An Australian Trader Had USD$430,000 of Crypto Confiscated by the United States Government On BTC-e: A Timely Reminder to Withdraw Your Funds From Exchanges, or Use the Openledger DEX.
Over the past few weeks, the seizure of the Russian BTC-e exchange and its associated funds by USA law enforcement has resulting in many traders and investors losing their assets. In this article, we will be reviewing the events leading up to shutting down of BTC-e and reminding ourselves why centralised exchanges are so dangerous.
In late July, the Russian exchange BTC-e's website was seized by United States law enforcement amid claims that its head operator, Alexander Vinnik, has been using the platform to launder money since 2011. Vinnik was arrested while on holiday with his partner in Northern Greece, and is awaiting extradition to the USA. According to FBI officials, during the time in which Vinnik operated the platform he managed to launder over USD$4,000,000,000 worth of BTC.
In the wake of the arrest and domain seizure, the FBI has also seized all of the BTC-e hardware and wallets. This was revealed through the company's Twitter handle by presumably an employee of BTC-e:
On July 25, FBI staff came to the data center where our server equipment was located and seized all of the equipment, the servers that contained databases and the purses of our service. For almost six days now we could not get sane information from our hosting provider on what happened to our servers and because of this information we publish now.
Several members of the technical staff have also been taken into custody, which bitcoin security specialists say is likely due to Vinnik also being the chief suspect of the notorious Mt. Gox theft. While BTC-e has promised to make every effort to refund its customers, it is unknown how much of the funds, if any, will be returned by the FBI. Even if no illegal activity is discovered, all funds could still be seized through civil forfeiture laws. The official statement from BTC-e claims:
In the next 1-2 weeks, we will evaluate and publish information about how much money fell into the hands of the FBI and what amount of funds is available for return.
Australian Trader Jack Kingston, and His USD$430,000 Loss
Australian trader Jack Kingston was reportedly quite surprised to find BTC-e 'under maintenance' when logging on in late July. However, he was even more shocked to find the US authorities had labelled all platform users as criminals, seized their funds, and emblazoned their seizure notice on the domain.
Kingston earned his fortune through early investment into BTC, holding from $5 through to $800 per BTC. He then followed up by reinvesting into DASH master nodes, which in turn saw a twelve fold rise. Kingston put his decision to use BTC-e down to its relaxed stance on verification and withdrawals - something that in itself should ring alarm bells. While Kingston claims he has never taken part in any illicit activity, it is highly unlikely he will see all his funds returned - and he may not get any back at all.
A Timely Reminder On the Dangers of Centralised Exchanges
We are often concerned as a crypto community that an exchange may be employing some shady practices, such as fractional reserve backing. There is also nothing to stop an exchange from closing its doors one day and running off with all funds it held, never to be seen again. However, the BTC-e seizure should remind us all that the real danger of centralised exchanges is that they are not safe from government runs. In the US alone, civil forfeiture laws allows United States law enforcement to seize any and all funds on an exchange, at will, for utterly no reason.
If you hold funds on any exchange that you are not willing to lose, there are two options available to you:
- Withdraw all funds into your own wallet. I am referring to wallets on your local machine, not third party wallet services that essentially act as a bank - these suffer from the same dangers at centralised exchanges. Remember the number one rule:
- Switch to using the only decentralised exchanged - the Openledger DEX. The DEX exchange is built on top of a blockchain, which means that no-one is able to seize the assets recorded on it. Further, the DEX it not operated by a single entity, so there is no risk of a corrupt entity shutting down the exchange and making a run with the funds.
Do not lose your investment to a centralised exchange! Even with the most thorough, honest and hardworking team, exchanges are still vulnerable to a host of issues that can result in the loss of your funds. Do not become a victim.
Content credit:
Vinnik Arrest, Forklog
Openledger DEX, Bitsharestalk
Footer, @me-shell
How can this even be possible? If the exchange is incorporated in Russia: isn´t it off the US jurisdiction? Seems like there is only one world jurisdiction now. Amazing.
The bitshares DEX is not as safe as the openledger DEX? Or is it that they are one and the same?
There is only one DEX, but people call it many things:
They are all exactly the same entity. In terms of how the assets were seized, you may see parallels in the Kim Dotcom saga. The United States seems to think it can charge anyone, anywhere, despite the fact they have never operated on US soil.
As an interesting sidenote, BTC-e is actually registered where I live, in New Zealand! The same goes for the shell company behind BTC-e.
This is New Zealand´s government fault, again, then. So NZ has no sovereignity... The episode about Kim dot Com was outrageous, and it´s becoming the norm! Let´s hope it´s just NZ that has no bowls. But why do these exchanges keep chosing NZ as their base, then? Hard to understand. I´m getting old, it must be.
It does not sound like the NZ government had any say in this seizure, and it is Greece that is extraditing Vinnik.
Well yes, not directly. But how come does NZ accept this outrageous stepping into their jurisdiction?
I don't think there has been any discussion. The USA just did what they wanted.
Yes. So sad. But no diplomatic complaints. Perhaps they do complain, and one does not know about it. But it looks like it is simply assumed that the law of the planet is the law of the one with the biggest stick. So sad.
NEVER trust exchangers!
Just DEX. Bitshares FTW. Not as pretty yet but at least it's safe.
How is that for a brutally honest DEX slogan? =)
I think Openledger needs more customization/integration to overcome the adoption problem. The reason people don't use it (in my view), is because of competing features, a result of the nature of it I understand, but because it is not as easily customizable, as centralized websites, it drives less attention in comparison with centralized exchanges. Therefore as a consequence, it does not have volume and does not attract large investors/traders.
Shutting down exchanges will not serve as a strong cause to drive people to use it (in my view). For competition to work the right way, DEXes have to prove more valuable than centralized exchanges and only then we might see more DEXes and the end of CEXes.
My view, but happy to hear some other opinions.
While it is true the Openledger DEX is not as mature yet as many of the bigger centralised exchanges, I think the risk of losing everything is a good enough reason not to use a centralised exchange at all. We all need access to exchanges, and if a government is shutting down the centralised ones, that leaves the DEX. That is literally it...
The other reason I love the DEX is that is it asset agnostic, meaning you can use any trading pair you could possibly imagine. It saves a lot on fees, and makes trading much easier. Once the volume rises, I don't think anyone will look back.
Yes, also my main reasons for using it. But those are not valid reasons for entry people that do not yet understand the difference between DEX or CEX. And to solve this problem will target much more users for Openledger than anything else... There is also the other side of the coin, which is, what does a company profit from creating a gateway for Openledger or simply exposing it as a front end fork of the same technology (for other crypto)... exposure is hard in this world, without doing a bit of FUD... but I would say you are doing a very good job @dutch (and please do not interpret as you being FUDing..).
I have been watching your posts and you are doing a very good effort on warning everyone and making it a known fact...
Thank you - I appreciate that! =)
You are right on the money that exposure is not easy (and arguably more important than the actual technology being pushed). I can only hope that in time the crypto community makes their move away from centralised exchanges. That way, new members don't get burned due to lack of knowledge of the dangers.
How would you like to customize the OpenLedger web wallet?
Well, to start with I would simplify the interactivity of it. It has already a lot of options but I find them a bit confusing to understand for the common user. Visualizing usually helps. Making changes to the options and seeing live how they look (without having to accept the changes and go check on them) works great! Then going on cell phones with APPs would help too (explore those APIs by default). I know this is web... but in the world of cell phones, people want a nice neat app. Also, the copy pastes functions and clicking on places of the graphs should bring more functionality (with optional on/off on settings). Example: "If clicking on a sell, I want this value to be automatically copied to... there..." - where "this value" and "there" is or can be customized but a better default works even greater.
Bottom all, user experience has to be more consistently accessible between entry and experienced user.
To be fair though, the Exchange Backed Assets provided by the OpenLedger web wallet (OPEN.TOKEN eg OPEN.GRC) are centralized User Issued Assets, it's entirely possible that the backing funds could be stolen or seized (unlikely due to OL's AML/KYC on fiat) where as Market Pegged Assets on the BTS DEX are entirely decentralized.
If we had sidechains on the BTS DEX, then GRC could be fully decentralized on the BTS DEX.
I'd still recommend OL over other exchanges & wouldn't hold any funds for a long period of time on a centralized exchange, only keep them on exchanges for the short period of time you need to trade.
I have wondered about that - is it public knowledge where the assets are stored? More importantly, are they kept in varying locations or are they all stored in a central location or cold store?
Yeah, they may be a little vague on that point. All the OPEN.xxx assets are OpenLedger backed assets for their UIAs. But still, choosing to trade on the DEX with OL as backer is many times better than a centralized ledger. For starters, the DEX ledger can't be seized, so you OPEN.xxx UIAs are still traceable and accounted for. With BTC-e, none can account for, publicly, what anyone was owning and none can prove it unless they can gain access to the BTC-e ledgers.
Nice article. I hate to see anyone lose their money. Hopefully it will be returned in the end. Arrest like these only makes the general public more skeptical of investing in cryptocurrency. As with everything in the world someone will always try to take advantage of a situation and screw it up for the rest of us. I'm sure more details will come and each one will be another black eye on the industry.
You nailed it with that one. The problem is made worse by the media often not understanding what they are reporting on, which results in them reiterating the authorities that all of crypto (or at least BTC-e) is money laundering and crime.
Fingers crossed that the FBI returns the funds to BTC-e, but I would not hold my breath...
Thanks for this and great advice of course. Following you now
Really good advice to keep all your crypto in personal wallets. You never know when the exchange will be hit by feds or hackers.
agreed, ideally, however for many of the altcoins there aren't too many wallet options out there (besides for the major ones like Dash, Eth, Litecoin etc.) What would you suggest for the other altcoins?
Right now I have my BTC and the above mentioned coins Exodus, but don't know where to hold most of my alts so they're sitting in exchanges at the moment.
Do they not have their own wallets?
They probably do, but to be honest it's a LOT of work to keep track of 30+ different wallets...I like having a diversified portfolio in alts, with the vast majority holding just a little bit, $40-$80, with just a few exceptions for the ones I really like the most, like NEO, Monero, Waves, and a couple others.
That is a really good point - noone is going to want to track that many wallets.
In future, someone may build a highbrid wallet that incorporates the vast majority of altcoins. I would get behind that. Until then, it may be safest to use the DEX as your 'wallet'.
I'll second that! You and me both will be the hybrid wallet's first customers. In fact, if I knew developers with the right skills, I'd consider collaborating on that myself.
DEX? You mean the exchange?
Yeah - the DEX is a decentralised exchange, so arguably the safest exchange to keep a long list of altcoins if wallets are too much hassle.
A good reminder for everyone to always control their own private keys, especially if you invested in a crypto long-term. The risk is just not worth it. Thanks for the story.
Ok, and I thought my couple hundred dollars lost from a bad trade was bad... He seems like a smart guy, I don't know why he didn't see the red flags... It happens to the best of us. I used it a few times but something about its relaxed stance on a lot of things and the lack of ownership info didn't sit well with me.
It's strange because it had been around for a long time
The exchange was fantastic - the problem with relaxed identification requirements is that it gives the feds another reason to raid the exchange...
Identification requirements only exist due to laws that aim to prevent money laundering. As far as crypto itself is concerned, there is no need for us to identify ourselves.
Agreed. Fiat and its source necessitates the identification