Congrats, You Finally Got Your Money — Now You Need to Launder It
By Michael Kaplan. April 13, pm Updated April 15, pm. At on a Sunday afternoon in January , Michael Terpin was on his laptop, prepping for a conference in Las Vegas. His iPhone buzzed with an incoming message. Google was notifying him that his email passcode had been changed. It was a race against time to stop a group of cyber-bandits.
To steal millions of dollars in virtual cash that Terpin, a pioneer in the field of cryptocurrency, had amassed and stashed online. Within 30 or so minutes, as Terpin frantically searched through some 50 crypto accounts to confirm they were secure, the thieves struck gold on one that he had yet to check.
Terpin was the victim of a cutting-edge scam known as SIM swapping. Usually, the scam victimizes those who own Bitcoin and other cryptocurrency. Difficult to tax or trace, crypto has become the payment of choice for kidnappers, drug dealers, smugglers and gamblers.
The hackers were able to cobble the code together once they hijacked his phone and wormed into his email — both of which were shockingly easy to do. One of the thieves then contacted Google and claimed to have forgotten his Gmail code. They changed the code, freezing Terpin out. Forty-eight hours later, said Terpin, the thieves had laundered the crypto and presumably divvied up their haul. Truglia, who grew up in New Jersey, was, at the time of the hit, a registered student at Baruch College.
At the same time, Nick showed me two thumb drives. Several years ago, cool social media handles became hot commodities, said Erin West, a cyber-savvy deputy district attorney in Santa Clara County, Calif. They deployed the SIM swapping technique, perfecting it as they focused on taking over Twitter and Instagram accounts just as they would one day commandeer online wallets. The most popular social media names were the so-called OG handles — A or evil or — so simple, they had to have been staked as soon as social media took off.
Sometime around , cyber-account crackers upped their game and began pillaging digital fortunes. Technologically, it was an easy leap.
I would bet my life on it, actually. But the area encompassed dozens of city blocks. Most every online business records the number when it has contact with a customer. Tarazi and his team discovered that Ortiz lived with his mother in a modest Boston home, about a mile and a half from Harvard.
They busted him at Los Angeles International Airport. He was easy to spot, dressed head-to-toe in Gucci. By the time Tarazi and his team finished interrogating Ortiz, the straight-A student was in tears, said the investigator. Since the start of , five crypto bandits — all ages 18 to 26 — have been arrested, said Tarazi, who believes dozens more remain at large.
Truglia is the latest to be brought down. Terpin is wrong, and we have asked the court to dismiss his complaint.
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You Have to Outsmart the Bank a Second Time
I will show you how the Tumbler forwards your bitcoins without the ability of exit scamming on you. In this article I define the missing piece, the second key attribute of it: trustlessness. What I express here is not only the basic concept what TumbleBit is built on but the basic concept of payment channels, payment hubs and lightning network. If you are interested in any of those, stick around! I cannot avoid first addressing the question you guys are most interested about. When can I use it? While the TumbleBit core protocol is pretty much ready and you can use it in an extremely impractical way through a CLI interface and Bitcoin Core, TumbleBit needs liquidity and this will not achieve it.
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I will show you how the Tumbler forwards your bitcoins without the ability of bigcoin scamming on mmojey. In this article I define the missing piece, the second key attribute of whst trustlessness. What I express here is not only the basic concept what TumbleBit is built on but the basic concept of payment channels, payment hubs and lightning network. If you are interested in any of those, stick around! I cannot avoid first addressing the question you guys are most interested.
When can I use it? While the TumbleBit core protocol is pretty much ready and you can use it in an extremely impractical way through a CLI interface wzllet Bitcoin Core, TumbleBit needs liquidity and this will not achieve it.
On the other hand integrating TumbleBit hapened an existing Bitcoin wallet is a no-go as. The problem is that if the wallets that your peers are using in the mix are screwed up from a privacy point of view, even if you are using TumbleBit in the correct way, with a fullnode, your anonymity is screwed up because of your peers.
The solution is to build a Bitcoin wallet what happened to the bitcoin wallet that stole everyones mmoney does not ruin full node level privacy and not as cumbersome as a full node. This is where HiddenWallet and BreezeWallet comes in. We are both working on a dedicated TumbleBit wallet independently.
Without going into much details I just drop a part of the road map of my HiddenWallet here:. Note: I only describe here the basic idea of happenedd trustless coin exchange works and of course not the full TumbleBit protocol. Happend above illustration shows how a unidirection payment hub works. If you already understand it then sorry, I just wasted two minutes of your life by making you read the introduction and asking you to stop reading.
If not, stick around and you will see the magic. How does she what happened to the bitcoin wallet that stole everyones mmoney that? Well she sends 1 BTC to Bob. I hope you can follow. I know that is pretty pointless, however it will make sense. So far so good, we just introduced a second pointless transaction, so we can pay twice as much network fee and we can wait twice as much time as we would usually.
However, it gets even worse. Let us try to solve that issue, shall we? Ths us say Alice and the Tumbler are sending some special transactions instead of regular transactions, which will not solve the issue for now, although it will bring us closer to the solution.
What does this really mean? The thing is, Hub cannot spend me. Mmobey can only spend me with Alice. If the transaction that is attempting to spend bitcojn is not signed by both Alice and the Hub that transaction will be rejected by the Bitcoin network. However, there is. I decided not to write it down what this transaction exactly said, because it was apparently Chinese, xtole I am too lazy to translate it.
You must figure out from the box. That is four times wallt normal transaction fee. In fact, it is even more, because the escrow transactions are bigger than the normal transactions, not in money but in actual size, in bytes, which is what actually matters when you pay the transaction fee in Bitcoin. What did we solve? Nothing, the Hub can still steal our coins. Wait, why four transactions? Think about it, the escrow transaction is not a transaction from Alice to Hub.
It is a special transaction somewhere in the middle. We will call this a claim transaction. Do you remember what the Escrow1 transaction said?
Did it not feel a little strange? It did not talk rhe about itself, rather it was talking about the transaction that wants to spend it, the claim transaction. Now, I have a question. Do you know how do we call it when Alice signs the Claim1 transaction, however the Hub not yet? It is called opening a payment channel. Then the Hub can steal your what happened to the bitcoin wallet that stole everyones mmoney, can it not? Everjones, it can, however, that is the last problem we evedyones solve.
For now, let us close the payment channel :. Pretty neat, huh? You just mastered a super complicated illustration. Now let us get back to the problem we just discovered. If Hub signs Claim2 transaction first, then Alice can just refuse to sign Claim1, wait until Escrow1 expires and she can refund it back to herself and Bob can take Claim2 transaction. Everryones think the proper cryptographic terminology of this situation is Catch Is there something we can do to escape this situation?
If only we could just say that Alice signing Claim1 and Hub signing Claim2 must happen at the same time thee all our problems would be solved. Fortunately, there are a couple of ways to do. For example, with hash locks :. If we say Claim2 cannot happen without X, then Hub can sign Claim2 without being worried that it will be defrauded by Bob:. Notice that Alice signed Claim1 as well, and when she signed Claim1 the Hub was able to steal her money without paying Wallst.
This time it should be the same, since only the Hub knows X, right? Hub can just spend Claim1 transaction by signing it and providing the X. In that very moment when the Hub provided X, Alice learnt X and told Bob, who is now able to spend Claim2 transaction.
What did we achieve? We figured out how we can send money from one place to another through a third party, using payment channels.
That is stupid, why would walet want to do this complicated shame, when you can just directly send bitcoins? Well, what if Bob would rather receive Litecoin, instead of Bitcoins, what would change?
Absolutely. It does not matter if Escrow2 and Claim2 happens on Litecoin or Hwat. Now that is how a decentralized crypto exchange could work.
Still do not get it? Do not worry, watch the first four minutes in this video where Ethan Heilman, the creator of TumbleBit explains sstole concept for you:. Tweet This. What if I tell you, by the end of this article you will have all the knowledge to build a trustless ShapeShift?
State of Development I cannot avoid first addressing the question you guys are most interested. Release stable version. More specifically I am describing how a unidirectional payment hub works. Continue the discussion. Hackernoon Newsletter curates great stories by real tech professionals Get solid gold sent to your inbox. Every week! Alex Wang Evefyones Raiden Network Sep Adam D. Contact Us Privacy Terms.