It was the Netflix script that created it. It’s a story so bizarre, it’s shocked the crypto community. This industry is used to suicides in Spanish jail cells or nonfungible token auctions for dead hip-hop artists.
The plot involves the United States Department of Justice, a crypto exchange that has a troubled history, a rapper-cum Forbes magazine writer and a coupon to purchase a new PlayStation. There is also an occasional magician. And $4 billion worth of Bitcoin (BTC).
Since the big-than-life story broke last week, the internet has been captivated by the alleged Bitfinex hacker money launderers. Netflix announced this week that they would bring the story to life.
Heather Morgan, a rapper and cybersecurity specialist who advises companies on cybercriminals and social engineering, was caught trying to hide funds taken from Bitfinex’s 2016 hack. The funds were obtained through the purchase of Uber rides, games consoles and other gift vouchers.
Morgan in an art studio on the Lower East Side of Manhattan. Source: Twitter
The DoJ report reveals that law enforcement was able to access the couple’s private keys via a cloud storage account, despite their geeky credentials. They kept their private keys up to $3 billion in Bitcoin in the Cloud.
Twitter is left with many questions unanswered and strange circumstances. Meanwhile, armchair investigators are left scrambling to find the pieces.
This article will expose the facts about the Bitfinex hack, and the implications of the DoJ’s current holdings of 90,000 Bitcoin.
Bitfinex hack 2016
Six years ago, Bitfinex, a cryptocurrency exchange based in Hong Kong, was compromised to the tune $70 million. Bitgo took just 20 minutes to hack Bitfinex wallets. The thieves took 120,000 Bitcoins, which are now worth more than $4 billion.
The hack was one of the most significant in Bitcoin history. It caused a selloff, and the Bitcoin price plummeted to $500. It is important to remember that although Morgan and Lichtenstein are not being accused of hacking the exchange’s exchange, they are still wanted by hackers.
Bitfinex’s team worked tirelessly to find a solution to restore investor confidence. Bitfinex initially created and released BFX tokens (RRT) and “recovery right tokens”. Tokenization is a common practice in 2022. However, it was uncommon in 2016-17 before the initial coin-offering mania.
The tokens were used as an IOU to the customers affected by hack. They could be redeemed in cash or exchanged into iFinex capital stock (iFinex is Bitfinex’s parent company).
Bitfinex was designed in a way that Bitfinex could buy back tokens from users later or offer shares on the platform to compensate. The BFX/RRT solution kept Bitfinex liquid, potentially compensating investors quicker than traditional proceedings.
Bitfinex had enough funds in April 2017 to reimburse or cover all victims of the hack that occurred eight months earlier. Erik Voorhees described the recapitalization as “F*cking Amazing” and Peter McCormack, a Bitcoin podcaster, described it as “socializing losses”.
This hack and the subsequent quasi-fund recovery is in sharp contrast to the notorious Mt. The 2014 Mt.Gox hack was a stark contrast to the infamous Mt.Gox hack. Mt.Gox creditors are now discussing refund plans.
Five years later, some Bitfinex Bitcoin was moved multiple times and effectively laundered over the years. However, law enforcement officials and blockchain enthusiasts spied on the wallets like hawks.
The transparency of Bitcoin’s blockchain meant that the hackers were not allowed to trade on crypto exchanges, making it difficult for them to launder the money.
In February, 90,000. Bitcoin (roughly $3.6 billion) were moved. Morgan and Lichtenstein were the main characters in the move, which was orchestrated by the DoJ. According to the DoJ, this was:
“Special agents gained access to files in an online account controlled and maintained by Lichtenstein.” These files contained the keys needed to access Bitfinex’s digital wallet. This allowed special agents to lawfully seize more than 94,000 stolen bitcoin.
The DoJ now holds 94,000 Bitcoin. The U.S.’s acquisition of so many Bitcoin can have wide-reaching consequences, from a possible Bitcoin price crash to questions about when and if the funds will be returned.
Here is where the Netflix saga stops and speculation takes control. While the money-laundering trial is over, the retrieved Bitcoin remains in its wallet. Commentators speculate on the theft of Bitcoin while UNUS SEED LEO (LEO), the token, mooned.
The LEO token, while a small part of Bitfinex’s puzzle, is a significant piece of the larger Bitfinex story. LEO was listed by Bitfinex parent company iFinex in 2019 as an exchange utility token.
The token allowed traders to pay lower fees and solved issues related to iFinex’s payments processors. The token’s white paper for 2019 stated that:
“An amount of at least 80% of the BitFinex hack net funds will be used to repurchase or burn outstanding LEO tokens in the period of 18 months starting from the date on recovery.”
Bitfinex supported the claim in a bulletin last week. It stated that it would use 80% of the net funds recovered within 18 months to purchase and burn UNUSSED LEO tokens.
Traders are betting on these funds coming back to Bitfinex. LEO token’s price has shot up, jumping to over 50% and reaching new heights.
Bitfinex is confident that it will recover the stolen Bitcoins, but the DoJ has yet to disclose the next steps.
Is the DoJ a hodler?
The Department of Justice has the Bitcoin stolen. The address of the blockchain wallet holds 94.632 Bitcoin. The last deposit was made on February 11.
It is impressive to have a wallet with over 94,000 Bitcoin by 2022. MicroStrategy has 125,000 Bitcoin, while Tesla has 43,000. It is reasonable to assume that the DoJ will not store keys in the cloud and has better opsec capabilities than the money-launderers.
Twitter user Bitcoin Treasuries joked that they would add the Bitcoin Treasuries Twitter to their list. This implied that the United States would be a holder for the retrieved funds.
Changpeng Zhao, Binance CEO, asked: “If they [Bitfinex] receive the BTC back how should they split it with LEO holders or people who took a lose to accept LEO (and then sold LEO).”
I didn’t have the time to do extensive research. 2 honest questions. Is bitfinex making or losing money due to the hack? How should they split the BTC with LEO holders or those who lost LEO to receive it at the time of hack?
CZ Binance (@cz_binance), February 8, 2022
Paolo Ardoino (chief technology officer at Bitfinex) spoke confidently about recovering the funds in a WAGMI podcast interview. He stated that they are working “actively to return them (the funds safely)”, but it could take some time.
Ardoino reiterated the importance of “giving back” to the community and said that Bitfinex would use 80% to buy back LEO. However, it is unlikely that Bitfinex would make a market buy.
David Silver, a securities fraud and investment loss lawyer, stated that Bitfinex would fight like hell to keep the funds for themselves.
He said that the redistribution would be administered by the government.