Tech Won't Save Us - Cringe Raps and $5 Billion in Stolen Bitcoin w/ Lorenzo Franceschi-Bicchierai

Episode Date: February 17, 2022

Paris Marx is joined by Lorenzo Franceschi-Bicchierai to discuss the arrest of Ilya Lichtenstein and Heather Morgan for trying to launder the $5 billion in Bitcoin stolen in the 2016 Bitfinex hack, how they were moving the money, how the authorities found them, and what lessons the case might hold.Lorenzo Franceschi-Bicchierai is senior staff writer at Motherboard. Follow Lorenzo on Twitter at @lorenzofb.Tech Won’t Save Us offers a critical perspective on tech, its worldview, and wider society with the goal of inspiring people to demand better tech and a better world. Follow the podcast (@techwontsaveus) and host Paris Marx (@parismarx) on Twitter, and support the show on Patreon.Find out more about Harbinger Media Network at harbingermedianetwork.com.Also mentioned in this episode:Lorenzo wrote about the arrest of the couple and Heather Morgan’s cringe raps as Razzlekhan. Along with Motherboard colleagues, he also dug deep into the couple’s history and online presence.The Bitcoin they held and tried to launder came from the 2016 hack of Bitfinex.People who knew Morgan told the New York Times her social media presence was “part of an elaborate act to confront social pressures.”In 2014, Mt. Gox was hacked and shut down. It was an exchange handling 70% of Bitcoin transactions.Criminals laundered $8.6 billion in cryptocurrency in 2021, up 30% from the year before.AlphaBay was a darkweb crypto marketplace that was seized by authorities in 2017.On Feb 14, Heather Morgan was released on bail, but Ilya Lichtenstein remained in detention.Support the show

They cashed some of it out through like Bitcoin ATMs, they bought some Walmart gift cards. But I think one of the takeaways here is that it's really not that easy to actually get rich by stealing Bitcoin. Hello and welcome to Tech Won't Save Us. I'm your host, Paris Marks, and this week my guest is Lorenzo Franceschi Biccarai. Lorenzo is a senior staff writer at Motherboard and a frequent guest on the Cyber Podcast, which is Motherboard's podcast on cybersecurity. Over the past week or so, you might have seen some videos circling around from a rapper called Razzlecon or some TikToks from that same person talking about how she built her successful business without funding from Silicon Valley entrepreneurs or a trust fund or anything like that. And you might have also seen the story about how that person was involved in the laundering of $5 billion worth of Bitcoin that was stolen from Bitfinex in 2016. This is a huge and really significant story. And so instead of leaving it at those videos that were circling around on the internet and the headline of this big money laundering scheme and hack and how these people were arrested for it, I decided I wanted

to learn a little bit more and dig into it a little bit further. And so last week, Lorenzo and his colleagues over at Motherboard dug into this couple and dug into this story to get more of the details and wrote a really long form piece laying all that out. And I'll put a link to that in the show notes. And that made Lorenzo the obvious guest to have on to discuss what this couple were up to, how they tried to hide their tracks, who they were, and the larger significance of a hack like this and a money laundering scheme and the arrest of these people on the broader crypto space and how we should understand what is going on there and what it might mean for the future. Now, before we get into the episode, you might be thinking, what, another cryptocurrency episode? I know there have been a number lately, but obviously I think that this is

a really important topic, especially as there's this huge push for us to adopt cryptocurrencies and for this to become the next big thing. But just to put your mind at ease, there are a ton of non-crypto episodes coming up, including a discussion about Crisis Text Line and the recent scandal around that with Joanne McNeil, a conversation with Edward Niedermeyer about Elon Musk and Tesla and everything that is wrong with that car company and has been wrong with it for quite a while. And I believe I'll also be having episodes soon on Peter Thiel, his history and what he's up to now with funding these Republican candidates. But I don't want to say the guest because I haven't confirmed a time to record that interview yet.

And I believe we'll also be doing an episode on interest rates and what raising interest rates will mean for the tech industry, but also, you know, everyone else who lives in this society. So there are a lot of fascinating conversations coming on crypto issues, but also on things that are completely unrelated to crypto as well, because we do need to take a break from that, obviously, from time to time. And so with that said, Tech Won't Save Us is part of the Harbinger Media Network,

a group of left-wing podcasts that are made in Canada, and you can find out more about that at harbingermedianetwork.com. If you liked this episode, make sure to leave a five-star review on Apple Podcasts or Spotify. You can also share it on social media or with any friends or colleagues

who you think would learn from it. And this episode of Tech Won't Save Us, like every episode and the episodes that are coming down the pipe, are free for everybody because listeners like you support the work that goes into making it every single week.

So if you like the show and you enjoy these conversations, you can join patrons like Masha, Jesus Saucedo from Mexico, and Christian from Stockholm by going to patreon.com slash Tech Won't Save Us and becoming a supporter. Thanks so much and enjoy this week's conversation. Lorenzo, welcome to Tech Won't Save Us. Thanks for having me. Really happy to be here. I'm really excited to chat with you. I'm sure that many people now will have heard about this story of the couple in New York who were found to have been involved in the laundering of, I think, a billion of like

$5 billion in stolen Bitcoin. And so naturally, I think a lot of people have been asking questions about this and have certainly been seeing videos of one of the people doing terrible raps and things like that. So I wanted to dig into it and to get beyond, you know, the raps and actually get to the deeper questions behind what's going on here. And I think it's important to start by getting some of the context, right? Because these Bitcoins are from a 2016 hack of Bitfinex. And that's a number of years ago now. So I'm sure a number of people will not be super familiar with what happened then. So can you fill us in on that details?

You know, what happened with this hack? And what were the consequences of it for, you know, Bitfinex and the larger, I guess, Bitcoin space? Yeah, so as you rightfully point out, this story really starts in 2016, when some hackers, we really don't know who yet. It's kind of interesting, actually, that in six years, there hasn't been pretty much any information of who the hackers were, how they got in and anything like that. And Bitfinex is a cryptocurrency exchange, one of these many cryptocurrency companies out there. When they got hacked, they announced the hack. They told victims or their users that they would reimburse them through some sort of complicated scheme to issue a new token that would then appreciate.

So some of them did get some money back. And actually, this ties into what's happening right now. The Department of Justice says that they'll set up a system to reimburse the victims. Bitfinex says, no, actually, we need to get that money because we already reimbursed the victims. So that's going to be interesting and a little bit confusing to follow. So that was step one in this story. And the hackers, whoever they were, stole around 119,

so practically 120,000 Bitcoin, which at the time were around $60 to $70 million, which was a pretty big heist at the time, around $60 to $70 million, which was a pretty big heist at the time, but kind of dwarfs these days because there's so many going around right now. But obviously, six years later, that's now $5 billion. And that's what the couple is charged with laundering. And crucially, I think this is really important to repeat.

The prosecutors do not accuse this couple of stealing the Bitcoin. They only accuse them of controlling several wallets linked to one original wallet that received the 120,000 stolen Bitcoin. And that's how we got here. Six years later, the Feds kept an eye on all the Bitcoin, tied these wallets allegedly to Elia Lichtenstein and Heather Morgan. And as you said, they only really moved around what's now 1 billion. So I think it was 25,000 Bitcoin was what they tried to move. The rest, 95,000, which is basically 3.5, $4 billion right now, never really moved,

which is also interesting. And we don't really know why. Yeah, I think there's a lot of good points there. And it's important to reemphasize that the Department of Justice is saying that these people are involved in the laundering, but not necessarily the hacking, and they're not sure who did the hack. And also, when we're talking about the values of these bitcoins, it's important to note that the price fluctuates a lot. So these values have changed over time, certainly. But yeah, they are accused of being involved with the laundering of 1 billion of this kind of total of around 5 billion. And so you mentioned that this is a hack that took place six years ago. What has been happening

over the course of that six years? And how did the FBI actually hunt down this couple and figure out that they were the ones who were laundering this money and who had the ties to it? So there's two sides of it. Publicly, what's been happening is basically not much. Most of the money, as I said, stayed in one wallet. And as a lot of your listeners will know already, being cryptocurrency and particularly Bitcoin, everything is essentially public. All the Bitcoins were sitting there. Everyone knew which Bitcoins they were, what wallet was holding them. And there's a huge ecosystem of amateur investigators, observers who just track all this Bitcoin throughout the years. But nobody knew who was behind the wallets.

And at the same time, the investigators at the and the fbi were also keeping an eye on this bitcoin trying to figure out who was moving them and it turns out that they did pretty well figuring that out they did a lot of work you know not only keeping track of the bitcoin but also reaching out to whatever companies were involved because in this case lichtenstein and morgan did not just use what's usually called cold wallets, which are essentially hardware wallets that are not connected to the internet. That's the most anonymous way of holding Bitcoin and cryptocurrency. They did have some of those, but they also moved these Bitcoins through online cryptocurrency exchanges. The Feds don't mention

them, but think of those as like Coinbase, Binance, whatever you want. Also, interestingly, they moved some of those Bitcoins through Alphabay, which was at the time one of the most famous illegal drug markets and hacking markets too. They sold like hacking services on the dark web. Alphabay was one of the successors of Silk Road. When they did that, they were trying to essentially confuse, you know, to sort of like mix Bitcoin with other Bitcoin, move it around, try to hide their traces as much as possible. And that's interesting because the Feds at some point

seized Alphabet with all the internal user data. So they were probably able to follow some of the Bitcoin thanks to that seizure, that law enforcement operation. In terms of the other Bitcoin, as I said, they moved it through a lot of online accounts at cryptocurrency exchanges, which were not really anonymous at all. Even a few years ago, when you open the accounts at like Coinbase or Binance, you had to tell them who you were. One interesting case in particular is a Bitcoin wallet that predated the Bitfinex Act that the Feds were able to tie to Lichtenstein. For this particular account, Lichtenstein had to submit his driver's license, even a selfie, which the Feds retrieved and are using as evidence to say, you know, this wallet at some point took control of some of the stolen Bitcoin, hence you laundered them.

In other cases, they also contacted the cryptocurrency exchanges asking for information on the customers. In turn, these companies had to follow up with the Liechtenstein or Morgan and basically ask, hey, what's up with this money? Where is it coming from? We have regulatory obligation to find this out. And the couple tried to essentially, well, the feds say that they lied. They lied to this company saying, yeah, you know, this was just a gift from my husband who got it from investments. But when the feds looked into it, it turns out that the Bitcoin actually came from the original wallet.

So this, you know, took a long time. There were a lot of legal requests to the companies involved, the cryptocurrency exchanges. And the most important piece of evidence, which the Feds only were able to obtain last month, basically end of January, was an online drive, essentially like a cloud account, a cloud storage account that Liechtenstein had. You can think of it as like iCloud or Google Drive. We don't know the particulars, but, you know, we all have that kind of thing. And in that cloud storage, the Feds were able to find a spreadsheet that contained a list of virtually all the wallets involved

in this money laundering scheme. And it was a pretty detailed spreadsheet. You know, there were the wallet addresses, passwords, private keys to control them. There were notes like LinkedIn site had allegedly written stuff like dirty, indicating that this wallet was either compromised or something like that. And also interestingly, this spreadsheet was originally encrypted and the feds say that they were not able initially to open it up and read it. But then at some point, they were able to decrypt it, which to me, it's kind of interesting

because usually encryption, when it's done well, may really make it impossible. So that's one of the other questions that I would like to know is how did that happen? But again, this was really sort of like the cherry on top of the investigation. That was what really allowed the feds to say, okay, we can now go public with an indictment. I think that's a great description of what has been going on. And I think one of the things that I was asking myself as I was reading through this and even listening to what you were saying was, you know, is this a case where the feds didn't know who it was for a really long time and only figured that out recently? Or have they known because, you know, their identities

were linked to these accounts for so long, but have been sitting and waiting and seeing if they would do something else or if they would get more evidence to really nail them when the time came? That's a good question. I think that when last month they found the spreadsheet that was really like, yeah, the nail in the coffin, basically, that's when we're like, okay, these are really the people that we were looking for. But there was a lot of trail, the nail in the coffin, basically. That's when we were like, okay, these are really the people that we were looking for. But there was a lot of trail over the years. You know, some of these accounts were opened in 2017, 2018, you know, a couple of years after the hack.

But I guess at that point, it was possible. And, you know, this is me speculating, but at that point, it was possible that this couple was just part of a, you know, a bigger conspiracy, part of a larger group to move this money around. And at that point, there wasn't enough evidence to really tie them to the original Bitcoin wallet, the one that received 120,000 stolen Bitcoin. And I guess to a certain extent, it's still possible that there were more people involved. In my view, it's fair to say that they are just the first two people in a larger investigation. I mean, I may be wrong, right?

I mean, at least we don't know who the hackers are. So that's something that maybe we'll find out if they collaborate with the Feds, for example, or if there's another case connected to this that's still under seal. But it's also possible that other people helped them with the money laundering. But there isn't really an indication of that in the legal documents that have been released so far. So far, it really looks like they were the two that controlled the original Bitcoin wallet, and they were the ones that moved the Bitcoins around across dozens of other accounts throughout the years. Fascinating. So I want to know a little bit more about these two people, naturally. And I know you

and the folks over at Motherboard have done a lot of digging into their backgrounds and their past, you know, what's available online for you to find, and even, you know, reach out to a bunch of people who they've been in contact with over the years to see what they had to say about them. And so I wanted to talk about Ilya Lichtenstein, because I feel like he's positioned as the one who's likely most involved in what is going on. But he's also the one that I feel like people have focused on less because Heather Morgan has just posted so much content over the years. So who is Ilya and what do we know about him? So we don't really know too much about Ilya.

And that's also an interesting question there. Like, was he more careful because he was the one that was doing most of the illegal stuff? Was he just, you he just social media shy? That's unclear. What we know is that he's a dual Russian-American citizen. He grew up around Chicago, and he's basically a tech entrepreneur, but also a coder. He has tech skills. He ran a few startups.

He was enlisted in a Y Combinator, worked at the WordPress Foundation at some point, and then founded a bunch of companies. Some of them turned out to be involved in the money laundering scheme. That means that some of these companies had like online accounts, either Bitcoin or also bank accounts, where he moved the stolen money through. And really, that's kind of what we know about him. We know that he had tech skills, which has led some people to speculate that he was the one that did most of the laundering and most of the technical stuff around this scheme. That's also what his lawyers and her lawyers are arguing, which is that Heather Morgan didn't really have anything to do with this,

that she shouldn't even be in jail. And it turns out that actually the judge at least agreed that she's less of a risk. So she was released yesterday, whereas he still is held in jail. Something that we were able to find out and, you know, shout outs to my colleagues, Tim Marchman, Joseph Cox, Jordan Pearson, and Jason Kebler. We sort of like all descended on this together. We had like a huge Slack group that was kind of messy at times, but really worked out. And yeah, some of us were able to talk to people who knew him. For example, we spoke to some people that were working at a startup that he launched a few years ago. And it was funny because one of them said that Ilya was a really good boss, that he was kind of nice, much better than a lot of startup bosses.

He was also like a little cheap though. Allegedly, he wasn't paying them very much. And he shut down the company during one of the many swings in cryptocurrency because this startup was working on some cryptocurrency stuff. I think at some point they launched a cryptocurrency wallet. That's really unclear if anyone used. Most of the trail of these companies indicates that they were kind of not real companies. A couple of them had employees and some investments, but it's kind of hazy really what these companies were doing. On that point, like in the story, you guys mentioned that

they founded a number of companies, you know, including ones called Salesfolk, Demandpass, Infoke. Does it seem like they were just kind of fronts for laundering? Or does it seem like there was actually something concrete behind them? The feds definitely alleged that they were all involved in the laundering. And it seems like that that was their, you know, real function. But one of them, I don't remember now which one, was a marketing company was their you know real function but one of them i don't remember now which one was the marketing company that you know had real employees had real money a real investment so at least a couple of those companies were real still involved in the in the laundering because their accounts under the name of the companies but they were real companies yeah and as you say the lawyers are positioning it as though though Ilya is kind of the main guy who was at this and Heather wasn't involved so much. And as you say, the judge has allowed her to be released on bail for now to not be held in jail like Ilya is. And I guess it's unclear whether that is the case or whether he's just trying to take the fall and save her from the worst possible sentence that could come out of this. But obviously, Heather is the one who has had the most focus, I think, in the media because of

her online presence. So what exactly do we know about her so far? Because I'm assuming it's quite a lot more. Yeah, she had, you know, just as a lot of millennials, she had a very active online life. You know, I think it's important to remember that she was very prolific online, you know, on TikTok, YouTube, Twitter. She also wrote for Forbes and Inc. Magazine. But, you know, to a certain extent, she was like a lot of us, you know, she left a lot of trails online. What we know is that she grew up in California.

I think she was born in Oregon. And her parents have a relatively modest life. I think her father was in the military, then he was a biologist or biochemist. And she has a pretty diverse and international background. She lived in the Middle East at some point in Egypt. She claims to have Turkish heritage. She said she traveled a lot, like to Japan, Asia, traveled alone. She claims to have been homeless at some point. She really tried to paint herself

as someone who came from nowhere to be a successful entrepreneur. In one of her videos, she said something like, I launched a bunch of companies who have managed millions, and I'm not from an Ivy League school. I'm not a trust fund kid. And you can be like me too. Before she became sort of an influencer in school, she was very interested in Middle Eastern studies. One of the first online paper trail that we were able to find was from 2013, a paper she co-wrote with a professor at UC Davis about Middle Eastern economics, basically. We spoke to the professor who said that she was very knowledgeable. She was very who said that she was very knowledgeable. She was very ambitious, that she seemed someone like maybe would get into a PhD

program that would become like an expert in economics, something like that. So the professor was pretty surprised at what happened in the next few years. And what happened in the next few years is that she was kind of like a relentless networker. She moved to San Francisco, where she met Lichtenstein, if I'm not mistaken. And she was just really good at connecting to people. In some of her videos and articles, she talks about how you just have to go for it and send cold emails and really position yourself

as someone who knows what they're talking about and someone who's like a hustler, someone who really works hard to get what they want. To a certain extent, you know, she was successful at really looking like she was this person. She managed to write for Forbes and Inc. Magazine as a freelancer. She wrote around like 100 articles for Inc. Magazine and almost 50 for Forbes. So she was relatively prolific. A lot of her articles are a mix of personal tips.

We were able to find a lot about her through these articles. She spoke a lot about her life and what her life can teach others. In some of them, she actually managed to interview pretty high-profile people like Awkwafina and other musicians. She also, ironically, interviewed people involved in cryptocurrency. And in one article, she was talking about an executive at a cryptocurrency company about the fact that these companies have to keep very detailed information about who owns the wallets, because there's no customer requirements, which is what allowed the Feds actually to discover that

her and Lichtenstein were involved in this scheme, allegedly involved in this scheme. So she had like a really interesting online profile because she was pretty knowledgeable about this stuff. And, you know, as a lot of the media is focused on, she was also kind of an interesting character. At some point, she launched a rap career, which is admittedly,ly even herself she admits was sort of like a caricature of a rapper her music is pretty bad and as uh i think one of the videos was like how to become a gilf you know a grandmother you like to fuck you know a lot of it is crass a lot of it is cringe she also chronicled her personal life a lot on TikTok. There's videos of her in their

apartment with Lichtenstein. They talk about their cat. They talk about things that anyone like us could talk about. But yeah, overall, it paints the picture of someone who really wanted to be famous and who really wanted to make it. And someone that apparently tried to claim that didn't have a lot of money, but the Feds obviously claimed the opposite, that they were actually sitting on a lot of this money. I think that there's a good point to make here, which is that it's not that easy

to turn stolen Bitcoin into actual money. It's unclear how successful they were to actually launder this money and cash it out. They cashed some of it out through like Bitcoin ATMs. They bought some like Walmart gift cards. But, you know, I think one of the takeaways here is that it's really not that easy to actually get rich by stealing Bitcoin.

Yeah, even though it's anonymized, it still has to be turned into hard cash at some point. And you might identify yourself at that point, even if it doesn't happen before with all the exchanges and things like that. And certainly new laws that are coming in that will enforce that even further. But before we move on to those kind of broader implications, I think I did want to ask a little bit further about Heather and her persona, because you talked there about how, you know, she wanted to be famous, which is something that is super common, I think,

and is something that among young people is like something that people want to do because they see everyone else trying to be famous. And it's super normal. But when I was reading a New York Times profile on the two of them, they spoke to someone who knew Heather Morgan, who said that her social media stunts were part of an elaborate act to confront social pressures. And in your article, you kind of talked about how there was a bit of like a performance art element of it. So like, I guess, is it clear the degree to which, you know, this was like a serious attempt to do something that was going to get attention or a way to kind of comment on some things that she was dealing with or some aspects of society that she was trying to make a comment on or something like that? Yeah, that's a good question. I think it's hard to really understand

her motives. And it would be really interesting to know what she thinks and what she would say about that. There's definitely an aspect of self-criticism and criticism of our society. Her lyrics talk about cryptocurrency, talk about people trying to get rich talk about hackers i think it was very personal for her she talks about having some mental health issues dealing with burnout around 2018 which is when she launched his rap career i think also in one of her articles she talks about how that really helped her cope with her mental health so like i don't really think that she wanted to be like a famous rapper. I think that she maybe just wanted to be sort of like, to turn this into like a comedic character, some form of satire. It's just hard to believe that she really want, you know, I don't think

she wanted to be a famous musician at any point. I think she was just trying to say, you know, you can also have some fun while being a tech entrepreneur. Yeah, like, I guess it's just looking at some of the content, whether it's the rap videos or even some of like the TikToks. Like, it's just so cringe and bad. You wonder, like, is there a degree of seriousness here? Like, you know, the video where she's talking about what she learned from Silicon Valley entrepreneurs and how you need to like automate and et cetera, et cetera. I can't remember exactly the phrase that she uses. And it's like, is this a serious thing? Or is this like a persona or something that she's putting on to either try to emulate this version of a person

that we see online or to make some comment on how ridiculous it is? I think it's probably a little bit of both. It is possible that she was trying to make like a smart criticism of our society because like we all obviously have focused on her like funny persona and how ridiculous her videos look like. But it's important to remember that most people that have talked about her, not just to us, but other outlets have pointed out that she was very smart, that she was a brilliant person that was well-read, ambitious, and really kind of knew what she was doing with her life. So to me, it's hard to believe that she didn't get that her persona wasn't serious. Obviously, I think it's important to say that, you know, we're just speculating on

what we can see and the reporting that you've done, the people that you've talked to. So it's hard to say for sure. And I'm sure that she won't be able to tell us anytime soon. So I guess moving on, like, you know, we've talked about who these two people are, but is it clear the degree to which they tried to cover their trail? Because in your reporting, there was also discussion of how they were trying to get, I believe it was Ukrainian passports and were setting up accounts and things over there. So to what degree were they trying to cover, I believe it was Ukrainian passports, and were setting up accounts and things over there. So to what degree were they trying to cover the trail? And what does that tell us about their potential culpability in what was going on?

Yeah, during the hearings where lawyers tried to get bail and tried to get them out of jail, prosecutors argued that that was dangerous because they were both at risk of fleeing the country. And to support that argument, the prosecutors brought up some new evidence that they didn't include in the original indictment, which was that they had obtained, or rather that they were researching how to obtain fake passports. They had done some research online on the dark web and on the regular internet on how to do that. Apparently, they had traveled to Ukraine at some point or had plans to travel to Ukraine to sort of set up what the prosecutors say was a contingency plan in case they needed to escape. That's interesting because one of the things that I think has captured a lot of our

imagination is that these two people that controlled like $5 billion in Bitcoin and were trying to move it around for years, we're living in New York. You know, we're living in the US, a country that has a very powerful law enforcement arm and a country that has already prosecuted a lot of people involved in cryptocurrency crimes. You know, obviously, in hindsight, it's easy to say, why weren't you in Thailand or somewhere else that doesn't have any extradition treaties? You know, that's an open question that we may never really know.

Maybe they were just cocky. Maybe they thought they would never get caught. Maybe they thought they were taking the right precautions not to get caught. Or maybe they were just careless. But yeah, it looks like they had at least thought about how to escape. And when the law enforcement agents got into their homes to arrest them, they found a lot of USB drives that were encrypted, like a bunch of phones and computers, also cash in foreign currency.

So, you know, all signs that they were like trying to hide something, you know, like not every tech entrepreneur has like foreign cash and phones labeled burner phones and things like that. So they were at least taking some of the precautions that you would expect alleged criminals to take. Definitely sounds a bit sketchy. And then another detail, I can't remember if it was in your story or in other reporting, was that they actually had embryos, I think it was frozen, in New York. And so that was one of the reasons that were given for why they stuck around and hadn't actually fled. Yeah, that's right. Their lawyers claimed they didn't really have plans to leave.

They had plans to have a family in New York. And one of the evidence that they brought up is that she had frozen embryos with the plan of having children. Right. And so obviously, this is a massive story. And I think a lot of the focus has been on these two individuals and on Heather Morgan in particular, and the size of the value of the money that they were holding onto and trying to launder. But the larger crypto space is

something that has received a lot more attention in the past couple of years as it's grown enormously. And so many more people have gotten into it, have gotten crypto, have bought NFTs, things like that. So what implications do you think that this case and arresting these two people have for the larger crypto space right now? There's a few lessons that we can draw from this case. Number one is that companies like Bitfinex and other companies that have been hacked recently are not taking security very seriously. Also, they are huge targets. I don't want to just victim blame, but it's clear that companies like that are huge targets because of the value of the

cryptocurrency that they hold and their users hold there. And there's a long history of companies getting hacked in the cryptocurrency space. And not just in 2016 or earlier when you could argue that it was a young space where companies didn't know what they were doing. Just in the last few months, hackers have stolen around $1.3 billion from a bunch of companies. And that's just math that we did from articles that we wrote about, companies that we wrote about. That's so many companies that get hacked that we can't even keep up. So that's one. And I think the other lesson that's interesting is that for six years, nobody knew anything about the Bitfinex hack. And now it turns out that the Feds knew a lot of it.

At least they knew a lot about who was moving the money around. So these hacks and the money that's getting stolen right now, we may not know for a while where it goes or what happened to it, but maybe in five or six years, we'll find out. And again, as I said earlier, it's really hard to move this stuff around in a way that will never be tied to you because of the nature of the blockchain and how cryptocurrencies are set up. So for people who are still in Bitcoin, I think it's going to be really hard to escape law enforcement. One of the things that comes to my mind as you're describing that, and as I think about this hack, is particular people who have a vested interest in this are talking about crypto as though it's the future of money and it's how we're going to do all happened just in the past few months, but even further back than that, how does that compare to the regular financial system?

And do we see this degree of hacks and stolen money from major banks in the way that we see from these cryptocurrency exchanges? That's a very good question. I think what people need to remember is that if you get into crypto, if you put your money in one of these exchanges, in some of these companies, you're really taking a big risk. And, you know, maybe you argue that it's a risk that's worth it because the returns can be incredibly high. You know, a savings account at a bank is not going to give you a 20%, 50% or even 200% return on your investment. But what you're getting in return is also an ecosystem that

doesn't look very secure. We don't hear about banks getting hacked all the time. Also, when people get their credit card stolen or their own bank accounts hacked, they usually get the money back from banks because of the regulations that are in existence. I haven't really worried about my bank account getting hacked. Obviously, I don't publish the password to it online, but I know that if it happens, if someone steals my credit card and it's happened in the past, I'll get the money back eventually. When some of these companies get hacked and lose their users' money, their customers' money, sometimes that money just disappears. There's people that are still waiting for their Bitcoin that disappeared in the Mt. Gox scandal in 2014. And there was already coverage of Bitfinex customers

that are calling lawyers and calling financial advisors asking, okay, can I get in on this? Can I get some of my Bitcoin back? And the answer is unclear. There isn't really any regulation. Every company that's been hacked has done a little different. Some of them have refunded completely their users, either laws that obligate them to refund you if your crypto gets hacked or stolen. So I think that's one of the lessons here. And is this also just a matter of the lack of regulation in the space? Or is it also because of the nature of the blockchain and the way that that works? Like when a transaction happens, you can't just go and reverse it and get that money back. Like,

you know, you said, everyone kind of knew where all these Bitfinex Bitcoins were sitting, but you couldn't do anything about it, because they were just sitting there, and you couldn't reverse that and just give them back to Bitfinex. Yeah, that's the dark side of the blockchain, everything is public, and everything is trackable, but it's also irreversible. So once I send you money, I cannot get it back unless you send it back to me. And we've seen some interesting cases lately of hackers stealing hundreds of millions of dollars in Bitcoin. And what the companies have been doing is publicly just asking the hackers to return the money. Because as you said, they cannot reverse the transaction.

Obviously, they can hope law enforcement eventually gets it. But as we've seen, it takes years for that. And there's no guarantees of that. And strangely enough, this tactic has worked in a few cases. There was the Poly Network hack from a few months ago, where this company lost $600 million. And what they did was post a message on the blockchain saying, you know, to the wallet

of the hacker who stole it, saying, please, Mr. White Hat, return the money using the cybersecurity term for like a friendly hacker, a white hat hacker. They even offered them a job at the company. It was just comical, but strangely enough, it actually worked. They got the money back. But again, if you're an investor in this space, if you're just a regular user out there who wants to put some money in these companies, do you really want to rely on the generosity of a hacker to get your money back? Again, it's really risky. And I really hope that people that are thinking about investing in the

space really understand what they're getting into. You see that with NFTs sometimes as well, right? Someone will have one of their apes stolen or something like that. And then they'll say, please give it back to me and I'll pay you some money or like, I'll buy it back from you for, I think in one case it was like $35,000. Like he bought back his ape that was stolen. And it was like, what is going on here? Yeah. It's such a strange world. And it's very easy, you know, to make fun of these people because they're like, you know, paying millions of dollars for like art.'s also of pretty questionable quality. But I've been thinking about it a lot. And to a certain extent, we should be a little careful about making fun of people like that.

Because at the end of the day, when these companies get hacked, the people that get hurt are just regular people. Our friends, people we know, people that don't have a lot of money. Obviously, some of them have a lot of money. People who can just dump $2 million on a JPEG have money. But a lot of the users on Bitfinex or some of these cryptocurrency exchanges that have been hacked were just people that thought, I read some coverage on CNBC or Forbes or whatever, telling them that this is a great place to invest because it doubles in value in a year or even six months or sometimes in a month.

And then their cryptocurrency evaporated in one hack. So I think it's important to remember that there's an ecosystem here that's taking advantage of a lot of people who are naive and desperate, perhaps. Yeah, I think an essential point. And for listeners, it was something I was talking to Jacob Silverman about recently, and they can feel free to go back and listen to that episode two, where we dig into that a bit more, you know, then the whales are not really going to get hurt by this. It's, you know, a lot of the people that they're trying to get into the funnel that they're ultimately benefiting from in the end. Obviously, this is a money laundering case

where a lot of Bitcoin was laundered and a lot was not able to be laundered or might have been in the future. But money laundering has been positioned as something that's really key to cryptocurrencies and one of the primary uses of this space. So what does this case, I guess, tell us about money laundering in the crypto ecosystem? Well, as you said, there's been a lot of cases of using cryptocurrency to launder money, even like money that wasn't originally stolen in cryptocurrency. Hackers or criminals have tried to convert into Bitcoin or other cryptocurrencies. And it's worth remembering that there's some cryptocurrencies that are not as public or as easy to track as Bitcoin or Ethereum, for example.

I'm talking about Monero, for example, which was created and built as a more privacy-focused cryptocurrency. And it has been used in a bunch of pretty well-known cases of either hacks or stolen money. But even in the case of Monero, investigators have been able to track it. So I think a case like this is a really good reminder that it's not easy to launder this kind of money. And maybe it's not easy to launder cryptocurrency. And maybe cash is better. Maybe old school techniques are better. But obviously, there's some convenience to this.

You can do it online. It's relatively quick. There are some techniques and some technologies to mix and tumble and confuse investigators by moving these cryptocurrencies around. But again, it's also really hard to cash out. A lot of the exchanges these days keep very detailed records of their customers. Even Bitcoin atms need to keep some paper trails so it's very hard if you're a criminal to take advantage of this stolen cryptocurrency but it's also hard for investigators it takes a long time yet they have to pull a lot of threads so it's definitely an interesting situation i don't think we're gonna see the end of money

laundering in cryptocurrency anytime soon, just because it's convenient and there's just so much cryptocurrency to steal. But I bet a lot of criminals have looked at this case and second-guessed what they're doing, probably. You talk about how these exchanges and these ATMs do need to keep more detailed records on the people who are using them in many cases, but also how there is a lack of regulation in the crypto space. But we know that there is a lot of discussion ongoing right now in the United States and around the world about regulations of cryptocurrencies. Just yesterday, as we're talking, Canada said that cryptocurrencies will have to go under its anti-money laundering and terrorist financing laws. So there will be a whole range of new reporting requirements there. Do you think

that this case will have any effect on the ongoing push for regulations and might have any effect on the shape that those regulations take if they move forward or when they move forward? Yeah, I don't know. I think that's a really interesting question that i don't have a good answer for because you could i really argue both both sides right i could easily see cryptocurrency exchanges or web3 companies if you want to use this buzzy word that i barely understand to be honest you know all these defy companies all these cryptocurrency companies could easily use this case to argue look the system works you. These people tried to use us to launder a lot of money and they eventually got caught because we did our job. Some of these exchanges collaborated with the feds. And to a certain extent, that's true. But I could also see

the other argument, which is people like regulators may look at this and say, wow, it took six years. Some people lost their money and may never get it back. Also, they could say, we got lucky in this case because these people use their own names, the names of their own companies to move their money around. In other cases, we may not get this lucky. So there's definitely some tension going on there. One of the huge promises of cryptocurrency since the beginning, since Satoshi Nakamoto published his, or their, I should say, their famous white paper was, we don't want to use the financial system anymore. We don't want to be beholden to the financial system that has screwed up people in the 2008 financial crisis.

And here's this anonymous cryptocurrency that can free the people from the financial system. But what we're seeing right now is that they're just creating a the financial system. But what we're seeing right now is that they're just creating a new financial system. And I think Jacob Silverman was very good at explaining this on your podcast. This is just like a separate financial system whose advantage right now is just that it's a little bit less regulated. That's harder to understand, to be honest. I think that for a long time, regulators and law enforcement struggled with it because they just didn't really understand how it works. And you can see that the industry is still trying to make really confusing products. I write about cybersecurity and I write about

how it intersects with cryptocurrency. And I need to go to my colleague who understands cryptocurrency all the time to explain to me, what does this company even do? What is this thing that got stolen? They're like creating products on top of blockchains, on top of other products that like exchange different cryptocurrencies. And at some point, I have to wonder, is the confusion the goal? Is it a feature and not a bug? But, you know, the government is getting better at this. And I think it's fair to say that they're catching up. It looks like it, hopefully. I guess, you know, to end our conversation, I was wondering, where does this case go next? Obviously, they are in front of a judge.

This case is going on. Where does that go next? I think this case will be interesting for a long time. You know, there's a lot of questions around them that have yet to be answered. be answered you know there's still i think it's fair for some people to be like are we really sure that this couple was involved in this and why did they not leave new york why were they living in like you know one of the capitals of the crypto ecosystem um most importantly the big question to me is like how did they even get money? Like who hacked Bitfinex and why did they send the money to this couple? And what happened to these people?

So that will be interesting to see. If I were to speculate, I imagine that this is just step one in a larger investigation, in a larger case that will slowly be unsealed and we'll find out more details about it. Because it just seems that there's something missing here. Obviously, there's the hacker angle missing. But it's also possible that Heather Morgan and Ilya Lichtenstein had some help that it's unclear right now. So yeah, I think we should keep an eye on this case and not just because her reps were bad. It's a really interesting case. And it could really teach us a lot about what could happen with all the hacks that we're seeing in the last few weeks and last few months in the

crypto world. Yeah, I think a fantastic point to end our conversation on. And as this story develops, if it is part of a larger case, I'm sure that people can turn to your reporting to find out more about it as it unfolds. Lorenzo, I really appreciate you taking the time to chat with me today. It's been fantastic. Thank you so much. Thanks, Paris. It was my pleasure. Thank you. Lorenzo Francesco Biccarai is a senior staff writer at Motherboard, and you can follow

him on Twitter at LorenzoFB. You can follow me at Paris Marks, and you can follow the show at Tech Won't Save Us. Tech Won't Save Us is part of the Harbinger Media Network, and you can find out more about that at harbingermedianetwork.com. And if you want to support the work that goes into making the show every week, you can go to patreon.com slash techwontsaveus and become a supporter. Thanks for listening. Thank you.