Ethereum
MIT Graduates’ $25M Crypto Crime Spotlights Ethereum on Lead
If you graduate from the Massachusetts Institute of Technology and have elite computer skills, you can make good money working for a tech company, or even more money working on Wall Street. But if that doesn’t appeal to you and you want to get even richer, you can always try your hand at white-collar crime, like brothers Anton and James Peraire-Bueno in their 20s. The two men hatched a plan that allowed them to pocket $25 million in just 12 seconds. Unfortunately, it ended badly, as the federal government announced in a press release yesterday. Press release It reads like a pulp novel.
“Unfortunately for the defendants, their alleged crimes were no match for Department of Justice prosecutors and IRS agents,” the DOJ wrote. For good measure, the release quotes an agent who says the crime was solved “through cutting-edge technology and old-fashioned investigative work.”
Purple prose aside, the case involves impressive detective work as well as a sophisticated explanation by Justice Department lawyers of an alleged new type of crime involving the Ethereum blockchain. The crime involves the mysterious business of “maximum extractable value” or MEV, which involves grouping transactions into a block in a way that allows those building the blockchain to profit from the transactions of others.
Miners who build blockchains are of course not doing it out of the goodness of their hearts. Instead, the process relies on incentives that allow miners – in the case of Bitcoin, Ethereum and other chains – to get rewarded in the form of coins and transaction fees for adding a new block. However, when Ethereum moved to a new blockchain construction process called proof-of-stake, it created new opportunities for miners to make money, including through leading transactions included in the blocks they group together. This is what people mean by MEV. (Bitcoin Investment Company Riveras well as the DOJ criminal indictmenthas a good explanation of how exactly it works).
MEV has been around for a while now, and while a number of people in the crypto space find it distasteful, it is not illegal – and indeed, similar things are happening in the world of finance traditional, such as the practice known as payment for order flow. The Peraire-Bueno brothers, however, went further when they detected a bug in popular software used to make the MEV. This allowed them to not only direct Ethereum users’ transactions, but to tamper with them in a way that allowed them to steal them outright.
All of this is likely to attract renewed scrutiny of the murky MEV practice and potentially lead to calls for reform among the Ethereum crowd. As for the Peraire-Bueno, the episode also showed that MIT grads are capable of old-fashioned mischief, too. Not only were they arrested, but the DOJ also found evidence that they had conducted web searches on topics such as money laundering and how to escape financial fraud. Don’t Google your crimes, folks! Finally, the brothers can at least take comfort in knowing that they are not the only MIT graduates to be accused of crypto crimes: the school is also the alma mater of one Sam Bankman-Fried.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
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Circle is moving its legal basis of business from the United States to Ireland, a move that could increase the company’s tax bill. (Bloomberg)
Tornado Cash Developer Alexey Pertsev is appealing his money laundering conviction. (CoinDesk)
Bitcoin surged above $65,000 partly in response to encouraging CPI data. (CNBC)
canadian authorities arrested a self-proclaimed “king of crypto” who took $40 million from around 160 investors and spent most of it on trips and luxury cars – a decision that also led to him being kidnapped and tortured by those he scammed. (CoinDesk)
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