Ep 219: Scam Warnings About Bitfinex, Tether, and Empire Card

Scam alerts! There’s a fishy smell emanating from BitFinex and USDTether. Spammers attack Bitcoin cash. Darren shares his Bitcoin cash analysis. JJ interviews founders of Santiment and Centra. Overstock is doing $50K/week in Bitcoin business. Plus, you heard it here first: Empire Card ICO may be a scam!

We’ve written out short overviews of the topics discussed on today’s show below! Be sure to listen in to the whole podcast to get more information, insights, and thoughts on each of them from Darren and JJ!

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Traditional Financial Markets Cryptocurrency Markets
Gold $1,282 Bitcoin (BTC) $4,331
Silver $17.07 Ethereum (ETH) $301
Oil $46.77 DASH $228
Dow Jones 22,024 points Litecoin (LTC) $44.75
30Y UST Yield 2.812% Bitcoin Cash (BCH) $298

Bitcoin Cash Denial of Service of attack

This morning, the Bitcoin cash network was attacked with a spam attack. As many as 24 transactions were generated per second for a sustained time. The Bitcoin cash network mined a block which seemed to contain few to no attacking transactions. The next block mined by Bitclub Network was just under 8MB. During this time non-attacking transactions were confirmed without delay. The attacker’s transactions were chained together, each transaction spending an output of the previous, so miners could ignore these transactions if they didn’t want the fees.

This attack provides evidence that a network with large blocks has a better user experience during a DOS attack than a network with small blocks. I estimate that the attacker would spend close to $100 per 8MB block.  If one 8MB block comes out each hour then this attack would cost $2,400 per day, or $876,000 per year.

Fishy Smell Emanates from BitFinex, USD Tether

Bitfinex suffered a massive hack in August of last year losing $72 Million in Bitcoin. The losses were socialized across all users with Bitcoin and USD holders suffering a 36% haircut. This came in the form a BFX token created out of thin air. The token was meant to represent $1 of loss from “the application of Extraordinary Loss Adjustment”.

Even the management team felt the sting with a blog post explaining that two of the top 10 BFX holders were on the team. The blog post ends with, “We are actively engaged with efforts to convert certain qualifying token-holders to shareholders of Bitfinex and to redeeming the remaining BFX tokens through a combination of new capital and earnings.”

Naturally these tokens were soon allowed to be traded including margin trading. And Bitfinex is collecting fees on debt notes.

A month later they released the next token, called the Recovery Right Token. By trading your BFX tokens for RRT tokens you would, waive all rights to any claims and get paid back after BFX tokens get redeemed. There was a conversion scheme in place that actually gave you less than a 1:1 ratio if you waited too long to enroll. And because the price of Bitcoin was on the rise there is this little disclaimer added in:

“If the value of the property recovered exceeds the amount required to pay back outstanding BFX token holders and all RRT holders according to the above, any remaining amounts may be distributed as dividends to all iFinex shareholders, subject to the approval of the iFinex board of directors.”

Tether was launched in January of 2015 as a feature on Bitfinex. Darren and I have always been skeptical about currencies that claim to be “backed by U.S. Dollars”. Tethers claim to be that currency, backed by X amount of reserves in accredited financial institutions. From the onset Neocash Radio doubted these claims and took a wait and see attitude.

Until January of 2017 Tethers were steady at around 10 Million Coins / Market Cap. From January until March the supply rose to almost $25 Million.

On April 3rd, 2017 Bitfinex announced they would be redeeming “any positive balances in BFX will be redeemed for $1 per BFX per token.” Any person looking at that sentence would see it as 1 U.S. Dollar per token. But that’s not what they did. Instead they used a feature on Bitfinex called U.S. Dollar Tethers in place of an actual U.S. Dollar. The amount of BFX redeemed on April 3rd was almost $25 Million.

Leading up to this point, new Tethers were being issued in $10 million lots on the 8th, 17th, and 31st of March. In total the number of USDT in circulation was $54 Million by the April 3rd conversion — 30 Million more than the BFX token redemption.

In effect, they appear to have converted one vapor token for another vapor token. The Tether website makes it clear the tokens are “100% backed by no contractual right or legal claim.

Two days later, a suit was filed in United States District Court demanding a jury trial. iFinex, BFXNA, BFXWW, Tether Limited were suing Wells Fargo over “Intentional Interference with Contractual Relations”. Six days later, it was voluntarily withdrawn. It is unclear how long they were having problems and to what extent.

A week later and Tether announced that “Since April 18, 2017, all incoming international wires to Tether have been blocked and refused by our Taiwanese banks. As such, we do not expect the supply of tethers to increase substantially until these constraints have been lifted.”

On May 12th, not quite a month later, Bitfinex announced they have moved the majority of their funds out of Taiwan and were giving “one-time” USD withdrawals to customers with more than $50,000.

Since then neither Tether nor BitFinex has made any public indication that the banking problem has been solved. The supply of USDT started to skyrocket on May 24th with 60 Million created in 3 days, effectively doubling the total supply. In June the supply grew by 120 Million and in July the supply grew by 110 Million. There are 319 Million USDT in circulation.

With no direct banking available, BitFinex is left with little options for transparency. If they use shell corporations to do their banking they can’t show you the accounts. How do you audit BitFinex? How did they create so many dollar-backed Tethers?

We here at Neocash Radio are issuing a scam warning over USDTethers and the BitFinex platform. In the latest BitFinex blog post, new US Customers are being turned away as they pull away from the US market.

@BitFinexed has recently pointed out a market manipulator on the BitFinex exchange. He has named this individual or group of individuals, “Spoofy”. From the article:

“What is ‘Spoofing’, you may ask?
Spoofing is placing orders which you have no intent on allowing to execute.
The goal of spoofing is to send false signals to other traders that they will act upon. Placing a large bid may indicate bullishness, causing traders to close short positions and possibly even buy Bitcoins.”

He has a detailed write up with video and images illustrating the market manipulation.

The TLDR analysis is:

  1. Bitfinex’s customers are not responsible for wallet security and they are not responsible for company security — Bitfinex is responsible for stewardship of customer funds and all security related to that task.
  2. Bitfinex repaying the 36% haircut with “not contractually backed” vapor tokens is not only shady, it’s likely fraud.
  3. Bitfinex lost banking options yet claim the USDTether is backed by an equal amount of U.S. Dollars. During the exact time they were shut out of Wells Fargo and Taiwan banks, the USD Tether inflated more than 600%. This doesn’t add up.
  4. Running shell companies to continue operations is is not a trust generating strategy. It may also be illegal. This does not lend confidence in the future of the company.
  5. There is a lot of evidence to suggest “Spoofy” is real. I need to remind everyone of MtGox: Willie and Markus.
  6. The statement about the management team holding massive amounts of BFX is revealing. It gives insider trading a new name.

Until Bitfinex can truly make the August 2016 hack victims whole, come clean about USD Tether backing, revise the USD Tether Policy to guarantee a 1 to 1 exchange of Tethers for USD, and mitigate “Spoofy” Neocash Radio would strongly recommend individuals protect themselves by limiting their involvement with Bitfinex and USD Tethers.

Darren’s Bitcoin Cash Analysis

A few weeks after the fork, the Bitcoin cash network seems to be healthy.  Blocks are being mined around every 20 minutes. This could create slow confirmation times, but every once in awhile we’ll see a block over 1 megabyte and we can rest well knowing that transactions are being cleared.

I have discussed privately and with other people, like Chris Pacia last episode, what I’m calling the leaky hash theory. If there is ever a case where it is more profitable to mine Bitcoin Cash compared to Bitcoin, then we might see a dip in the Bitcoin hash rate as miners switch to Bitcoin Cash. This dip in hashrate could slow down an already stressed network causing more money and hash power to go to Bitcoin Cash. This could end up creating a feedback loop where people switch because others switch.

Currently, Bitcoin Cash miners are operating at an opportunity cost. That is, they could get more instant revenue by mining the Bitcoin chain instead. With a difficulty adjustment expected for Bitcoin Cash in just a couple days, we should see Bitcoin Cash operating just above the 10 minute target, and miners on both chains having around the same revenue. Under such conditions a small price bump in Bitcoin Cash could start to test out this leaky hash theory. Note that if any of the hashrate leaks the other way, it will have very little impact on a Bitcoin Cash user, even if the Bitcoin Cash network had the same use as the Bitcoin network does today.

As for the market price, the biggest unknown in my mind is merchant adoption. This is the piece of the market puzzle that is hard to predict. Will merchants accept Bitcoin Cash? Will merchants stop accepting Bitcoin as it’s use is too costly and unreliable? We might see that Fiverr won’t be an isolated example. We’ll just have to wait and see as only time will tell.

JJ interviews founders of Santiment and Centra 

Since the last show I have published two interviews. Last Friday I published an interview with the founder of Santiment, Maksim Balashevich. They have recently completed their token sale and are moving forward with development. Santiment is looking to offer crypto traders the same sort of cutting-edge data feeds that traditional stock traders have through the Bloomberg terminal.

This past Monday I published an interview with Sam Sharma, the president and co-founder of Centra. We talked briefly about Centra last week and I was able to line up an interview in short order. Centra is a US based company that is planning to issue a multi-currency debit card. In the interview, we discuss how Centra is using the same techniques that BitPay and Coinbase have used to operate in the complex regulations of American markets.

Sam explained that when Centra’s currently ongoing token sale ends, the next phase of beta testing will start with token sale participants, who will receive the first batch of cards. The public launch is planned for later in the year.

Empire Card ICO may be a scam!

A project promoting a new multi-currency debit card has begun accepting ETH as part of a pre-sale period and plans to launch its ICO in four days. Unfortunately, despite the impressive website and white paper, it appears that Empire Card may be a total scam. You heard it here first: a photo of the CEO on the website appears to be a flipped photo of a French actress. Neocash radio has contacted Empire Card and we would be more than happy to set the record straight if they are able to demonstrate that they are a legitimate project. This is a healthy reminder to be skeptical of everything you read about new crypto projects, and to do background research before buying into an ICO.

Overstock CEO says site receives $50K/week in Bitcoin business

Patrick Byrne, CEO of Overstock.com, reported to investors that the site is getting “about $50,000 per week” in Bitcoin orders, adding that they’ve just recently gotten board approval to change their strategy on accumulating Bitcoin: “We’ve gone from keeping 10% of what’s spent with Bitcoin to keeping 50%.” He continued, “I mean we can keep it either in Bitcoin or in some assortment of cryptosecurities, so you’ll see a portfolio emerge there […] we’ve been storing some coins from counterparty for a couple of years and they’ve grown nicely.”


Contact Us
JJ – jj@neocashradio.com
Co-Founder, Producer, Managing Director

Darren – Darren@neocashradio.com
Co-Founder, Technical Writer

Pedro – pedro@neocashradio.com
Ethereum and Crypto-mining Expert

Randy – randy@neocashradio.com
Former Co-host and Cool Dude

Tips appreciated!
BTC Address: 1MmFwDeZPgxJ4GyzbfmZVLJv3aZcpxSfR5
ETH Address: 0xe4689EF88F239C6eed1Ff262876e2499495c1617
DASH Address: XtLEPo6DKeu45e2czdHLEb5EzJRVDz2aLZ
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BCH Address: 173ADKUvvRcSmb9tnKiYAMQAoB6RhsgQQd

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