
BTC-e and its founder charged in 21-count indictment over hack of Mt. Gox - ryanlol
https://www.justice.gov/usao-ndca/pr/russian-national-and-bitcoin-exchange-charged-21-count-indictment-operating-alleged
======
openmosix
The question for me is: why US? He is a Russian citizen, the company is based
in Bulgaria, servers in Russia, legal HQ in Cyprus and all the services
operated from Seychelles - arrested in Greece. The MtGox hack affected a
Japanese company. I'm not debating the nature of the crimes, etc - I am just
wondering, when does it become a US case?

I can get the "there were US customers" \- but why not Europe? Or Japan? Or
Russia? Or Australia? I'm sure BTC-e had customers from all over the world
(and money laundry is pretty much a crime everywhere).

So, when does it become "you have broken the US law and you are under
arrest"?. Does it work the other way around too? If you start a gay social
network in US, can Russia come in (the first time you are flying in one of the
Russia's partners territories) and say "you are breaking Russian gay laws, you
are under arrest"?

~~~
modeless
Look at the actual charges in the indictment. All the BTC-e stuff is not what
he's charged with. He's charged with transferring stolen Mt Gox Bitcoins to
Tradehill, a San Francisco based exchange (now defunct). That's the US
connection that will seal his extradition.

They also allege that BTC-e is (at least partially) hosted in the US and does
business with many US companies, which is likely true. But that's not what
they charged him with. Maybe that will come later after he's extradited and
they have a chance to go through the evidence they no doubt collected when
they arrested him.

On an unrelated note, it looks like the traceability of Bitcoin transactions
played a major role in this. It turns out that Bitcoin is really not a great
way to launder money, unless you want a record of your money laundering
archived forever, redundantly, on a distributed system of computers around the
world! I expect future crypto-locker viruses to switch to Monero instead of
Bitcoin now that they can no longer cash out through BTC-e. Subsequently I
expect to see Monero delisted from any exchange that follows KYC after some
pressure from law enforcement.

~~~
kobeya
As an actual cryptographer who has looked into it, I wouldn't put too much
faith in Monero's fungibiliry. The story is not as good as the PR would have
you believe, and is really not all that different from Bitcoin with CoinJoin.

~~~
nubela
Elaborate. Your statement says nothing but "I'm a software engineer so believe
me what I say Slack app sucks'

~~~
wbl
Analysing monero traceability is hard. Early wallets picked addresses to use
in bad ways. A lot of academic work us needed. Luckily ZeroCoin exists.

~~~
kobeya
I don't know why you are being down voted, since you said exactly what I was
alluding to. Monero's ring signature traceability is very hard to analyze.
Even if the ring signature is not broken in a cryptographic sense,
transactions can still be linked by the other fingerprints they leave, or by
wide spectrum analysis.

It's a bit like a game of sudoku. A mixin input could have 4 different coins,
and technically you can't be certain from the signature which is the real
input. But in reality you can do downstream or source analysis and come up
with probabilities for whether the prior transactions were authored by the
same wallet, or associate with other keys used by other mixin inputs. Every
little bit adds to the probability of two addresses being linked, and it
really doesn't take many bits of information to confirm or eliminate mixin
inputs as being real or fake.

This is notably different from how ZeroCoin operates, where the anonymity set
is everyone and it is fully untraceable. However ZeroCoin has problems with
respect to performance and deployment :\

~~~
kbody
You also forget Confidential Transactions. How can you do any kind of useful
downstream or source analysis when you don't know the amounts and you have
stealth addresses? Also you can have huge amount of mixins which use the total
pool of TXs ever done.

It's the same as RSA4096, in theory you could bruteforce eventually crack a
key, but in reality it's not a viable attack.

You're just saying abstract things without backing them up with details. Also
Zcoin has scaling issues with TXs being 50x of Zcash (another Zerocoin-based
implementation)

~~~
kobeya
There are more ways of linking transactions than just values. I enumerated
some of them in my comment.

------
mrb
BTC-E has been seen by the Bitcoin community as "shady" for years. People have
always recommend others to avoid using it. It was rumored to be an easy place
to sell stolen Bitcoins. It has always offered strangely convoluted pathways
to transfer fiat to financial institutions (see
[http://bitcoinworldwide.net/how-to-deposit-money-into-
btc-e](http://bitcoinworldwide.net/how-to-deposit-money-into-btc-e)). I'm glad
BTC-E finally got taken down. I am not surprised it was involved in illegal
activities. One less shady Bitcoin company.

Now the top 12 or so volume-ranked Bitcoin exchanges listed at
[https://cryptowat.ch](https://cryptowat.ch) are perfectly legitimate
trustworthy companies. The ones I'm not sure about are CEX.IO and Luno (not
saying they aren't trustworthy, I just don't know them that well) and, well,
Bitsquare which as a decentralized exchange is bound to have some shady
participants.

~~~
strgrd
> It has always offered strangely convoluted pathways to transfer fiat to
> financial institutions

Your link is not evidence of "strange convolution." The reason there are so
many steps/screenshots is because the payment service is in Russian, and the
guide is designed for non-Russian speakers.

Most people never dealt with fiat on BTC-e, and would use someone like
Coinbase to fund the purchase of coins, and trade exclusively in crypto on
BTC-e.

> Now the top 12 or so volume-ranked Bitcoin exchanges listed at
> [https://cryptowat.ch](https://cryptowat.ch) are perfectly legitimate
> trustworthy companies.

BTC-e was number six on that list...

------
lettergram
I still don't understand, the U.S. is charging a Russian with a white collar
crime?

The crime was committed outside the U.S., he didn't come to the U.S., the
servers weren't in the U.S., Mt.Gox was based out of Japan, and Greek police
arrested him.

I've seen this enough to know this is common, but what is going on with this
world?

~~~
ubernostrum
As others have noted, the US didn't just make up jurisdiction here or declare
that they can prosecute anything anywhere -- the charges include an allegation
that he transferred stolen BTC to a US-based company. That creates a crime the
US has jurisdiction to prosecute.

It really is time for people to stop being gobsmacked at the idea that once
you get entangled with an entity in a particular country, anything you do to
or with that entity which violates the country's laws is fair game for them to
extradite and prosecute you over. Shouting, "But I didn't do it in your
country, I did it _on the internet!_ " does not get people out of that.

Also, given just how much global network infrastructure passes through the US,
and the near-impossibility of productively cashing out of most criminal
schemes without involving a US institution, people should stop being surprised
that their clever attempts to commit the perfect stateless crime are neither
clever nor stateless.

~~~
always_good
You haven't really explained or justified anything. "Them's the rules!!!"

What if Thailand wanted to extradite you because you joked about their king on
HN?

You would just laugh, not make a point about "well, what do you expect when
you challenge a nation's royal sovereignty? Have some respect on the internet!
Thailand takes this _very_ seriously."

~~~
794CD01
You would laugh because they have no power to enforce their laws globally, and
possibly also because the country you live in has free speech laws that make
them unlikely to extradite someone for lese-majeste. The US does have that
power and the cooperation of foreign governments.

~~~
armitron
And does that inspire confidence?

------
Dolores12
1) Arresting btc-e admin made all US customers to lose their balances on btc-e
exchange. I highly doubt btc-e will come back online.

2) If you run online exchanger and have a single US customer, then you have to
register your operation in USA. I find it ridiculously stupid.

~~~
wpietri
> If you run online exchanger and have a single US customer, then you have to
> register your operation in USA. I find it ridiculously stupid.

When you don't know much about something, it can often look stupid.

This isn't new or complex, though. If you do business across a border,
governments on either sides of the border may take an interest in the
transaction. If you don't like that, don't do business across a border.
"Online" isn't a special magic transdimensional place. It's just a web of
connections between existing places.

~~~
always_good

        > When you don't know much about something,
        > it can often look stupid.
    

This is just a rude remark. Do you think it's appropriate if I said "Heh,
cute, wpietri, but many things are only defensible when you don't understand
them."

Also, "if you don't like it, don't do it!" is not a commentary on the issue.

------
disillusioned
An interesting comment validated here, from 7 years ago:

[https://news.ycombinator.com/item?id=1533033](https://news.ycombinator.com/item?id=1533033)

~~~
quickthrower2
That comment is very general though. Exchanging bitcoins for cash, gold,
diamonds for example would be harder to trace.

~~~
hellbanner
Exchanging BTC for cash, gold or diamonds is much more difficult ( and there's
a higher perceived danger ). How would you go about trading your BTC for
diamonds?

Btc-to-diamonds.website ? If it's online, it's tracked by 5 eyes Tor? 5-eyes
is even more interested Craigslist? Great, go meet a stranger in a parking lot
and gamble that you don't get robbed.

The comment is general but it's right. As it & other posters in this thread
have pointed out - existing power structures control the world. The internet
does not exist in an imaginary "stateless" vacuum.

~~~
quickthrower2
If you are in the underworld you know people who you can do dealings with.
Effectively a dark pool. Dark in both senses of the word.

~~~
hellbanner
The average BTC holder is not, so it's not a good option.

------
mirimir
Interesting. Bitcoin stolen from Sheep Marketplace also ended up in a BTC-E
account.

[https://www.reddit.com/r/SheepMarketplace/comments/1t0ueq/sh...](https://www.reddit.com/r/SheepMarketplace/comments/1t0ueq/sheep_marketplace_scam_scheme_figured_out_scammer/)

[https://www.theguardian.com/technology/2013/dec/09/recoverin...](https://www.theguardian.com/technology/2013/dec/09/recovering-
stolen-bitcoin-sheep-marketplace-trading-digital-currency-money)

~~~
meowface
I wonder how much BTC-e knew about these money sources. Were they a general
"don't ask, don't tell" laundering operation that just so happened to be used
by these people because it was their best laundering option, or were they
directly involved in some of the hacks?

~~~
olalonde
What are the odds that whoever was running BTC-e also happened to be involved
in any of those hacks? It's definitely a case of "don't ask, don't tell" and
perhaps, making that policy known.

~~~
celticninja
I always thought this was possible, btce was set up by a group of crypto
currency hackers, they are in a perfect position to know how exchanges work
and the possible security issues they may have, they also have an easy way to
launder the stolen coins. Further, bad publicity for their competitors is good
publicity for them.

------
atmosx
I would like to know _how_ he was arrested in Greece. Was there an Interpol
warrant or something or they just made a phonecall and the Greek authorities
promptly put the guy on a ship to US?

------
grandalf
This illustrates how the DOJ is years behind when it comes to understanding
cryptocurrency technology and markets.

It won't take long for one of the cryptocurrencies with private transactions
to rise in dominance, since this sort of crackdown imposes costs and
uncertainty on all participants.

If the goal of the DOJ was to fight crime, the most effective approach would
have been simply to infiltrate mixers and trace money flows relevant to
investigations, something BTC is perfect for.

Instead, this move sends a strong signal to the cryptocurrency community that
hardening measures are needed.

For instance: [http://zerocoin.org/](http://zerocoin.org/)

~~~
MichaelGG
Pretty sure that won't matter. Monero will hinder blockchain analysis, but if
you're wiring out millions they can just demand you prove the legitimacy. "I
got untraceable coins" is on the level of excuse as "I got this sack full of
cash".

So long they prevent people from cashing out big time, then they're on the
same level as cash (see, needing to deposit boxes of cash with HSBC).

~~~
grandalf
Good point. I think it will take a fairly significant transition away from
fiat currencies before that situation is eliminated...

But one of the incentives of getting rid of cash is to transform the money
into something that can be efficiently sent over a large distance, which is
something cryptocurrencies already do.

~~~
openasocket
> I think it will take a fairly significant transition away from fiat
> currencies before that situation is eliminated...

Not really, so long as the IRS and taxes remain a thing. And someone notices
the guy who hasn't had a job in the last five years is driving around in a
brand new Tesla and living it up in a mansion.

~~~
grandalf
Perhaps, but I think you assume a much greater level of enforcement than
actually exists.

Most tax evasion enforcement is on relatively small subset of taxpayers and is
for fairly easy-to-detect fudges. There has been a lot of work between the IRS
and banks to set up heuristics and flag suspicious activity, but that all ends
up pretty worthless with an anonymous cryptocurrency.

~~~
openasocket
You're assuming that in a world with only anonymous cryptocurrency there won't
be banks and credit cards and the like. Keeping cryptocurrency saved on your
personal hard drive with backups or something is equivalent to keeping your
money under your mattress today. Banks provide you with interest on your
savings and security.

I suspect in a world with only cryptocurrency instead of fiat, trying to make
a direct peer-to-peer transaction to purchase an expensive item like a house
or car will be met with the same reaction as trying to do that today with a
duffel bag full of cash.

~~~
PeterisP
There's no need to suspect - looking at the regulations, it seems that the
standard AML/KYC laws everywhere in the first world _already_ require anyone
selling anything large with an untraceable payment instrument (i.e. anything
other than through a financial institution; which commonly means cash, but not
exclusively so, bags of diamonds or Monero count as well) is required to
report the transaction and the identity of the customer.

It doesn't mean that everyone reports that, quite the contrary, but all
_legitimate_ businesses do and will.

------
ue_
Interesting, I have been using BTC-E for a while, I had no idea this sort of
thing happened. Was it knowingly assisted by someone at BTC-E, or did BTC-E
just act as a dumb machine?

BTC-E was one of the eastiest ways for me to change BTC and LTC in day
trading. Are there comparable websites with small fees? I'm not interested in
buying with fiat money.

~~~
jonknee
> Was it knowingly assisted by someone at BTC-E, or did BTC-E just act as a
> dumb machine?

The defendant is who run/ran BTC-E, so it's alleged to have come from the very
top. The reasons why you found it so easy are probably related to why the US
sees it as a criminal enterprise:

> According to the indictment, since its inception, Vinnik and others
> developed a customer base for BTC-e that was heavily reliant on criminals,
> including by not requiring users to validate their identity, obscuring and
> anonymizing transactions and source of funds, and by lacking any anti-money
> laundering processes.

It continues:

> The indictment alleges BTC-e was operated to facilitate transactions for
> cybercriminals worldwide and received the criminal proceeds of numerous
> computer intrusions and hacking incidents, ransomware scams, identity theft
> schemes, corrupt public officials, and narcotics distribution rings. Thus,
> the indictment alleges, BTC-e was used to facilitate crimes ranging from
> computer hacking, to fraud, identity theft, tax refund fraud schemes, public
> corruption, and drug trafficking. The investigation has revealed that BTC-e
> received more than $4 billion worth of bitcoin over the course of its
> operation.

------
RachelF
An interesting analysis of the evidence here:

Breaking open the MtGox case, part 1 [http://blog.wizsec.jp/2017/07/breaking-
open-mtgox-1.html](http://blog.wizsec.jp/2017/07/breaking-open-mtgox-1.html)

------
techaddict009
Question is who has the control over BTC-e's crypto? Will they be returned to
users?

~~~
joering2
The will be auctioned since they were forfeiture by Feds, like this:

[http://thehill.com/policy/technology/290745-feds-to-
auction-...](http://thehill.com/policy/technology/290745-feds-to-
auction-16-million-in-bitcoin)

------
aarongolliver
The website still says "down for unscheduled maintenance"

------
ryanlol
There's been no mentions of coin seizures anywhere as far as I can tell.
Usually you'd see some boasting about that.

Perhaps these guys were actually smart about their cold storage?

~~~
benwilber0
Page 6 article 20 says they operated their servers in the United States. If
that's true then I'm pretty sure they've already been seized. They were
probably on aws

~~~
ryanlol
That shouldn't give the feds any more than their hotwallet.

------
agorabinary
>The takedown of this large virtual currency exchange

I haven't kept up to date on exchange volume. Was btc-e still a popular
exchange (up until this takedown of course)?

~~~
ryanlol
[https://data.bitcoinity.org/markets/volume/30d?c=e&t=b](https://data.bitcoinity.org/markets/volume/30d?c=e&t=b)

BTC-e was still pretty big.

~~~
subroutine
When they say that "Bitcoin Exchange Alleged to Have Received Deposits Valued
at Over $4 Billion", does that really mean $4 Billion USD? How is that
exchange value established?

~~~
thesmok
As I remember, all exchange transactions on btc-e were public, so anyone could
sum/verify the amount of money going through exchange. I've used btc-e
actively in 2013, earning good money on trading BTC to USD and back during the
period of rapid price growth.

------
stepik777
They are boasting about how they caught the guy who robbed Mt. Gox but they
just did the same - a lot of people just lost access to their money on BTC-e.
They are not all criminals, BTC-e was a convenient way to exchange bitcoins
to/from rubles and was used by many people in Russia who were interested in
cryptocurrencies.

------
baby
I am so happy right now that I moved my litecoins from btc-e to a personal
wallet. I've learned my lesson.

------
SwellJoe
So, does that mean I can't get the BTC I deposited in BTC-e ages ago? I
somehow didn't even know any of this was going down. (I have no idea how much
it was...maybe a quarter of a coin, which is a reasonable amount of money
today.)

~~~
dest
You may get it back in the future, if they open again… or not. Sorry for your
loss

It is reasonably well-known that it is dangerous to leave money on exchanges.
BTC is only yours when it's in a wallet with a private key that is known to
you, and no third party.

~~~
SwellJoe
I've lost more in my own local wallets due to losing both of the USB flash
drives that contained the keys (as ridiculous as it sounds, I think my
girlfriend's cat stole one of them).

Realistically, I've come to think cryptocurrency just isn't for me; it's too
damned easy to lose. I also forgot my passphrase for some other BTC (I _think_
I remember it, but it doesn't work, so, there those went). It's not huge sums;
1 BTC here (which was only worth about $300 when I "lost" it), a half BTC
there, but the only BTC I still have access to is the half of one I have at
Coinbase.

I may yet find one of those flash drives, or figure out what my passphrase
actually is for the others. But, what I have found for sure is that BTC is too
hard to keep safe (mostly from myself).

~~~
throwaway899
Well that is just your own mistake. You are supposed to backup the 'seed' into
a safe location that can be used to recover the wallet

~~~
SwellJoe
Sure. I acknowledge it is my own doing. And, I won't do it again, by not
holding any significant funds in cryptocurrency.

------
bigbrooklyn
Justice playing whac-a-mole

[https://en.wikipedia.org/wiki/Liberty_Reserve](https://en.wikipedia.org/wiki/Liberty_Reserve)

------
gruez
>Russian National And Bitcoin Exchange

So nothing will happen to the site or its owner, other than maybe they won't
be able to transfer out USD.

~~~
wgjordan
>So nothing will happen to the site or its owner

"Defendant Alexander Vinnik Was Arrested in Greece to Face Charges in the
United States; Bitcoin Exchange Alleged to Have Received Deposits Valued at
Over $4 Billion" \- article subtitle

------
sjreese
Where is the FBI in this? It was a FBI black op against silk road -> follow
the money! Who was silk road's bank < Mt Gox - Who bankrupt Mt Gox < FBI Who
had access to Trademill database < FBI Who authorized the attack on BitCoin
after saying don't use it's not safe < FBI Today the seizure of all BitCoin in
BTC-e is done by the FBI - Hopefully the number of FBI SA's going to jail over
this Black Op will be limited. But, their greed is transnational to hide their
seizure of overseas assets.. that is, What was seized and who accounted for
it! Think DrugWar - we will be looking for SA's living beyond their means as
with silk road

------
mikob
Although I don't understand the US's involvement in this -- a man breaking the
rules is being put to justice, and I'm very glad. I'm also impressed by the
feds work in the cryptocurrency space. In recent years the fed has really
started to reverse the trope of the government not being technologically
adept. There are too many that become wealthy through illicit means and it's
good news that something effective is being done about it.

~~~
always_good
>Although I don't understand the US's involvement in this -- a man breaking
the rules is being put to justice, and I'm very glad.

This is a terrifying comment.

Not much different than a Thai person saying the same about a German rotting
in their jail because he offended their king on Twitter. "Justice!"

~~~
mikeyouse
Because insulting someone and stealing millions of dollars are equal somehow?

~~~
ryanlol
Whose money did BTC-e steal?

~~~
mikob
I suppose you're not very familiar with BTC-e. It had a reputation of taking
funds from users -- there was nothing effectively stopping them (until now)
from locking users out of their accounts randomly, or disappearing user's
funds.

~~~
ryanlol
>I suppose you're not very familiar with BTC-e.

There's probably 5 or less people more familiar with BTC-e than I am.

>It had a reputation of taking funds from users

Compared to the other big exchanges they've mostly had a reputation of not
doing that.

Essentially all the people I can find complaining about suspended BTC-e
accounts got shut down due to inconsistencies in their incoming wires.

I'm looking at BTC-e user database right now, only 0.2857% of the users are
banned. Much fewer than you'd see at any other exchange, but I suppose that's
not a very meaningful metric given the ease of registrations.

