrency sector. Much the same as in Sam Bankman-Freed's defense, Zhao's lawyers argue that the billionaire is, quote, frugal and humble, with no interest in jewelry or luxury cars. Where Bankman-Freid's lawyers tried to emphasize that he drove a corolla and not a Lamborghini, Zhaos described how he recently bought a Toyota minivan. They also underscore his promises to give away 90 to 99% of his wealth and describe his personal donations to fund health clinics in Barbados and to create the Giggle Academy,

a project he announced in March aimed at making, quote, basic education accessible, addictive, and adaptive to the kids who don't have access to them today, all around the world for free. The memo doesn't mention that Zhao's vision for the school also involves teaching kids about blockchains, giving them NFTs to, quote, make learning addictive, exploring learn-to-earn models to incentivize parents to put their kids in school, and putting the kids to work training AI models at, quote, say around 13. Binance is also in court in Nigeria, where two of its executives were detained in late February. One of them, Nadim Anjewala, managed to escape Nigerian custody in late March.

Nigerian newspaper Punch reported that Androala had been discovered and arrested in Kenya by local authorities, who planned to extradite him back to Nigeria. However, Andiwala's wife has claimed via a spokesperson that that report was false. Meanwhile, some are beginning to wonder why the U.S. isn't doing more to help the detained executives, particularly U.S. citizen and former IRS investigator Tegren Gambarian. Gambarian released a surreptitiously recorded video on March 23rd, the day his colleague escaped, pleading for help from the U.S. government. Guys, I've got nothing wrong. I've been to caught my whole life.

I just asked the Nigerian government to let me go, and I asked the United States government to assist me. I need your help, guys. I don't know if I'll be able to get out of this without your help. Please help. Doquan and Terraform Labs. The SEC has asked the judge to order Terraform Labs and its former CEO, Doe Quan, to pay a combined $4.74 billion in disgorgement and interest.

They also want fines of $420 million from Terraform Labs and $100 million from Kwan, as well as a ban on Kwan from serving as an officer or director of a publicly traded company. Kwan has naturally opposed this motion, arguing that no injunction or disgorgement is needed, and that a fine of $250,000 to $300,000 seems more reasonable. Part of his argument seems to boil down to, well, he's going to be in prison soon, so you really don't need to worry about him becoming an officer or director. Terraform Labs make similar arguments, minus the prison part, and argues that any penalty should involve zero disgorgement and fines of lack of less.

less than $1.4 million. Kwan is still in jail in Montenegro, and at this point I've lost count of how many times Montenegrin authorities have decided to grant extradition and then backtracked. Despite Kwan's claims that he's consented to extradition, he's fought extradition since the get-go, and seems to be particularly opposed to being extradited to the U.S. rather than South Korea. This time, Kwan is claiming that lawyers falsified information, so as to suggest that the United States requested Kwan's extradition before South Korea, and that the facts, quote, absolutely and 100% give priority to Korea.

Everything else. Avi Eisenberg, the perpetrator of the October 22 Mango Markets' theft, was found guilty of fraud and market manipulation. He faces up to 20 years in prison. His sentencing has not yet been scheduled. It turns out that although he, quote, believed all our actions were legal open market actions, a jury didn't. Sam Bankman Freed is likely to settle the class action lawsuit against him

by agreeing to cooperate against other defendants in the lawsuit, who include everyone from sports stars Tom Brady and Shaquille O'Neal, to investment funds, Tamasek and Sequoia Capital, to e-sports and gaming companies, riot games, and Furia, to law firm Fenwick and West. I saw a few excited reactions to this along the lines of, finally, someone's going to snitch on tether lines, but those are misplaced. The class action litigants are seeking civil remedies and certainly don't have investigative authority or prosecutorial powers.

Any such snitching from Bankman Freed would be to the Justice Department and has likely either happened or is not going to happen. Anyway, if it's approved, hopefully this will help some of those impacted by the FTX collapse, to recoup some of their funds. Prosecutors have filed charges against the operators of Samurai wallet, a, quote, Bitcoin wallet made for the streets, that promise to help anonymize transactions and keep users' identities private. The big issue for the Justice Department was evidently the crypto mixing service they were running, which the DOJ says was used to process more than $2 billion in illicit funds,

including more than $100 million in funds connected to Darknet, marketplaces, including the Silk Road and Hydra. This seems to have been a selling point of Samurai, which actively marketed its products to, quote, dark-slash-gray market participants. Along with arresting the project's co-founders, law enforcement has seized the wallet's website, and the app has been removed from the Google Play Store. While the operators of the Tornado Cash Cryptomixing Service have been arguing, with the support of various entities in the crypto world, that they're not responsible

for the money laundering performed by various other entities that used the code they'd written once it was deployed and thus out of their hands, they argue. It doesn't look like Samurai operators will be able to rely on such an argument. The indictment is careful to point out how all the services they offered relied on centralized servers maintained by the Samurai project, which did things like match inputs for mixing and generate new blockchain addresses. The United States crackdown on the one coin scheme continues with another arrest in what is becoming a string of them. William Morrow surrendered to authorities and pled guilty to one charge of bank fraud in connection to moving $35 million between Chinese and Hong Kong bank accounts, and then more than $6 million from the Hong Kong bank account to one in the United States.

Morrow is only the latest to be charged in connection to the scheme, following after, co-founder Carl Greenwood, sentenced to 20 years in prison, lawyer Mark Scott, sentenced to 10 years, and compliance chief, Irina Dilkinska, sentenced to four years. Wencoin's other co-founder, Rueja Ignatova, remains on the FBI's 10 most wanted list. Hong Kong police have arrested 72 people and frozen $29 million U.S. dollars in connection to the September 2023 JPEC's collapse, which is being described. as the largest fraud of its kind in Hong Kong. The Wall Street Journal has filed a motion to dismiss the defamation lawsuit from Christopher Harbourn,

in which they characterize his filing as a, quote, blunderbuss complaint launching broadside attacks on journalism. That's a memorable opener. They argue that Harbourn hasn't sufficiently supported his arguments, and furthermore, that the claims made by the journal were not materially false. They don't go into much detail around why this. the journal chose to retract a portion of the article involving Harbourn anyway, but instead simply state, quote, this decision was made after determining that the passage, while substantially accurate,

did not meet the journal's exacting editorial standards. The journal is entitled to hold itself to standards higher than what the law requires and should not be exposed to liability for doing so. David Gerard and Amy Castor go into a bit more detail on this filing if you're interested. After the SEC asked for $2 billion in fines to be levied against Ripple, Ripple is saying a $10 million fine should do, and taking the opportunity to bash the SEC for, quote, administrative overreach. This all comes out of the finding by Judge Torres in July 2023 that Ripple's institutional sales of its XRP tokens constituted unregistered securities offerings.

The Crypto Freedom Alliance of Texas and the Blockchain Association have filed a lawsuit against the SEC, objecting to their recent widening of their definition of dealers. I haven't been able to find any photographs of people involved with the Crypto Freedom Alliance of Texas, but I have to imagine their cowboy hats are enormous. In bankruptcies. Going back to a much less recent bankruptcy, it looks like the Mount Gox Cryptocurrency Exchange is getting nearer to distributing roughly 142,000 bitcoins to

customers of the exchange, which collapsed in 2014. They have until October to do so, assuming no deadline extensions. Amusingly, as many having commentators predict that Bitcoin prices will skyrocket due to the reduction in Bitcoins being created per block, the number of Bitcoin's about to suddenly enter circulation as a result of this payout is roughly the same as the projected reduction over the entire next year of Bitcoin mining. in governments and regulators. As Representative Maxine Waters, Representative Patrick McKenry, and Senator Chuck Schumer have reportedly been meeting to discuss stablecoin legislation, even garnering some tentative

support from a vowed cryptocratic Sherrod Brown, Senators Cynthia Lummis and Kirsten Gillibrand are taking yet another crack at their proposed stablecoin bill. Although Lummis and Gillibrand are some of the most crypto-friendly legislators in office, and have been warmly embraced by much of the cryptocurrency industry, their bill has still earned some pushback. Crypto-lobbing group Coin Center published a statement bashing the proposed bill as one that, quote, potentially stifles innovation and breaches First Amendment rights by banning all algorithmic models, accusing them of painting the entire field of Algo Stablecoins with too broad a brush after the Teraluna fraud. Others have pointed out that although the press release published along with the newest

draft of the bill promises that, quote, malign actors will no longer have the option to use unregulated foreign stable coins, a shot at tether, which has been receiving considerable scrutiny recently for its use by terrorist organizations and sanctioned groups. There's not actually any language in the bill that would cause this to be the case. While a stablecoin bill is probably the most likely of any crypto-focused legislation to pass, it's still not looking altogether that likely, particularly as we enter election season. However, some reports have suggested that the Waters-McHenry Schumer discussions involved possibly gluing the stablecoin legislation to some other crucial legislation, like the FAA reauthorization, in hopes of shoehorning the

stablecoin legislation through, even amid opposition. On the topic of unregulated foreign stable coins, Reuters reported that Venezuela's state-run PDVSA oil company intends to use Tether more now that the United States is reimposing oil sanctions on the country. Tether was quick to reiterate that they respect OFAC sanctions and Will Freeze wallets added to that list. And on the topic of crypto becoming an election issue, aspirational presidential spoiler Robert F. Kennedy Jr. has played to his crypto base in pledging, quote, I'm going to put the entire U.S. budget on blockchain so that any American, every American, can look at every budget item in the entire budget anytime they want 24 hours a day.

Wait till those Americans see the budget item for such a project. The SEC has delayed a decision on some applications to create Spot Ethereum ETPs. Although some hoped that the agency's rather grudging acceptance of Bitcoin ETPs in January might pave the way to a quick approval of Ethereum ETPs, those hopes have been dampened by delays and further enforcement actions by the SEC against various crypto entities. Although there are additional deadlines coming up, it's likely that things will continue to be delayed until at least May,

and some analysts who previously had predicted a May approval have changed their tune. El Salvador's government built the Chivo system to provide infrastructure for the Bitcoin wallets and ATMs necessary for Salvadorans to use Bitcoin, which the country adopted as legal tender in 2021. Since its launch, Chivo has received massive criticism for its incredibly poor implementation, which has, among other things, enabled people to steal crypto distributions intended for other people, and has resulted in crypto-holdings simply disappearing from people's wallets. Because of this, it's not altogether surprising to hear that a hacker has managed to

obtain and publish the source code for the Chivo wallet system. It's especially not surprising given that earlier this month, hackers published high-res photos of basically every adult in the country, along with detailed personal information, including phone numbers, addresses, and government ID numbers. Though this hasn't been publicly confirmed to have been related to the Chivo system, it sure seems likely. Elsewhere in crypto. Mango markets, the target of Avi Eisenberg's October 22 heist, has just voted to buy back tokens to try to support the Mango token price.

The largest voter was a wallet that recently received 333 million tokens from wallets belonging to the FTX estate. Though whether they are the FTX estate or bought the tokens from the estate is not clear. This vote has been controversial among Dow members, some of whom believe the proposal was rammed through by the FTX wallet in a manner akin to a governance attack, and that the person who proposed the buyback may have undisclosed connections to that wallet. It was certainly good news for the FTX wallet, though, whose massive mango token holdings could now be sold into the liquidity added from the Dow.

Cardano founder Charles Hoskinson announced a video game that will be launching soon on a blockchain that isn't Cardano. Ouch. Weirdly, the game company, RFLXT, claimed that Hoskinson, quote, doesn't have a position at the company, only for Hoskinson to later disclose that he sits on the board. The Web 3 is going just great recap. There were eight entries between April 13 and April 24, averaging 0.7 entries per day. 77.7 million dollars were added to the grift counter. A project promising to help open source developers made things worse for open source developers.

Again. Less than two months ago, I wrote about how a project called T.Xyz inundated open source project maintainers with spam pull requests when they failed to foresee that their project's incentives might be gamed. Well, it's happened again. Now, instead of spam pull requests, people eager to earn T. XYZ rewards are mass-creating empty projects and submitting them to package managers like NPM and RubyGems, straining those ecosystems and requiring those who maintain the package managers to implement

stricter anti-spam features. RubyGems wrote a blog post about the disruptive behavior, and a security researcher at Philem published a report on the behavior, and how it was, quote, doing nothing but cause heavy strain on the ecosystem itself, degrading the performance of the ecosystem for genuine users, and straining open-source security researchers. Roger Stone shills Trump meme coin with misleading posts. Far-right activist and Trump world figure Roger Stone has posted several tweets endorsing MAGA meme coin,

one of the many meme coins with the Trump ticker. Several posts imply that Donald's, Trump himself supports the token, with Stone writing things like, quote, Donald Trump has at least two million in MAGA meme coin in his crypto wallet. Get yours. This cryptocurrency is going up. In reality, the tokens in Trump's cryptocurrency wallet were airdrop to him, likely without him even knowing about it, as is rather common when public figures have publicly known cryptocurrency wallets. Furthermore, although Stone has publicly disclosed that he is being paid to promote a meme coin, he is not disclosed how much he's being paid. This, as Kim Kardashian and other

celebrities have learned rather painfully over the past few years, is required by the SEC's anti-touting regulations. I tried asking him about it. You'll be shocked to hear I got no reply. Z-Kasino rugpoles for $33 million. Even after a public history of not paying their bills, people trusted the pseudonymous team behind the new Z-Casino Crypto-Gambling project with $33 million, $26 million of which was raised in a seed funding round from Crypto Exchange, MEXC, and others. More red flags began to emerge when the project team repeatedly canceled in-person events, where they would have presumably disclosed their identities and canceled planned token launches, but the team dismissed concerns as FUD.

The project had promised people that the Ethereum they bridge to the project's custom chain would be withdrawable one-to-one after a 30-day lockup. Instead, the project's creators transferred those more than 10,500 Ethereum to Lido, an Ethereum staking service. As for the return of funds, the project team indeed followed through with their promises to return the crypto. Except instead of Ethereum, depositors received the project's native token, ZKAS, which would vest over a period of 15 months.

Everything else. Hedgy finance was hacked for almost $45 million, and $2 million was emptied from Grand Base, a real-world asset platform. Worth a read. Some of you may already know of my tendency to get very concerned when people start talking about repealing or overhauling Section 230,

and an episode of TechDirt's podcast titled Abolishing Section 230, 230 would abolish Wikipedia helps elucidate why. This week alone, I've learned that Ghost, Buttondown, and The Verge are all actively planning to federate via activity pub. Threads, of course, was also one of the major recent entrance to the Fediverse world and flipboard before them. This is so exciting.

It's amazing to see some really major groups adopting federated software protocols, and I hope that trend continues. And when Ghost releases activity pub support, you better believe I'm turning it on immediately for this newsletter. You can read more about this in a piece by Digidae, titled, As TikTok Band Threatened Stability in Social Media Ecosystem, some brands settle into the Fediverse. In the news, I have been deemed one of, quote, today's most noteworthy political voices online by the New Republic, and one that people are supposed to watch. Good news, you're ahead of the curve.

The list is titled 25 political influencers to watch in 2024. Sadly, there is no photograph of me hovering a few inches off the ground, as there are with some of the others on the list. Next time, maybe. I joined the Trash Future Gang once again to talk about crypto, of course, but also about that AI lapel pin that burns you and mocks you in a racist accent. The episode is titled, You Have Unlocked Racist Lapel Pin featuring Molly White. It is paywalt, but it's a good one.

Some of my commentary about the Bitcoin having from last issue was quoted in a CNN piece about the having, titled The Having, Bitcoin Bros World Cup, is here. Sadly, they gave the last word to a Bitcoin mining company CEO, who predicted, quote, it wouldn't be surprising to see the price of Bitcoin increased significantly over the next two years. What's definitely not surprising is hearing that sentiment from the CEO of a Bitcoin. mining operation. I also went on BBC's Asia Business Report to talk briefly about the halving. My recent issue on AI got a shout out from Nilai Patel in The Vergecast in an episode titled Emulators Are Taking Over the App Store. It was also dropped into FT Alphaville's further reading list and referenced fairly extensively in an article in Axios, titled Generative

AI is Still a Solution in Search of a Problem. That's all for now, folks. Until next time, this has been Molly White. Thanks for listening to this issue of the citation needed newsletter. To learn how to support my work, visit mollywhite.net slash support. If you'd like to read the text versions of these episodes, sign up to receive the newsletter in your email, or support my work on a recurring basis, go to citation needed. News.