Blockchain Analysis Risks – Politico

With help from Sam Sutton

I wrote in recent weeks aboutOn-chain analysis of cryptocurrencyAnd the And what it can and cannot tell regulators about the mechanics of the cryptocurrency financial crisis.

Analysis is an important part of the cryptocurrency industry. In theory, the common public blockchain is behind every cryptocurrency should The system has given more transparency than traditional finance, and companies look into its data for important information about how currencies flow. However, in practice, this data can only tell you so much, and even experts often have to rely on guesswork to fill their understanding of what really happened.

Now, the courts are on a crash course in the limits of on-chain analysis, courtesy of DFinity, a Swiss non-profit that operates on a blockchain network called Internet Computer.

Last week, Dfinity filed a lawsuit against the New York Times and Arkham Intelligence, a crypto research firm, in the Southern District of New York, alleging defamation and unfair trade practices related to a June 2021 Times article about the collapse in the price of blockchain tokens.

The complaint alleges a plot – with behind-the-scenes assistance by an unnamed “Three Uber” party – to organize misleading coverage of the Internet computer project. The purported goal was to suggest that insiders benefited as the price of the tokens fell, while ordinary investors were left with the bag.

According to the complaint, the newspaper article relied on Arkham’s misleading analysis of the project’s blockchain records.

Among the details of the arrest, the complaint claims that the authors of the dissenting Arkham report have fled from Austin to London, where they “reside – similar to a little boy – in a huge mansion”. He also cites a website called “CryptoLeaks.Info” that purports to show people affiliated with Arkham making incriminating confessions in secret video stings.

The Times stands by its story. “We are confident in the accuracy of our reporting and plan to vigorously defend this lawsuit,” Times spokeswoman Danielle Rhodes Ha said. Arkham did not respond to a request for comment.

Corporate machinations and private intelligence operations are nothing new in the world of finance. But the crux of the complaint is the allegation that the defendants misinterpreted the public The data is in the string in a way that is detrimental to Dfinity.

Both sides seem to agree on the bare facts of what the analysis has revealed: who – which The tokens that Dfinity distributed to a small set of addresses were then quickly transferred to the addresses associated with the crypto exchanges. The question is what is this? About Me. According to the complaint, the defendants falsely implied that the move involved a large-scale sale of tokens by insiders. The complaint offers an alternative explanation: that the tokens were moved to wallets on exchanges for safekeeping.

(Also the dispute is whether the Internet computer token qualifies as security or not, which is a domain organizational ambiguity for many blockchain tokens.)

Whether or not this particular case goes to trial is a sign that the courts will have to start dealing with the new system of sequential analysis, as well as what can and cannot be fairly guessed from.

Yesterday, we linked up with article By Professor Anthony Li Zhang of the University of Chicago on the ways in which blockchains wrest the contract enforcement role from the state. The good news for the courts is that if this lawsuit is any indication, there will be enough second-tier wrangling about exactly what happened on the chain to keep them in business for a long time to come.

Cryptocurrency exchange Coinbase is quietly selling blockchain analytics and geo-tracking tools to Immigration and Customs Enforcement, throwing more cold water on libertarian claims about crypto’s usefulness to avoid government censorship.

While Coinbase’s push to build relationships with federal law enforcement has been widely covered, the crypto exchange 63 page contract It provides ICE with “historical geo-tracking data” as well as software tools that help pick out the maze of blockchain-based transactions that criminals can use to hide illegal payments. The existence of the nodes was first reported by Intercept.

Coinbase CEO Brian Armstrong has been a vocal critic of government-led attempts to monitor and restrict crypto transactions in the past. In February, at the height of a truck drivers protest that blocked downtown Ottawa and crippled trade between the United States and Canada, Armstrong Urging people to move their crypto assets To self-hosted digital wallets if they are concerned about the Canadian government freezing their accounts.

Coinbase spokeswoman Karen Leahy said in an email that the company provides law enforcement and financial institutions with “simplified access to publicly available data” but does not share “internal or customer data” and that Coinbase is “committed to protecting our customers’ information in the decentralized spirit in which the cryptocurrency was founded.” “.

– Sam Sutton

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