It’s been a rough month for the crypto sector, and it’s only the third day of August.
From the cross-chain bridge hacks draining hundreds of millions of dollars in client funds to the SEC’s that come after Ponzi cryptocurrency schemes, this corner of the market can’t be broken.
The developments add to an already turbulent year for the cryptocurrency market, which has seen massive declines as concerns emerge over monetary tightening and a lack of liquidity.
It’s hard to keep track of the news flow even for insiders, so here’s a summary of what you’ve been missing since Monday.
The US Securities and Exchange Commission headquarters in Washington on February 23, 2022.
Al Drago/Bloomberg via Getty Images
The The Securities and Exchange Commission on Monday filed a civil complaint accusing 11 individuals of creating and promoting an alleged crypto-focused pyramid scheme that has raised more than $300 million from investors.
The scheme, called Forsage, is a decentralized smart contract system that allows millions of retail investors to enter into transactions via smart contracts running on the Ethereum, Tron, and Binance blockchains. The SEC claims that for more than two years, the setup has operated as a standard pyramid scheme, with investors making profits by recruiting others into the process.
In the official complaint filed by the SEC, Wall Street’s biggest watchdog called Forsage a “book pyramid scheme and a Ponzi scheme,” as Forsage aggressively promoted its smart contracts through online promotions and new investment platforms, all while not selling “any A real consumable product. “The primary way for investors to make money from Forsage is to recruit others into the scheme,” the complaint adds.
The SEC said Forsage operated a typical Ponzi structure, in which it allegedly used assets from new investors to pay off previous investors.
“As the complaint alleges, Forsage is a widespread fraudulent pyramid scheme that has been aggressively marketed to investors,” Carolyn Welchans, acting head of the Securities and Exchange Commission’s crypto and cyber assets unit, wrote in a press release.
“Scammers cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchain.”
Forsage, through its support platform, declined to provide a way to contact the company and did not provide comment.
Four of the 11 people indicted by the SEC are co-founders of Forsage. Their current whereabouts are unknown, but the last time they were known to live in Russia, the Republic of Georgia and Indonesia.
Three of the 11 people who are US residents accused as promoters of endorsed Forsage on their social media platforms: Samuel D. Ellis, of Louisville, Kentucky, Mark F. Hamlin, of Henrico, Virginia, and Sarah L. Tessin, of Hartford. , Wisconsin. Ellis and Tessin, neither of whom confessed nor denied, agreed to settle the charges, subject to court approval.
Forsage was launched in January 2020. Regulators around the world have tried several times to turn it off. The stay and stay lawsuits against Forsage were first filed in September 2020 by the Securities and Exchange Commission of the Philippines. In March 2021, the Montana Securities and Insurance Commissioner tried the same thing. Despite this, the accused allegedly continued to promote the scheme while denying the allegations in several YouTube videos and by other means.
So-called blockchain bridges have become a prime target for hackers who seek to exploit vulnerabilities in the world of decentralized finance.
Jacob Borzeki | Norfoto | Getty Images
Crypto Startup Nomad lost nearly $200 million in a devastating security exploit. Nomad is known as a “bridge” where users can transfer tokens from one blockchain to another. Hackers exploited a vulnerability that allows users to enter any value into the system and withdraw funds, even if there are not enough assets available in Nomad’s deposit base.
The nature of the bug meant that users did not need any software skills to exploit it. Others have captured armies of bots and deployed them to carry out mock attacks.
“Without prior programming experience, any user can simply copy the transaction call data of the original attackers and replace the address with their address to exploit the protocol,” said Victor Young, founder of Crypto Startup Analog.
“Unlike previous attacks, the Nomad hack became free for everyone as many users started draining the network once the attackers’ original transaction call data was restarted.”
Blockchain bridges are a popular way to transfer off-network tokens like Ethereum, which has gained a reputation for slow transaction times and high fees, to cheaper and more efficient blockchains. But dirty programming choices have made it a prime target for hackers seeking to scam investors out of the millions. More than $1 billion worth of cryptocurrency has been lost to bridge exploits so far in 2022, according to blockchain analysis firm Elliptic.
“I just hope developers and projects know they’re running a critical piece of software,” Adrian Hettmann, chief technology officer for Web3 security firm Immunefi told CNBC.
“They need to keep security first, and be security first in every business decision because they’re dealing with people’s money; a lot of that money is locked up in those contracts.”
Nomad said it is working with crypto security firm TRM Labs and law enforcement to track the movement of funds, identify the culprits behind the attack and return the stolen tokens to users.
“Nomad is committed to keeping its community informed as it learns more in the coming hours and days and appreciates everyone who acted quickly to protect the funds,” the company said in the statement.
Michael Saylor, Chairman and CEO of MicroStrategy, first got into Bitcoin in 2020, when he decided to start adding cryptocurrency to MicroStrategy’s balance sheet as part of an unconventional treasury management strategy.
Eva Marie Ozkategi | Bloomberg | Getty Images
Later on Tuesday, MicroStrategy announced that CEO Michael Saylor was leaving his position to become the company’s CEO. The company’s president, Fung Lo, will take over from Saylor.
Saylor has served as CEO since he launched the company in 1989. The MicroStrategy program went public in 1998.
MicroStrategy’s stock is down more than 48% this year. The price of Bitcoin has fallen more than 51% over the same time period.
“I believe that the division of roles between the Chairman and CEO will enable us to better pursue our corporate strategy to acquire and hold bitcoin and grow our enterprise analytics software business,” Saylor said in a press release. “As CEO, I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives, while Phong will be delegated as CEO to manage the company’s overall operations.”
The news came as the company reported earnings for the second quarter, with total revenue down 2.6% year-over-year. The company also reported an impairment charge of $918 million on the value of its digital assets, presumably bitcoin.
MicroStrategy may technically be in the field of enterprise software and cloud-based services, but Saylor said the publicly traded company doubled as the first fund to be traded on the US spot bitcoin exchange.
“We’re kind of like an ETF that you don’t have,” Saylor told CNBC on the sidelines of the Bitcoin 2022 conference in Miami in April.
Late Tuesday, early Wednesday
The Solana logo is displayed on a phone screen and a representation of cryptocurrency in this illustrative image taken in Krakow, Poland on August 21, 2021.
Jacob Borzeki | Norfoto | Getty Images
Then on Tuesday night, unknown attackers came after hot wallets were connected to the Solana blockchain.
Nearly 8,000 digital wallets with just over $5.2 million in cryptocurrency have been drained, including Solana token and US dollar coin, according to blockchain analytics firm Elliptic. The Solana Status Twitter account confirmed the attack, noting that as of Wednesday morning, about 7,767 wallets had been affected by the exploit. Elliptic’s estimate is slightly higher at 7,936 portfolios.
Solana’s token, Solana, one of the largest cryptocurrencies after bitcoin and ether, fell about 8% in the first two hours after the hack was initially discovered, according to data from CoinMarketCap. It is currently down about 1%, while trading volume is up about 105% in the last 24 hours.
Starting on Tuesday evening, several users began reporting that assets held in “hot” wallets – that is, addresses connected to the Internet, including Phantom, Slope and Trust Wallet – had been emptied of funds.
Ghost said day Twitter is investigating the “reported vulnerability in the Solana ecosystem” and does not believe it is a Phantom issue. Blockchain Audit Company OtterSec tweeted that The hack affected multiple wallets “across a variety of platforms.”
Elliptic chief scientist Tom Robinson told CNBC that the root cause of the hack remains unclear, but “it appears to be due to a flaw in a specific wallet software, not the Solana blockchain itself.” OtterSec added that the transactions were signed by the actual owners, “indicating some kind of assignment of the private key.” A private key is a secure code that gives the owner access to their cryptographic holdings.
The identity of the attacker remains unknown, as is the root cause of the exploit. The breach continues.
“Engineers from multiple ecosystems, with the help of several security companies, are examining the drained wallets on Solana,” According to Solana’s caseTwitter account shares updates for the entire solana network.
Solana strongly encourages users to use hardware wallets, as there is no evidence that they are affected.
“Don’t reuse your seed gateway in a hardware wallet – create a new seed gateway. Empty wallets should be treated as compromised, and abandoned,” He reads one tweet. Seed phrases are a set of random words that are generated by a crypto wallet when you first set it up, and grant access to the wallet.
The private key is unique and binds the user to their own blockchain address. The initial gateway is a fingerprint of all the user’s blockchain assets that are used as a backup in case the crypto wallet is lost.
The solana network has been seen as one of the promising newcomers in the crypto market, with its proponents such as Chamath Palihapitiya and Andreessen Horowitz describing it as a competitor to Ethereum with faster transaction processing times and improved security. But it has run into a series of issues lately, including halting operations in periods of activity and the perception of it being more centralized than ethereum.
Correction: This story has been updated to name the three defendants indicted by the SEC as US-based promoters who endorsed Forsage on their social media platforms. An earlier version incorrectly stated that these defendants were not named in the SEC’s press release announcing the charges.