Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer with iHeart Podcasts, and how the
Speaker 1: tech are you. As we close out twenty twenty three,
Speaker 1: I'm looking back on big stories of the year, and
Speaker 1: one of those is, of course, the legal downfall of
Speaker 1: one Sam Bankman Freed aka SBF, co founder of a
Speaker 1: couple of cryptocurrency companies, and following his come upance was
Speaker 1: that of his rival Chong Peng Zhao aka CZ, founder
Speaker 1: of Binance, that's the largest cryptocurrency exchange in the world.
Speaker 1: The two stories are interesting for many reasons. They are
Speaker 1: somewhat interconnected, so we're gonna take a closer look today. Also,
Speaker 1: we'll talk about the having of bitcoin, as in HA
Speaker 1: l v G, they're having a bitcoin. It's something that
Speaker 1: a lot of cryptocurrency journals are attempting to explain because
Speaker 1: it's coming up in twenty twenty four, and it's probably
Speaker 1: something that a lot of cryptospecific journals are trying to
Speaker 1: explain in an effort to prevent folks from getting the
Speaker 1: willies about investing in cryptocurrency. Because As I've said a
Speaker 1: lot of times, the thing that makes cryptocurrencies valuable is
Speaker 1: that people treat it as though it is valuable, and
Speaker 1: if folks start to doubt that it's valuable, it loses value.
Speaker 1: So there's a big incentive to reassure folks. But first
Speaker 1: let's talk about crime. So we're going to start with
Speaker 1: SBF and his companies Alimta Research and FTX, or I
Speaker 1: guess I should say his former companies because they stopped existing.
Speaker 1: So he co founded Alameda in twenty seventeen and then
Speaker 1: co founded FTX in twenty nineteen. Alimta Research was a
Speaker 1: trading firm, but instead of stocks, it'll allowed customers to
Speaker 1: invest in cryptocurrency itself. FTX, on the other hand, was
Speaker 1: a cryptocurrency exchange. So Alameda you might invest in a
Speaker 1: company that deals with cryptocurrency, and in FTX you could
Speaker 1: exchange one form of currency for another, and you could
Speaker 1: also trade in things like cryptotokens and their derivatives like
Speaker 1: in fts for example. The two companies were meant to
Speaker 1: be distinct, but would turned out that they were very
Speaker 1: much not treated as being distinct. So, like a lot
Speaker 1: of crypto exchanges, FTX minted its own in house tokens.
Speaker 1: They were called FTT. The company could award FTT to
Speaker 1: investors and to customers, and they could hold on to FTT,
Speaker 1: or they could use it to trade for other types
Speaker 1: of cryptocurrencies. One big investor in FTX was a competing cryptocurrency,
Speaker 1: that of Binance, So Binance held millions of dollars in
Speaker 1: ft T he tokens. By the autumn of twenty twenty one,
Speaker 1: ftx reached evaluation of twenty five billion with a b dollars,
Speaker 1: and SBF himself reached the status of billionaire. So for
Speaker 1: those of you who indulge in Shotenfreida, make yourselves real comfy,
Speaker 1: because he's going to have an alarming fall from grace.
Speaker 1: In twenty twenty two, cryptocurrencies in general experienced a significant
Speaker 1: drop in value. Bitcoin, which at one point had traded
Speaker 1: at a high of around sixty thousand dollars per token,
Speaker 1: was down to somewhere around twenty thousand dollars. Other crypto
Speaker 1: companies faced bankruptcy or dissolution as the value was dropping
Speaker 1: out of crypto for the time being, and SBF made
Speaker 1: kind of a name for himself by bailing out several
Speaker 1: companies that were in trouble. As it would turn out,
Speaker 1: this would only delay the existential crisis that those companies
Speaker 1: were facing. In November twenty twenty two, the website Coin
Speaker 1: Desk published a piece that would be the beginning of
Speaker 1: the end for FTX, Alimator Research, and SBF himself. The
Speaker 1: site published a leaked balance sheet from Alimator Research that
Speaker 1: showed it was relying heavily on FTT, the house token
Speaker 1: of FTX. This is kind of like saying everyone believes
Speaker 1: that you're a millionaire, but then it turns out that
Speaker 1: your vast wealth is actually just a whole bunch of
Speaker 1: little slips of paper upon which you have written one
Speaker 1: million dollars. It's kind of like an emperor has no
Speaker 1: clothes moment. And it also seemed to indicate that Alimator
Speaker 1: Research was leaning very heavily on FTX, and that in
Speaker 1: itself raised a lot of red flags. Binance, led by
Speaker 1: Chung Pang Xiao, you know, cz because these guys love themselves.
Speaker 1: Some initialisms said that Binance was going to sell off
Speaker 1: its holdings in FTX, so it was going to sell
Speaker 1: off all of its FTT tokens. Following that FTX customers
Speaker 1: in general start to withdraw their money from the exchange,
Speaker 1: and like in a couple of days, it reached six
Speaker 1: billion dollars worth of withdrawals, and it became somewhat clear
Speaker 1: that FTX wasn't going to have enough money to cover
Speaker 1: all customers' funds that were supposed to be in it.
Speaker 1: CZ said that finance would swoop in and bail out FTX,
Speaker 1: and then literally one day later essentially says just kidding
Speaker 1: and backs out of the promise. Three days after that,
Speaker 1: FTX filed for bankruptcy protection and SBF resigned as CEO.
Speaker 1: As a part of that, John J. Ray the Third,
Speaker 1: who is something of an expert when it comes to
Speaker 1: liquidating companies to retrieve as much value as possible to
Speaker 1: deliver to stakeholders, enters the picture. He takes over FTX
Speaker 1: and it begins to investigate what happened and what could
Speaker 1: be done to salvage whatever value remained. December twelfth, twenty
Speaker 1: twenty two, saw SBF arrested. At the time, he was
Speaker 1: in the Bahamas, which served as the headquarters for FTX,
Speaker 1: and he faced charges of fraud and conspiracy. He would
Speaker 1: be extradited to the US on December twenty first, twenty
Speaker 1: twenty two, and he would make his first appearance in
Speaker 1: federal court on December twenty second, and then would be
Speaker 1: released on a two hundred and fifty million dollars bond.
Speaker 1: Just a little reminder that folks like SBF live very
Speaker 1: different lives from compared to the rest of us. Anyway,
Speaker 1: He then goes to his parents' house in California, where
Speaker 1: he is entered into house arrest. This brings us up
Speaker 1: to this year, so SBF would not actually go to
Speaker 1: court and enter a plea until early January twenty twenty three,
Speaker 1: and then he pled not guilty. The judge scheduled his
Speaker 1: trial for October twenty twenty three. SBF then went on
Speaker 1: to write a blog post and claimed that none of
Speaker 1: this was his fault, that really the collapse of FTX
Speaker 1: and Alimated Research were due to problems in the crypto
Speaker 1: market in general, and that FTX was overextended but it
Speaker 1: wasn't doing anything illegal. Essentially, he was denying everything. Meanwhile,
Speaker 1: several Alameda and FTX executives or former executives, including SBF's
Speaker 1: own ex girlfriend, pled guilty to charge as a fraud
Speaker 1: and conspiracy, and they said essentially, oh yeah, no, no,
Speaker 1: we were toats doing illegal activity, and we knew about it,
Speaker 1: and we talked about it with each other. This, as
Speaker 1: you might imagine, didn't do much for SBF's own defense.
Speaker 1: On August eleventh, twenty twenty three, a US district judge
Speaker 1: reprimanded SBF on charges of witness tampering, so SBF's detention
Speaker 1: would no longer be house arrest because the judge had
Speaker 1: determined there was probable cause to suspect witness tampering. The
Speaker 1: judge remanded SBF to the Metropolitan Detention Center in Brooklyn,
Speaker 1: New York. I'm sure this was a shocking change of
Speaker 1: venue for him at the time. On October third, twenty
Speaker 1: twenty three, the trial began, and on October twenty eighth,
Speaker 1: SBF would take the stand. His testimony and behavior were
Speaker 1: not seen as being particularly helpful to getting a not
Speaker 1: guilty decision from the jury. He was called out multiple
Speaker 1: times for lying on the stand, and by this point
Speaker 1: the details of the Alameda FTX situation were much better
Speaker 1: understood than they were in the wake of the immediate crisis,
Speaker 1: So a big part of what was going on appeared
Speaker 1: to be that FTX sent funds to Alameda to help
Speaker 1: cover investments that had failed, so making sure that Alameda
Speaker 1: Research didn't go under. The problem was the money that
Speaker 1: FTX was funneling to Alameda technically belonged to ftx's own customers,
Speaker 1: and FTX didn't alert them or get permission for the transfer.
Speaker 1: And that's a big old fraud issue. So what was
Speaker 1: the best guess was that the folks at FTX thought, well,
Speaker 1: for the time being, let's cover Alameda's debts with FTX
Speaker 1: money from FTX customers, and then we'll return the money
Speaker 1: once Alameda recovers, and no one will be the wiser,
Speaker 1: and as long as no one asks for their money
Speaker 1: will be fine. Because we can't give everyone their money
Speaker 1: back because we don't have it anymore, we gave it
Speaker 1: to Alameda. On November two, twenty twenty three, a year
Speaker 1: to the day when Coin Desk published that damning report
Speaker 1: on FTX and Alameda, SBF had to face the jury.
Speaker 1: It took the jury less than five hours to find
Speaker 1: SBF guilty on seven counts of conspiracy and fraud. SBF
Speaker 1: faces sentencing this coming year on March twenty eighth, twenty
Speaker 1: twenty four. So he's been found guilty, but his sentencing
Speaker 1: won't be until March of twenty twenty four. His legal
Speaker 1: team actually try to have that sentencing delayed, but the
Speaker 1: judge had none of it and said, nope, it's going
Speaker 1: to go forward as planned, and SBF could face a
Speaker 1: maximum sentence of one hundred and ten years in jail. Now.
Speaker 1: I don't think anyone expects him to get the max,
Speaker 1: but the general consensus is that, unlike a lot of
Speaker 1: his fellow wealthy criminals, including one we're going to talk
Speaker 1: about after the break, he may face significant jail time.
Speaker 1: And we're talking about time that's measured in decades, not
Speaker 1: in years. And it is possible that the judge could
Speaker 1: throw the book at him and give him the maximum
Speaker 1: sentence because SBF was found to have light on the
Speaker 1: stand in court and judges typically don't really like that
Speaker 1: very much. All right, So that gets us up to
Speaker 1: speed with SBF. We're going to take a quick break.
Speaker 1: When we come back, we'll switch gears and talk about CZ.
Speaker 1: All right, we're back. It's time to talk about CZ.
Speaker 1: And as I said earlier, his company Binance is the
Speaker 1: largest cryptocurrency exchange in the world and it's not even close.
Speaker 1: According to coin market Cap, Binance has a daily trading
Speaker 1: volume of around eighteen billion dollars per twenty four hours.
Speaker 1: In second place is an exchange called ueex, which has
Speaker 1: nine point six billion dollars per twenty four hour period,
Speaker 1: So Binance is almost twice as large if we just
Speaker 1: go by trading volume. Now, there are other metrics we
Speaker 1: could use to measure how big a cryptocurrency exchange is,
Speaker 1: but generally speaking, Binance is the largest and everyone else
Speaker 1: is just fighting for second place. So what's the legal
Speaker 1: issue with CZ and Binance? Well, it largely deals with
Speaker 1: how CZ was pretty careful to locate Binance outside of
Speaker 1: US jurisdiction and then get up to some shady business.
Speaker 1: In fact, it's a little bit of a mystery as
Speaker 1: to where Binance proper has its headquarters at any given time,
Speaker 1: because it has bounced around a bit. There is a
Speaker 1: US based version of Binance, one that actually has a
Speaker 1: more narrow list of features and opportunities in order to
Speaker 1: be in compliance with US law, So technically speaking, American
Speaker 1: citizens are only supposed to be able to access the
Speaker 1: US version of Binance, which in itself is not the
Speaker 1: full version of finance that everyone else can use. However,
Speaker 1: it was an open secret that if you had the
Speaker 1: money and the connections, you could engage with the quote
Speaker 1: unquote real binance, even if you were an American citizen.
Speaker 1: As Orwell might have put it, All Americans are created equal,
Speaker 1: but some are more equal than others, all right. So
Speaker 1: US authorities had serious concerns about binance, and those date
Speaker 1: back many years. There were concerns like money laundering, fraud,
Speaker 1: violating international sanctions, illegal money transfers, and stuff like this.
Speaker 1: Because a lot of criminals, such as say black hat hackers,
Speaker 1: will use cryptocurrency as their preferred way to be paid
Speaker 1: and to store wealth, and because CZ positioned binance in
Speaker 1: a way so it was beyond reach of US authorities,
Speaker 1: they worried that binance was playing a vital role in
Speaker 1: criminal activity. It doesn't do you any good if you
Speaker 1: make a whole lot of money illegally, but then you
Speaker 1: don't have any way to spend that money. You need
Speaker 1: a way to realize the value of your ill gotten
Speaker 1: gains without being tied to how you got that money
Speaker 1: in the first place. So you need some sort of
Speaker 1: money laundering. You know, maybe you're funding illegal activities overseas.
Speaker 1: You need to get a way to get that money
Speaker 1: over to your destination. Like there are lots of issues
Speaker 1: with handling money if you are involved in criminal activities,
Speaker 1: and US authorities were concerned that Binance was making it
Speaker 1: easier for the criminals to do that kind of stuff.
Speaker 1: So the authorities had started to investigate Binance all the
Speaker 1: way back in twenty eighteen, but it was really this
Speaker 1: year twenty twenty three when things started to come to
Speaker 1: a head. So in March twenty twenty three, the US
Speaker 1: Commodity Futures Training Commission or CFTC brought civil charges against Binance.
Speaker 1: They accused the company of deliberately failing to put anti
Speaker 1: money laundering measures in place and thus effectively allowing money
Speaker 1: laundering to take place on the platform. Then, in June
Speaker 1: twenty twenty three, the US Securities in Exchange Commission or
Speaker 1: SEC brought thirteen charges against CZ and Binance, accusing them
Speaker 1: of securities law violations, and not to be outdone, the
Speaker 1: US Department of Justice brought criminal charges against Binance and
Speaker 1: CZ in late twenty twenty three. These charges include the
Speaker 1: failure to institute any money laundering practices and that Binance
Speaker 1: played a pivotal role in dark web operations, acting as
Speaker 1: a sort of clearinghouse for ill gotten gains. On November
Speaker 1: twenty first, twenty twenty three, CZ and Binance entered a
Speaker 1: guilty plea to the charges. As part of this deal,
Speaker 1: CZ would step down as Binance CEO. He also is
Speaker 1: ordered to pay a fine like two hundred million dollars
Speaker 1: in fines, and he faces time in prison, but his
Speaker 1: maximum sentence is one century less than what SBF could face.
Speaker 1: SBF could receive up to one hundred and ten years
Speaker 1: in a sentence, but CZ the max. It's just ten years,
Speaker 1: which is wild right because SBF was found guilty of
Speaker 1: fraud and conspiracy. CZ pleaded guilty to charges that essentially
Speaker 1: said he allowed massive criminal activity to happen across his platform,
Speaker 1: activity that potentially ranges from ransomware hackers to arms dealers,
Speaker 1: to terrorism to human trafficking. And he faces ten years
Speaker 1: versus SBFS one hundred ten years. What a world anyway,
Speaker 1: Finance itself will have to pay a fine of four
Speaker 1: point three billion with a B dollars, but it will
Speaker 1: still continue to exist just without CZ as CEO. So
Speaker 1: the sec case that one's still pending, so we're not
Speaker 1: out of the woods yet. There could be even more
Speaker 1: charges and penalties laid down before it's all said and done.
Speaker 1: Now that wraps up our look on binance. Let's now
Speaker 1: spend just a couple of minutes talking about bitcoin, having
Speaker 1: so part of the design of bitcoin involves how new
Speaker 1: bitcoins come into existence. Technically, computers that are connected to
Speaker 1: the Bitcoin network are competing with each other to mine
Speaker 1: the next batch of bitcoin that then get released into circulation.
Speaker 1: There's a finite number of bitcoin that will ever exist,
Speaker 1: which is twenty one million bitcoin, and in an attempt
Speaker 1: to control the release of the currency into circulation, the
Speaker 1: amount awarded per block mined in the bitcoin blockchain will
Speaker 1: change over time. Essentially it gets cut in half every
Speaker 1: four years. The number of release bitcoin will reduce by
Speaker 1: half each time this happens. And when bitcoin first lawn,
Speaker 1: if you were successful in mining a block on the blockchain,
Speaker 1: you would receive fifty bitcoin. Now that's worth a fortune today,
Speaker 1: but back then bitcoin was worth very little, like fractions
Speaker 1: of a penny, so it wasn't really seen as a
Speaker 1: lot when it was first launched. These days, that's a
Speaker 1: huge amount of money, right, But after the four years
Speaker 1: of folks mining bitcoin in the early days, the amount
Speaker 1: then reduced to twenty five bitcoin per successful mining. Then
Speaker 1: we get down to twelve point five bitcoin, then most recently,
Speaker 1: in fact, currently it's six point to five bitcoin per block.
Speaker 1: Mind this actually reminds me of the paradoxical thought experiment.
Speaker 1: Let's say that you're in a room and there's a
Speaker 1: door on one end of the room, and you take
Speaker 1: a step toward the door, and then you take a
Speaker 1: half step, then you take a quarter step, and so on,
Speaker 1: so you half the distance you travel with each step forward.
Speaker 1: You're always moving forward, but you never reach the door.
Speaker 1: That's kind of similar to how bitcoin releases happen. It's
Speaker 1: not exactly the same, it's not truly apples apples, but
Speaker 1: it's close anyway. We'll leave Zeno in his dichotomy behind
Speaker 1: for the moment. As a record this, the value of
Speaker 1: bitcoin stands at a little more than forty three thousand
Speaker 1: dollars per coin, which means if you were to mine
Speaker 1: the next block, you would get six point two to
Speaker 1: five bitcoin, which means you would have more than a
Speaker 1: quarter of a million dollars worth of bitcoin per block. Mind.
Speaker 1: This is what drives the insanely competitive bitcoin mining community,
Speaker 1: as the same community known to consume more electricity than
Speaker 1: some countries managed to do in a year. It's because
Speaker 1: mining one block nets you about a quarter of a
Speaker 1: million dollars and a new block is ready to be
Speaker 1: mined every ten minutes. That's a huge incentive to get
Speaker 1: involved in bitcoin mining. But next year the number of
Speaker 1: bitcoins awarded will have again down to three point one
Speaker 1: two five, which means, let's say that the value coin
Speaker 1: remains the same, it's still at around forty three thousand dollars.
Speaker 1: If you mind a block, you would receive the equivalent
Speaker 1: of one hundred and thirty four thousand bucks and some change.
Speaker 1: It's still a princely sum for ten minutes of work,
Speaker 1: but it's a huge drop from a quarter of a
Speaker 1: million dollars, and so there are now questions as to
Speaker 1: how this might affect bitcoin. Will miners get discouraged and
Speaker 1: drop out, Because to be competitive in bitcoin mining, you
Speaker 1: have to run very sophisticated and very expensive computer networks
Speaker 1: to be in the running. Otherwise you're just going to
Speaker 1: lose out to someone who's got a faster computer system
Speaker 1: than you. Do. Will they drop out because now the
Speaker 1: amount of money rewarded will be less, and so it'll
Speaker 1: be harder to sustain the mining operation. It just won't
Speaker 1: make a sense from a return on investment perspective. Or
Speaker 1: will new miners come in with less powerful rigs and
Speaker 1: then fill in the gap and thus keep the thing
Speaker 1: running at more or less the same pace, but now
Speaker 1: with less computer power dedicated to it. It's hard to say.
Speaker 1: Will the value of bitcoin fall and thus once it
Speaker 1: starts to fall, it disincentivizes even more people from participating. Well,
Speaker 1: here's the truth of the matter. No one really knows yet.
Speaker 1: There are still folks who say that bitcoin will hit
Speaker 1: one hundred thousand dollars per coin before the end of
Speaker 1: this year, and we ain't got long left. By the
Speaker 1: time you listen to this. The year is ending, and
Speaker 1: I would be shocked if it went up in value
Speaker 1: by sixty grand by the time this episode publishes. So
Speaker 1: we'll see anyway. That's the wrap up on SBF on
Speaker 1: CZ and they're legal woes as well as the upcoming
Speaker 1: having of bitcoin. We'll see where things go. You know,
Speaker 1: it's so hard to determine where things are headed with cryptocurrencies,
Speaker 1: but I remain skeptical of them in general. But you know,
Speaker 1: I'm a grouchy old man, so that's always going to
Speaker 1: be the case. I hope you all have a happy
Speaker 1: New Year. I hope you're healthy and say and surrounded
Speaker 1: by loved ones. And I'll talk to you again really soon.
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