© Investing.com
By Geoffrey Smith
Investing.com – The arrest of two people in connection with one of the most notorious crypto financial crimes of recent years is set to be a major milestone in cryptocurrencies’ long march into the global economic mainstream.
In reality, things are unlikely to be so clear-cut.
On the face of it, the arrests confirm what many cryptocurrency enthusiasts – especially those trying to create ecosystems of legitimate economic activities based on cryptocurrency – have long asserted: the transparency of the blockchain that underpins cryptocurrencies in fact, in some respects, an effective competitor – if not superior – to central bank-created money; the digital audit trail created by the blockchain is infallible and therefore worthy of public trust.
So it’s a win for anyone who believes the can thrive in the light and out of the underworld of criminal drug, ransomware and gun deals where he spent his teenage years.
Along the same lines (no pun intended), it’s a blow to those who have adopted the for its supposed ability to evade capture by the state and all of its financial repression organs, including the established financial system. The great appeal to large numbers of early adopters is lost if there is ultimately no opportunity to hide one’s reservation from federal authorities. But overall, this is a minor issue: the long-term potential of cryptocurrencies depends on some form of mass adoption, which is impossible without mass trust, backed up by regulation. government enforced by the appropriate government agencies. Extreme libertarians who hoped to found a new, freer and more anarchic financial system will have to cry to – well, to their digital wallets.
That’s the good news. The bad news is that to gain public trust, it is not enough to show that the blockchain works. The business practices and probity of those selling cryptocurrency services must also meet certain standards, particularly with respect to basic functions like custody of securities, and gaps in this regard remain significant.
BlockFi, a company that offers dollar loans against bitcoin collateral, agreed to pay $100 million Monday to settle charges from the Securities and Exchanges Commission that it failed to register those loans as securities. As a result, new customers will have to accept very different terms.
But these formalities are less damaging than the revelations that were made during the investigation. It appears, for example, that BlockFi had failed to collect collateral for 80% of the loans it made to institutional clients. While this kind of neglect is common practice, it’s hard to see the industry surviving a major cryptocurrency correction without an embarrassing and costly meltdown somewhere.
In the meantime, there will at least be the entertaining spectacle of the Justice Department and Bitfinex battling it out over who gets to keep the $3.6 billion worth of bitcoins recovered from the incompetent Ilya Lichtenstein and his wife. partner Heather Morgan (who, it should be noted, was only charged with attempting to launder the stolen money, not the theft itself).
Bitfinex has confirmed that it wants the DoJ to return what it considers its lost property as soon as possible, and said it will use 80% of the proceeds to buy back the . (“Leo”) that it issued to its customers as part of its clearing system in 2016.
Leo tokens on Bitfinex nearly doubled in value on news of the arrests and are still up some 20% from where they were just before.
However, history plays against Bitfinex. The DoJ is unlikely to be in a rush to hand over such sums to an organization whose only information about certain customers is their email addresses, an organization that has already had to pay to settle charges for providing retail transaction services. illegal two full years after the 2016 hack.
According to the Los Angeles Times, DoJ officials plan to institute legal proceedings for victims to recover their stolen cryptocurrencies. One can imagine that customers will have to prove the legal origin of their funds, which is very likely and, in some cases, more than inconvenient.
For those who can jump through the hoops of the DoJ, however, a huge payday is in store. The bitcoins stolen in 2016 were then worth just $70 million. Today, they are worth more than 50 times more. But perhaps the more relevant question is how much they will be worth when the funds are released months or years from now, when the legal proceedings finally run their course.