America’s second oldest bank, State Street, says there is a “high level of interest” in cryptocurrency from its customers. However, those customers are not rushing into the market.
State Street’s managing director, Jay Biancamano, said there was “no sense of urgency on the part of our clients to move into these assets right now.” In particular, State Street is seeing little demand for crypto custody – whereby an institution would safely store digital assets on behalf of its customers:
“Currently none of our clients are looking for us to house these assets in custody.”
Crypto custody is a hot topic on Wall Street right now. Fidelity is reportedly launching a crypto custody and exchange platform for its customers, while Goldman Sachs is also exploring ways to hold crypto assets.
Despite the cautious tone, Biancamano said his firm is “blockchain friendly:”
“We do talk to our clients who are interested in doing this and we are looking at this very closely. But we are not putting a sign that we are opening for business. That said, we are a blockchain-friendly firm; we are very involved in the vertical.”
State Street might not be throwing its arms around crypto just yet, but they will be ready when the next wave arrives. “There is no sense of urgency on the part of our clients to move into these assets right now. When they do, we want to meet them there.”
The Securities and Exchange Commission (SEC) has reminded crypto investors to be cautious about information posted to social media. According to the SEC, big social media accounts and “influencers” are often paid to promote crypto projects, tokens, and securities that might be fraudulent.
The reminder comes after the SEC fined two celebrities last week for promoting cryptocurrencies without disclosing they were paid to do so.
Boxer Floyd Mayweather Jr received $300,000 to promote three initial coin offerings (ICOs) to his large social media following, while DJ Khaled was paid $50,000 to promote Centra’s ICO. Neither individual disclosed to their followers that their endorsement was paid.
Mayweather was subsequently fined more than $600,000 and is banned from promoting securities for three years.
The SEC explained: “These cases highlight the importance of full disclosure to investors… With no disclosure of payment, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
It’s a reminder to any crypto investor: do your own research. Don’t trust the opinions of others as you never know the true motivations behind their advice.
1/2 SEC ENF Co-Dir Peikin: “Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements…
2/2 … Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.” https://t.co/WzgvPU7Esg
As we all know, Bitcoin Cash terrified the markets by splitting in two this month. Miners went to war, threatening to launch attacks on each other and hold the network hostage.
It showed a possible weakness in “mining” cryptocurrencies in that miners can exert a huge influence over the network.
It’s no coincidence that Proof-of-Work mining cryptocurrencies like ethereum, bitcoin, and bitcoin cash fell harder than others.
XRP, which uses a consensus protocol instead, held its value better during the crash, as did others with a consensus network like Stellar (XLM).
As market prices fall, traders look to put their money in projects with real-world use. Ripple has been on a headline-grabbing spree this year, shouting about their high-profile partnerships with banks like Santander and American Express.
While Ripple is shouting from the rooftops about XRP, developers at Ethereum have got their head down. Ethereum enjoyed all the attention in 2017, but the team is now quietly working on the next upgrade, dubbed Ethereum 1x, due next year.
It doesn’t necessarily mean activity or innovation has died down on Ethereum, it just means there are fewer headline-grabbing announcements.
4. The Demise of ICOs
If you wanted to invest in an ICO (initial coin offering) last year, you typically needed to fund it with ether. Now that some ICOs have lost as much as 98% of their value, that excitement has vanished.
Not only is there a lack of ICO hunger, some ICOs are reportedly liquidating their ETH to meet costs. As the premier platform for ICOs, Ethereum is taking a bigger hit than many other major cryptocurrencies.
What do you think?
Is the XRP flippening permanent? Will Ethereum’s big upgrade trigger a resurgence? Leave your comments below!
A version of this article first appeared in our exclusive newsletter. If you’d like Block Explorer’s cutting-edge analysis before it hits our website, sign up now.
“People should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.”
That was Ross Ulbricht’s vision when he launched the Silk Road, but it soon turned from a utopian ideal to the world’s most notorious dark-web marketplace. What emerged was an “anonymous amazon.com” attracting drug dealers across the planet, all transacting in bitcoin.
It drew mainstream media attention to bitcoin and cryptocurrency, but ultimately the website was shut down, leading to the arrest and imprisonment of Ross Ulbricht, a 34-year-old now serving a double life sentence plus 40 years without parole.
But this story is not straightforward. It’s a story of drugs, aliases, corruption, conspiracy, and the dark web.
Outlined below are the many twists and turns on the road to justice (or injustice). Rebecca Campbell reports:
The Beginnings of Silk Road
Launched in February 2011, the Silk Road website, created by American Ross Ulbricht, was envisioned to be a “free-market economic experiment” that focused on user anonymity.
Using two key pieces of technology, bitcoin and Tor – a network of computers that makes it impossible to trace by routing internet traffic through servers by anonymizing IP addresses, Ulbricht believed that“people should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.”
However, while counterfeits, weapons, pedophilia and anything that could be used to defraud or harm others were prohibited, what could be listed for sale was left open to interpretation.
As time went on many vendors began to realize that Silk Road was a safe haven for the sale of drugs. Of course, while Ulbricht may have envisioned an open market platform driven by the community, it wasn’t long before it started to gain the attention of the media.
“The Underground Website Where You Can Buy Any Drug Imaginable”
In June 2011, shortly after it was launched, an article was published on Gawker. Titled The Underground Website Where You Can Buy Any Drug Imaginable, the exclusive report detailed how Silk Road enabled people to buy drugs of any kind – cannabis, weed, hash, ecstasy – and that it was like Amazon, “if Amazon sold mind-altering chemicals.”
At the time, however, while many embraced Silk Road and what it stood for, others believed that it would tarnish the emerging cryptocurrency, bitcoin, attracting the attention of the federal authorities.
Unsurprisingly, it wasn’t long before an American politician called for federal authorities to shut down Silk Road. Not long after the Gawker article was published, Senator Charles Schumer called for the Drug Enforcement Agency (DEA) and the Department of Justice to shut the site down now that it had become public knowledge.
At the time, Schumer said in a report to NBC New York: “It’s a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen. It’s more brazen than anything else by lightyears.”
He also added that “I’d bet my bottom dollar in this instance [an investigation] is underway.”
Who is Dread Pirate Roberts?
The person operating the site did so under the pseudonym Dread Pirate Roberts, named after a character in the 1973 novel The Princess Bride.
The name is often used to refer to Ross Ulbricht, but that’s not entirely accurate. There’s good evidence to suggest that Ulbricht handed over the site to someone else, and that person is the Dread Pirate Roberts.
Ulbricht Reportedly Sells Silk Road
With the website growing, Ulbricht initially turned to Richard Bates, a college friend, who had studied computer science and was working for PayPal and eBay. According to a court transcript filed in 2015, Bates offered help with the site but distanced himself over concerns with law enforcement.
Over time, Ulbricht turned to an anonymous person he met through the site who eventually took control of it.
This person then operated under the pseudonym Dread Pirate Roberts (DPR).
In a 2013 Q&A interview with Forbes, Dread Pirate Roberts confirmed that he was not the original owner, confirming that Ross Ulbricht had sold the site.
DPR spoke about how the torch was passed to him from Ulbricht and that Ulbricht was fairly compensated for the site. The interviewee mentioned that he had discovered a major vulnerability in Silk Road and that while Ulbricht ignored him at first, DPR eventually got his trust.
Back in 2011, Ulbricht is reported to have told Bates that he had sold the website to someone and that it was no longer in his hands to shut down.
In was in 2012, that Dread Pirate Roberts first announced his screen name on the site, which, would become the main point of interest for the authorities.
If Not Ulbricht, Who Else Could Be Dread Pirate Roberts?
French-born Mark Karpeles, former-owner of the now-defunct Mt. Gox Bitcoin exchange, was, at one time, a suspect in connection with Silk Road.
Karpeles ran a DNS registrar and a web hosting company during the time the Silk Road launched, and it was this connection that aroused suspicion.
“I believe since KARPELES has used his [email addresses redacted] to register with a few internet companies that he may have received record of registering, paying for or owning certain aspects of the www.silkroadmarket.org website.”
Mark Karpeles has denied the accusation and the judge in the investigation asked the jury to ignore it because it was based on Der-Yeghiayan “beliefs” rather than hard evidence.
Investigators Went “Rogue”
The case was supposed to be kept as quiet as possible, in order to make sure suspects were not aware of the investigation.
However, information was ultimately leaked to two Baltimore agents – DEA agent Carl Mark Force and Secret Service agent Shaun Bridges.
Bridges then went “rogue,” according to court documents.
As part of their rogue investigation, Bridges and Force hijacked a number of Silk Road accounts and arrested one Silk Road administrator named Curtis Green. At the same time, around $350,000 disappeared from Silk Road vendors, tracing back to Green’s account.
Dread Pirate Roberts heard about the missing money, and turned to another Silk Road colleague, “Nob.” But “Nob” had also been hijacked by Carl Force.
It’s alleged that DPR asked Nob to track Green down and retrieve the stolen money. Green was still in custody at this time, but Force played along, and even pretended to kill him.
In the end, the rogue pair were discovered. Force was sentenced to 6 ½ years. Bridges was initially sentenced to nearly six years in prison; however, in 2017 he was sentenced to an additional two years after admitting to a new crime.
“Has anyone seen Silk Road yet? It’s kind of like an anonymous Amazon.com.”
Alford then tracked everything written by Altoid and eventually found a post where he revealed an email address. Altoid asked for programming advice and gave the address: [email protected]
Of course, with Ulbricht’s email and a plausible explanation linking him to Silk Road, it was only a matter of time before the authorities found him.
The Arrest of Ross Ulbricht – October 2013
Ross Ulbricht was arrested in a San Francisco library while logged in to Silk Road as the Dread Pirate Roberts admin. He was unknowingly talking to an undercover agent at the time.
Why was Ulbricht logged in as DPR even though he had allegedly sold Silk Road and moved on? The defense claims that someone convinced him to briefly get involved again. DPR then gave him access to all accounts, files, software, and records.
When he was arrested on 1st October 2013, all this information was on his laptop, including a bitcoin wallet containing 144,000 bitcoins.
Dread Pirate Roberts Logs On Again, While Ulbricht is Locked Up…
According to Motherboard, “the logical conclusion is that someone else had access to the account that was said to belong to the mastermind of the massive Dark Web drug bazaar.”
It confirmed what many believed: Ross Ulbricht might have started Silk Road, but he wasn’t the only one operating as Dread Pirate Roberts.
Ulbricht Appears in Court
Ross’s first courtroom appearance was in front of Judge Kevin Fox, who ultimately denied his Eighth Amendment right to bail. On the 4th February 2014, Ulbricht was indicted. In another case in front of Judge Katherine Forrest, who had been recommended to the bench by Schumer, she said in her ruling that Ulbricht was acting as a “sort of godfather.”
At one stage during the trials, Ulbricht’s defense lawyer was to call Andreas Antonopoulos, a best-selling author and someone with the technical expertise to explain complex matters, and Steven Bellovin, Computer Science professor at Columbia University and leading expert on computer networking and internet security. However, the court precluded these two experts.
Yet, Judge Forrest was more flexible with the prosecuting side.
Two Life Sentences, with No Possibility of Bail
Before his sentencing, one hundred people who knew Ulbricht wrote to Forrest asking for her to apply the shortest sentence. In a court transcript, it said: “The district court was confused by the letters which showed Mr. Ulbricht to be a different man than the one [Forrest] thought him to be.”
Ultimately, though, Forrest gave Ulbricht two life sentences plus 40 years in prison without the possibility of parole for non-violent charges. In this case, it was not in her power to give him the death penalty.
Following the verdict, even Curtis Green tweeted: “Ross Ulbricht got a raw deal. There is so much more to the Silk Road story than people know, and I can’t yet talk about. I don’t believe Ross is dangerous or that it’s in his character to order a hit on anyone. He should never have gotten that horrible sentence.”
Ross Ulbricht got a raw deal. There is so much more to the Silk Road story than people know, and I can't yet talk about. I don't believe Ross is dangerous or that it's in his character to order a hit on anyone. He should never have gotten that horrible sentence. #FreeRoss
Seven weeks after Ulbricht’s trial, Force and Bridges were indicted for corruption. Compared to Ulbricht’s sentence, though, they got off lightly.
An appeal was filed to a Second Circuit panel consisting of Judges Jon Newman, Gerard Lynch, and Christopher Droney in 2016. However, the Second Circuit judges decided in 2017 to deny Ulbricht’s appeal.
Last December, a petition was filed to the Supreme Court by Williams and Connolly LLP, led by Kannon Shanmugam, who was representing Ulbricht. It was arguing questions on constitutional law, focusing on the impact of the Fourth and Sixth Amendments. The petition was supported by 21 groups. On 28th June 2018, the petition was denied.
The Fight Continues
Silk Road remains a complicated story that has more twists and turns in it than a cheap garden hose.
Corruption, deception, and intrigue are wrapped up in this case. Yet, despite the truth coming out about several of those involved in the investigation, the sentence against Ulbricht still stands.
After five years in prison and unable to communicate with the outside world, Ulbricht is speaking through his family at the @RealRossU Twitter account that was set up in June 2018. The first tweet went out in July. There is also the FreeRoss.org website that has been set up by “friends, family and supporters who are working to free Ross Ulbricht from a barbaric, double life sentence for all non-violent charges.”
A petition, which was launched by his mum, Lyn Ulbricht, has received over 100,000 signatures. The goal is to hit 150,000 as his family seeks clemency for him.
Hi, this is Ross! I’m hoping to find my voice here after all these years of silence. It has been a strange journey, but I’m so grateful for all those who’ve shown love and support and held me up through the hard times. You give me strength. https://t.co/x4m6J3lgha
Proof of Work is the algorithm that powers various blockchains, like Bitcoin, Ethereum, Litecoin, and Monero.
Miners solve complex mathematical puzzles using computer power to produce a “block” of transactions.
When a block is produced, the miner is rewarded with the native cryptocurrency: bitcoin, ether, or litecoin, for example.
Proof of work ensures that blocks are produced at a stable rate and are accurately verified.
Cryptocurrencies work on the principle of a blockchain, where blocks containing transactions are added to the chain to make transactions happen.
The issue is, the speed and validity of blocks must be kept in check. Proof of Work solves this issue, let’s check out how.
Blocks on the blockchain are quite powerful as they confirm the transaction of money between addresses. They also distribute new currency by issuing rewards to the block creator.
For these reasons, there are two important rules for block production.
Blocks need to be verified some way, so that we know what order transactions happened, among other things.
We need to control the speed at which blocks are added. If the speed is not controlled, block rewards are added to the network quickly and the worth of the currency plummets.
Bitcoin, for example, has a target block time of ten minutes. If blocks are created too fast, too much bitcoin will be given out to miners, thus flooding the market. Something has to keep that block time regulated.
Enter Proof Of Work
Proof of work solves both of our issues. It’s based on the idea that we include some data in the block that is hard to calculate, but easy to verify.
Hash algorithms are perfect for our verification problem but don’t fix the issue of timing on their own.
Hashes are designed to be fast to compute, very fast in fact. The time it took to calculate the above two hashes was less than one-hundredth of a second.
But we need to regulate the time, so blocks aren’t produced too quickly.
We have a simple solution to this: network difficulty.
Simply put, you can change how long it takes to create a block by making it harder to solve the cryptographic puzzle.
Usually, that means including a constraint that the hash must be below a specific number. And that that number is calculated at specific intervals.
Now miners have to hash their blocks many times, with each one taking up some time and lots of computer power. In order for the block creator to change the hash of their block, an additional bit of information is added to the block called thenonce.
A nonce is simply a number that can be modified as the block creator sees fit to change the output hash.
Each time a hash is calculated and does not meet the requirements of the network at that time, the nonce is incremented or otherwise changed and the hash re-calculated.
Often a miner will try a very large number of different nonces before they find one that will be accepted by the network. The total time all miners take to find a block should be somewhere around the block time (ten minutes for Bitcoin).
And if not, the difficulty is adjusted to keep the timing in line.
Not all Proof of Work Algorithms are the Same…
The hashing algorithm a cryptocurrency uses directly affects how difficulty will work, and what hardware you can run the mining software on.
To use Bitcoin as an example again; Bitcoin uses the algorithm SHA-256, which is an industry standard hashing algorithm used in many places.
If you’ve saved a password on a website, odds are it was hashed with Secure Hash Algorithm (SHA)-256 before it was stored. Using industry standard hashing algorithms means they are proven secure and worked on by massive communities.
However, using industry-standard algorithms is both a blessing and a curse.
A blessing because most hardware will be able to run your software. But a curse (depending on how you look at it) due to one word: ASICs.
ASIC (Application Specific Integrated Circuits) are mining hardware that gives your network a massive amount of mining power. That increases centralization due to price and power demands. The more ASICs you own or control, the more of the network you command.
Some other cryptocurrencies, like Monero, use their own hashing algorithm specifically designed for use in proof of work systems. These have the advantage that developers have complete control over what hardware the algorithm works on best.
Downsides to Proof of Work
There are a few downsides to Proof of Work when compared to other solutions.
First, Proof of Work requires a lot of computing power. And, the more mining power on the network, the higher the difficulty. Meaning that you very quickly run into a situation where those with the cash to buy hardware do. And when you have a lot of hardware, you tend to store all their hardware in one place, leading to centralization.
At worst, this could lead to a 51% attack, whereby one actor, or group of actors, control more than half of the network. If that happens, they could theoretically “double spend” the cryptocurrency on the network.
And second, that computing power needs a lot of electricity to run, and at the high end, miners go looking for the cheapest power possible. This means that miners start to congregate in cities or countries where the power is cheap, again leading to centralization.