<![CDATA[lisacheng.info - Essays]]>Sat, 18 Nov 2017 17:04:20 -0800Weebly<![CDATA[DEA and Secret Service agents stole millions - all of it traceable on the Blockchain]]>Sat, 04 Apr 2015 02:45:26 GMThttp://lisacheng.info/1/post/2015/04/-dea-and-secret-service-agents-stole-millions-all-of-it-traceable-on-the-blockchain.htmlOriginally published on TechCrunch:
Feds Nabbed For Big Bitcoin Heist Involving Gox And Silk Road
 http://techcrunch.com/2015/04/01/feds-nabbed-for-big-bitcoin-heist-involving-gox-and-silk-road/

The scandal of Mt. Gox, Silk Road, Ross Ulbricht, and the Federal Agents
The Silk Road was known as a massive underground, blackmarket economy that used only one currency - Bitcoin. It was a place for darknet users to access goods and services that for many was a place to buy medical marijuana, high grade cocaine, and Afghan hash. This week the Bitcoin and Darknet communities received shocking news that has been kept quiet by a handful of people which include Mark Karpeles formerly of the now defunct Bitcoin exchange - Mt. Gox.

According to a statement issued by the United States Department of Justice on Monday (backup), 2 federal agents are charged with wire fraud, money laundering and falsifying government documents for stealing Bitcoin while working on the Silk Road investigation. The agents were part of a Baltimore taskforce investigation into the Silk Road marketplace which included the task of building a relationship with Ross Ulbricht (aka 'Dread Pirate Roberts' the accused owner of Silk Road who was found guilty last month). The 2 agents leveraged their status as federal agents to mislead, pressure, and personally profit from their activities during the investigation - all of it which went unrreported or unnoticed to the federal departments that employed them. It was the IRS who found and external federal departments who filed the charges from California on March 25th.

Information in the criminal complaint (backup) reveals that the Baltimore task force gained administrator access to Silk Road after arresting one of its employees. On this team was Secret Service Agent, Shaun Bridges who logged into the admin account that afternoon and evening to personally conduct sizeable thefts from Silk Road accounts. This theft was the cornerstone of the alleged kill for hire that was part of Ulbricht's case against him, as it was a Baltimore indictment of Ulbricht outlining his communication with an undercover agent to murder an employee -  that same employee who Ulbricht was misled to believe had stolen from Silk Road, and had already been arrested.

What's interesting is that these Bitcoins were moved from Silk Road to Mt. Gox by Shaun Bridges where he could exchange them from BTC to USD, giving him time to set up a LLC and open a bank account so he could send the funds back to the United States.

During that same time - the other federal agent charged, Carl Force reached out to Mark Karpeles of Mt. Gox via Linkedin and asked if he would back Carl Force on a sale for 250 bitcoins, as well as indicating he was worked for the DEA but was 'exploring other work opportunities.'

During this time, Bridges' bank account for the LLC was funded exclusively by 9 bank wires from Mt. Gox totaling $820,000 in a 3 month period. After completing these bank transfers, Shaun Bridges signed the <a href="http://www.scribd.com/doc/162503556/Mt-Gox-Wells-Fargo-Seizure-Warrants">seizure warrant</a> against Mt. Gox confiscating $5 million USD - shutting down the Bitcoin exchange. The affadavit charges that Mt. Gox was acting as a money services business without a license, unlawfully allowing people to exchange bitcoins to fiat currency, and then withdraw those funds into bank accounts - an activity which Shaun Bridges had conducted personally just days before.

A lovely email from Carl Force after the Mt. Gox seizure, mockingly told Karpeles that he should have partnered with him - an offer which was declined by Karpeles a couple days before the shutdown. It's important to note that Carl Force, a DEA Special Agent for 15 years - was double employed during this time as a 'Compliance Officer' for a Bitcoin exchange called coinMKT where he personally invested $110,000 USD worth of bitcoin.

During his role there which involved the ability to see into personal accounts, Carl Force used his DEA access to illegally run criminal history checks against users of the exchange and illegally froze one of its individual customer's accounts containing $297,000 USD worth of digital currency and $37,000 USD in cash. The account in question belonged to a California resident who worked as a self-employed actor - unfortunately, due to a glitch in CoinMKT's system preventing withdrawals over $10,000 - this account was flagged gaining the attention of Carl Force to take control of the funds even though he lacked a sufficient legal basis on which to do so. Claiming that the seizure was part of a federal investigation (which was faked), Carl Force then had coinMKT move the bitcoins to his personal account at Bitstamp. Thankfully, Bitstamp became suspicious and froze the account after they noticed Carl Force trying to withdraw $80,000 USD into a personal bank account - while using the TOR (private) browser because he didnt wan't the 'NSA looking over [his] shoulder :) '

It was only after Bitstamp talked to Bridges, that Carl Force's accounts were unfrozen and he was able to move the stolen Bitcoins which were exchanged to USD, and transferred to his personal bank account. Carl Force's life improved significantly after that with several real estate purchases, transfers to off-shore banking accounts, paying off several debts, and paying off his $130,000 mortgage in full.

The funds which flowed from Silk Road, Mt. Gox, Mark Karpeles, the self-employed actor to Shaun Bridges and Carl Force totaled millions of dollars worth of bitcoin and digital currency. The federal agents used a number of bitcoin exchanges, payment processors, and bank accounts in an attempt to move their funds between accounts and identities. Unfortunately for them, they were unfamiliar with how Bitcoin is inherently traceable and transparent with transaction flows. Thankfully, we can credit IRS Special Agent Gambaryan Tigran for piecing this together.


Picture
Tracking all the Bitcoin movements from federal agents
Picture
Courtesy of Mark Karpeles
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<![CDATA[The Convergence of Bitcoin, the Blockchain, and the coming Tokenization of User Experience]]>Tue, 16 Dec 2014 03:37:31 GMThttp://lisacheng.info/1/post/2014/12/the-convergence-of-bitcoin-the-blockchain-and-the-coming-tokenization-of-user-experience.htmlPublished as 2 parts on TechCrunch:

Bitcoin 2.0 And Tokenizing The User Experience
http://techcrunch.com/2014/12/26/bitcoin-2-0-and-tokenizing-the-user-experience/

Crowdsales Funding Innovation By Bitcoin And Its Community
http://techcrunch.com/2014/12/21/crowdsales-funding-innovation-by-bitcoin-and-its-community/

Bitcoin is still in its early stages of market development. As someone with a background in Enterprise technology where Big Data concepts and corporate problem solving are standard mechanisms for identifying technology opportunities, I believe that we are going through a slow process of realizing how Data - information down to the very byte, is where we will make our next evolutionary leaps in Advancement. For this reason I have been working in Bitcoin and on Bitcoin Blockchain technologies, to help realize a future where applications, networks, and users will live homogenously in a self-sustaining universe.


This future environment of sustainable technology will be decentralized in the sense that resources will be cyclical and spread across distances, dependencies, and will be based on individuals / users driving their own technology needs through direct interaction with the platforms and applications themselves.  This next evolutionary phase is what I have termed “tokenizing the user experience."


Crowdsales, “Initial Coin Offerings” and “Tokenization”


Before we get started, this paper assumes the reader has a general knowledge of Bitcoin and the Blockchain where bitcoin is the digital currency, and behind it an open ledger system based on the principles of cryptography to ensure data integrity and authentication, is known as the Blockchain.


As a preamble, Bitcoin as an industry is becoming segregated by ideology, technology, and application. There are different groups who argue for differing directions and methods of growing adoption. A scope of communities within Bitcoin today outline three distinct groups with their own definitions of what Bitcoin is. For example, Bitcoin miners  argue that Bitcoin is a payment system where adoption is driven by bitcoin transactions reflecting its use a digital currency. This is driven by their function in the ecosystem, as miners serve as a distribution mechanism for introducing new bitcoins into the network, while also being responsible for managing the bitcoin transaction records that make up the Blockchain.


Conversely those involved with Bitcoin 2.0 like Counterparty and Mastercoin, whose interests involve developing protocols and use cases on the Blockchain itself argue that Bitcoin is a platform for decentralized development. To their point, we have seen several implementations of the Bitcoin Blockchain successfully used in this manner. (This point will be expanded on later.)


And for ideological groups like Libertarians, who see Bitcoin as an answer to the issues facing Banking and Government today where the economics of bureaucracy and capitalism have driven people towards Bitcoin as a movement -they would argue that Bitcoin means freedom.


While underlying all of this, the community behind Bitcoin and Cryptocurrency has seen the emergence of a new kind of activity that blends Bitcoin as a payment, a platform, and belief system to support technology development where Bitcoin is used for crowd sourcing projects. Referred to as a Crowdsale, this is a legal term to describe the action of pledges by users of bitcoin as a crowdsourcing resource to support the development of a software project. In exchange for the support, the project provides the crowdsale participant with a digital token of its own designed for use specifically with the crowdfunded result. These project tokens are cryptographic in nature, akin to Bitcoin and secured through the transparent Blockchain ledger system. The key difference between this token vs. Bitcoin and other cryptocurrencies, is that project tokens have a specific use case.


The process of a crowdsale is where a limited number of these project tokens are pre-purchased by users. In exchange for their purchase, the recipient of project tokens acts like the holder of software keys, where keys are a 'cryptographic pair of keys’ represented by cryptocurrency. Software keys have been pre-sold to users as a standard marketing practice by many of the largest, and longest running software corporations for developing games, applications, and operating systems. They often come in the form of serial numbers, codes, or license certificates. In the case of project tokens, it just so happens that cryptographic keys reside in a meta-layer within the cryptocurrency itself, and they are the only evidence for example, a web application will permit to allow user access.


It is through the crowdsale process that these projects can develop support for the resources needed to develop and launch the product. While many startups raise funding from sources such as angel investment, venture capital, and financing - crowdsales are driven by future users and their purchasing power. A project hosts a pre-sale of tokens and upon network launch, the token will also be used for accessing the network and used to compensate participants who contribute resources to these networks. It's a closed economic system for encouraging sustainable technology development.


As a sidenote, many of the Bitcoin core devs have argued against the use of the Bitcoin Blockchain as a platform as the possibility for increasing the amount of data put into the Blockchain will result in the increased size and inefficiency of the network.


With respect to the core developers, Bitcoin may not be the last cryptocurrency that achieves this level of heightened adoption. In the future, Bitcoin 2.0 protocols could transfer to another blockchain at one point. Though projects and 2.0 protocols do not seek to bloat the blockchain, it is my belief that Bitcoin is chosen here because it's the most-widely supported and decentralized blockchain network. Tokens leveraging this system benefit from it's ability to withstand attack, forgery, and outside control through its decentralized network of nodes.


The next internet supported by decentralized networks will need such a system, and transacting between these disparate networks will be tokens verified on the longest-running, community supported data authentication service in existence, the Bitcoin Blockchain.  


Bitcoin 2.0 and Network tokens

These tokens are part of the Bitcoin 2.0 ecosystem and are created using the Bitcoin Blockchain. They can also be referred to as ‘Metacoins' - as they reside on a metalayer of the Blockchain protocol. Some members of the Bitcoin community also refer to them as ‘AppCoins’, because they are application specific.


Maidsafe, Storj, and Factom are among the first projects to demonstrate how cryptographic tokens can be used in support of decentralized applications and infrastructure. In addition to leveraging the Blockchain’s open and transparent ledger, projects that create these metacoins using cryptocurrency are able to easily record, track usage, and distribute tokens on a global scale. Which means that at any point in time, a project can confirm how many tokens are being used, which address is holding them, and where it originated from. It's a new form of user interaction where the tokens represent market interest in the project and user activity itself.


To ensure security, Bitcoin was developed using a series of algorithms which gives all cryptocurrencies including bitcoin and tokens, their ability to validate information secured by the laws of mathematics. For online commerce where the use of traditional payment methods are easily faked, proving authenticity is valuable to many - including those who need to verify things quickly and easily as the potential for fraud and theft is common amongst online users. The use of cryptocurrency itself results is a new form of commercial interaction where the issue of counterfeit money is non existent.


This model has value when building a decentralized network of different systems that is not restricted by borders, territory, or language. And because this approach to network tokens is still new, we will likely see the emergence of more projects leveraging a token model for bringing forth new and innovative ideas. As such the community has seen the rise of initiatives which pursue a political model of the blockchain where an ideology is tied to a coin.


In the example of Storj, their token is used to purchase storage space on their cloud network. Conversely, users are also able to earn these tokens by renting out their extra computer hard drive space for use by DriveShare, an application part of the Storj network. All tokens are transferable to other users and every transaction is traceable. Based on the transaction flows of the token itself, the Storj team could determine how people are using the network - and analyze how better to direct network resources based on user activity.


The concept of network access tokens has been around for a long time, it's still used everyday for security access in the form of RSA, given to users who purchase software in the form of license keys, and distributed to gamers who prepurchase gaming codes. They represent a standard method of authentication to grant user access, provide network clearance, and prove identity. The use of cryptocurrency in this form - combines what software companies have traditionally used for proof of purchase with immutable tokens resulting in applications that encourage fluid user interactions.


It's important to note here that projects launching via tokens on the Blockchain encourage decentralization, open-source development, and transparency. Tokens in effect are used throughout a decentralized network as users are able to earn and spend the coin across systems and applications, where its advantage is that it is a verifiable and an unfakeable piece of data. This type of provable and transferable token is valuable as a form of network asset which can be traded amongst users and earned as a commodity.


As open source projects decide to issue their own tokens using the Blockchain, we approach a new era of decentralized application development where entire systems are fuelled by their own assets which can protect and incentivize the entire network. Development projects who leverage tokens in this manner, benefit from wholly owning the process of user acquisition and licensing. Third party issues such as failed credit card processing, delayed bank transfers, and fraudulent transactions are no longer impediments to growing the user-base.


Bitcoin has been characterized as a distributed system with fault-tolerant logging and globally consistent sequencing as written by the alias Satoshi Nakamoto. The author(s) of the original Bitcoin paper may not have anticipated this turn of events which presents the Blockchain as a model for scalability and decentralization capable of supporting grassroots application development.


By this system we are witnessing how user trust is delivered with the token, which takes our understanding of bitcoin as a currency, to Bitcoin and the Blockchain as a platform - extending the use of cryptocurrency beyond simple peer-to-peer transactions, towards a decentralized model for incentivizing verifiable data.


References:
https://bitcoin.org/bitcoin.pdf
https://developers.facebook.com/docs/facebook-login/access-tokens
http://en.wikipedia.org/wiki/Token_coin
http://www.pch.com/redeem
http://p2pfoundation.ning.com/forum/topics/bitcoin-open-source
http://cstheory.stackexchange.com/questions/14621/why-is-the-consensus-problem-so-important-in-distributed-computing
https://en.bitcoin.it/wiki/How_bitcoin_works
http://www.inc.com/graham-winfrey/how-to-ward-off-hackers-with-tokenization.html
www.kom.tu-darmstadt.de/papers/LDMS05-1-paper.pdf




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