Speaker 1: Pushkin. Hello Against the Rules listeners, it's your long lost host,
Speaker 1: Michael Lewis. I missed you, guys, and it's going to
Speaker 1: be a little while before I come back, and I
Speaker 1: want to explain what we're doing. I'm in the middle
Speaker 1: of a book. It's about FTX, the cryptocurrency exchange that
Speaker 1: has collapsed in the last few months in dramatic fashion,
Speaker 1: and it's taking all my time. But there's this thing
Speaker 1: I do with books. I do a lot of interviewing
Speaker 1: around the book, stuff that's never going to be in print,
Speaker 1: just to educate myself around the boundaries of my subject
Speaker 1: and talk to a lot of interesting people. For this,
Speaker 1: all the stuff winds up on the cutting room floor,
Speaker 1: except in this case. So what we're gonna do is
Speaker 1: basically call up a bunch of experts and talk to
Speaker 1: them about what they know. You'll be getting the same
Speaker 1: kind of education I get before I put words on paper.
Speaker 1: I hope you find these people as interesting as I do,
Speaker 1: and you can hold your breath until Against the Rules
Speaker 1: is back out towards the end of the year. So
Speaker 1: welcome to on background from Against the Rules. I'm Michael Lewis.
Speaker 1: So the cryptocurrency movement arose on the back end of
Speaker 1: the two thousand and eight financial crisis in response to
Speaker 1: the crisis, in response to the perceived injustices of the
Speaker 1: global financial system. The transparency, decentralization, and global nature of
Speaker 1: the blockchain are supposed to have made it safer for
Speaker 1: cryptocurrency traders and investors, but it also makes it easier
Speaker 1: for bad actors to hide illicit activity. How much illicit
Speaker 1: activity is there? The cryptocurrency analysis from Chain Analysis estimated
Speaker 1: that there were fourteen billion dollars worth of shady dealings
Speaker 1: in two twenty one alone. Tracking cryptocrimes could be a nightmare,
Speaker 1: but there is a way, and I need to understand
Speaker 1: the nitty gritty of how it's done. So I called
Speaker 1: up Andy Greenberg, who's the senior cybersecurity writer for Wired,
Speaker 1: an author of the new book Tracers in the Dark,
Speaker 1: The Global Hunt for the Crime Lords of Cryptocurrency. I
Speaker 1: love the book. It's a series of stories case studies
Speaker 1: of cracking crypto crimes. It make a wonderful like episodic
Speaker 1: television drama, and it explores the growth of illicit commerce
Speaker 1: with crypto. Andy also follows some US law enforcement agents
Speaker 1: who tracked illegal transactions around the world to figure out
Speaker 1: how they did it. It reads like a thriller. You know,
Speaker 1: I mentioned that I'm I've gotten very interested in the
Speaker 1: FTX story, and I'm curious do you share an interest?
Speaker 1: Have you been following it? Oh? Yeah, I mean I'm
Speaker 1: interested in it, but like largely from the sidelines, because
Speaker 1: it's not like a crypto crime story. It's not my
Speaker 1: kind of story exactly, except for this one element of it.
Speaker 1: Just after FTX declared bankruptcy, something like half a billion
Speaker 1: dollars worth of cryptocurrency was pulled out of its accounts
Speaker 1: by an unknown person, and that appears to have been
Speaker 1: a much more traditional kind of straight up theft by
Speaker 1: you know, we don't know who, like an insider, perhaps
Speaker 1: Sam Bankman freed himself maybe, or you know, was it
Speaker 1: hackers who just seized on the chaos of this meltdown
Speaker 1: to try to pull off a big heist. It's precisely
Speaker 1: the kind of heist that that your book suggests is
Speaker 1: a fool's errand because that bitcoin, that crypto is going
Speaker 1: to be traced and follow wherever it goes. Right, So,
Speaker 1: as soon as this happened, you know, I started calling
Speaker 1: my tracer friends and sources, I should say, and you
Speaker 1: know they were following this money in real time as
Speaker 1: it was being stolen. Basically, I mean, this is the
Speaker 1: crazy thing about cryptocurrency, which is that like, even if
Speaker 1: you can steal it, everybody can watch your getaway car
Speaker 1: make every turn, you know, through the city map, and
Speaker 1: like they're just waiting for you to try to get
Speaker 1: out and cash that stolen money in somewhere at a
Speaker 1: bank or whatever. I don't know what the end of
Speaker 1: this metaphor is, but but they can follow you as
Speaker 1: you do it, and it's going to be extremely hard
Speaker 1: for whoever took that money to liquidate it, to use
Speaker 1: it in any way without being identified, and then we'll
Speaker 1: find out if it was an insider or a thief.
Speaker 1: When you first got interested in crypto, in bitcoin, and
Speaker 1: you know, a completely innocent person asked you to explain
Speaker 1: to them what crypto was, what was your go to explanation?
Speaker 1: I think I would have described it as just digital cash,
Speaker 1: and in the sense that you can keep it under
Speaker 1: your mattress, you can keep it on your computer and
Speaker 1: nobody else has to know about that, and you can
Speaker 1: spend this digital cash. This cryptocurrency in a dark alleyway,
Speaker 1: without anybody, including the person you're sending it to, knowing
Speaker 1: who you are. Right, that was pretty much the opposite
Speaker 1: of correct. It turns out, you know, I now have
Speaker 1: kind of realized, in this slow motion epiphany that cryptocurrency
Speaker 1: is extremely traceable. I can remember the proselytizers coming on
Speaker 1: to me and saying, you've got to write a book
Speaker 1: about bitcoin because it's it's better money. And then you
Speaker 1: went to go try to use bitcoin, and it was
Speaker 1: clearly not better money. It wasn't you know, it makes
Speaker 1: you long for dollar bills if you tried to spend bitcoin,
Speaker 1: but that was what was in the air. You're sort
Speaker 1: of like if you were hanging out with anybody who
Speaker 1: knew anything about bitcoin, they said these things and you just,
Speaker 1: you know, why not believe them? And it seems, you know,
Speaker 1: looking back, like, you know, who could be this foolish?
Speaker 1: Because the whole idea of bitcoin is that it's not
Speaker 1: sort of guaranteed or like it's it's not accounted for
Speaker 1: by any bank or government. Instead, it's all laid out
Speaker 1: in the blockchain, like every single transaction is recorded in
Speaker 1: the blockchain. And I knew that even back in twenty eleven.
Speaker 1: But the thing that made me and possibly even Sotoshi Nakamoto,
Speaker 1: this mysterious creator of bitcoin, think that it could nonetheless
Speaker 1: be anonymous or untraceable, is that the blockchain only records
Speaker 1: transactions between bitcoin addresses, these long strings of like you know,
Speaker 1: thirty four numbers and characters that seemed meaningless and don't
Speaker 1: seem to be tied to anything identifying at all. So
Speaker 1: there's a distinction that needs to be made between anonymous
Speaker 1: and untraceable. You can keep it secret who you are,
Speaker 1: you just can't keep the transaction secret. I guess the
Speaker 1: best way to describe it is not even anonymous or untraceable,
Speaker 1: but rather pseudonymous if you want to like use the
Speaker 1: nerdy term, which is like that you could send money
Speaker 1: from one pseudonym a bitcoin address to another, and it
Speaker 1: didn't seem like there was any way to kind of
Speaker 1: pierce the veil of who is behind those bitcoin address pseudonyms.
Speaker 1: So even though you could see like exact amounts of
Speaker 1: bitcoin being sent from one pseudonym to the next, is
Speaker 1: still seemed like this kind of you know, just like
Speaker 1: a kind of dark basement full of money changing hands
Speaker 1: but you didn't know between whom, and that seems you
Speaker 1: know secret enough, right, So do you think Setoshi actually
Speaker 1: thought that untraceability was a feature of this There wasn't
Speaker 1: this email that Setoshi sent to a cryptography emailing list.
Speaker 1: It's you know, listed these bullet points of like why
Speaker 1: you should read my white paper basically, which includes participants
Speaker 1: can be anonymous, and just to be fair, you know,
Speaker 1: there is one participant who has remained anonymous, who is
Speaker 1: Sotoshi Nakamoto, which is in itself an amazing story that
Speaker 1: it's the only secret that's left in the universe who
Speaker 1: Setoshi is. So who's the first person who attempts to
Speaker 1: trace bitcoin and identify the people behind the accounts? Yeah,
Speaker 1: I mean this whole story of the ability to trace
Speaker 1: cryptocurrency begins, I would say with Sarah Michael John, this
Speaker 1: graduate researcher at the University of California, San Diego who
Speaker 1: kind of just embarked on it as a kind of
Speaker 1: anthropological study. At first, she wanted to see if she
Speaker 1: could figure out how many people are using bitcoin, how
Speaker 1: many people are kind of like hiding behind these millions
Speaker 1: of bitcoin addresses. But she very quickly began to see
Speaker 1: that she could actually develop techniques to first just to
Speaker 1: cluster these addresses to show that sometimes you know, dozens
Speaker 1: or hundreds or sometimes even millions of these addresses belonged
Speaker 1: to a single person or service or even like a
Speaker 1: dark web marketplace. How did she do that? The first
Speaker 1: trick is, sorry, this sound's really technical, but it's pretty simple,
Speaker 1: which is that a so called multi input transaction, to
Speaker 1: spend bitcoins from an address, you've got to control the
Speaker 1: private key for that address. So if you're sending bitcoins
Speaker 1: in one transaction from lots of addresses, you must control
Speaker 1: the keys for all those addresses. And that proves that
Speaker 1: one person or one organization, one service controlled all those addresses.
Speaker 1: So you know, you can kind of go back in
Speaker 1: time then and say, oh, all those addresses must have
Speaker 1: belonged to this one cluster, like all those addresses were
Speaker 1: one person or you know, one service. That's one trick,
Speaker 1: and so this is Sarah Michael john Is is deducing this, Yeah, exactly.
Speaker 1: And that's that's maybe the easiest trick that she It
Speaker 1: was sort of like kind of an open secret that
Speaker 1: was kind of a problem, but she was she kind
Speaker 1: of applied it across the whole blockchain and immediately was
Speaker 1: able to cut in half the number of possible identities
Speaker 1: and show that you could cluster enough of these addresses
Speaker 1: that immediately could see that there were only half as
Speaker 1: many clusters as there were Bitcoin addresses, just with that
Speaker 1: one trick. And her first question was how many people
Speaker 1: are actually using bitcoin? As opposed to I wonder if
Speaker 1: you can actually trace the transactions? I think so. I mean,
Speaker 1: I think she really approached this as a researcher, like,
Speaker 1: this is an interesting world, Let's see what we can
Speaker 1: learn about it, and who these people are and how
Speaker 1: many of them are. It is just the most basic question.
Speaker 1: Perhaps that kind of multi input transaction trick was really
Speaker 1: just one clustering technique. She came up with another one
Speaker 1: that was based on change making in the bitcoin transactions.
Speaker 1: This is like another weird feature of bitcoin, at least
Speaker 1: with a lot of WATS software, is that when you
Speaker 1: want to spend bitcoins from a bitcoin address, you can't
Speaker 1: just spend like part of them. You have to crack
Speaker 1: open the whole piggy bank and then basically send all
Speaker 1: the money at that address and then get back the
Speaker 1: change at a different address. So that means that you
Speaker 1: see the money travel from one address to two. You
Speaker 1: can basically follow around this one wad of cash as
Speaker 1: like bills are peeled off of it, and it remains
Speaker 1: the same wad of cash and the same person's possession,
Speaker 1: even as it's kind of like spent slowly. And that's
Speaker 1: another trick that allowed her to see like, oh, that
Speaker 1: money still belongs to the same original person. And then
Speaker 1: sometimes then that wad of cash ends up being sent
Speaker 1: to a cryptocurrency exchange. And even back in twenty thirteen
Speaker 1: when she was writing this, cryptocurrency exchanges were demanding know
Speaker 1: your customer information, like your actual identifying information, and that
Speaker 1: mean you've law enforcement can send a subpoena to that
Speaker 1: exchange and get the identity. So if you can like
Speaker 1: track someone's money, if you can identify a cluster and
Speaker 1: then find the paths from that cluster out to an
Speaker 1: exchange where they want to trade their bitcoins for dollars
Speaker 1: or vice versa. And the other way to do it
Speaker 1: is like and she did this too, you can kind
Speaker 1: of interact undercover with addresses in that cluster and you
Speaker 1: can see, oh, I'm putting money into a drug market
Speaker 1: and this is the address that I am interacting with.
Speaker 1: I know that address, and now I know that that
Speaker 1: address is part of a big cluster. That cluster must
Speaker 1: all belong to a big black market for drugs. I'm
Speaker 1: riveted by her, and I'm interested in the kind of
Speaker 1: responses to her work she might have gotten from other research,
Speaker 1: but also like the crypto community, who must have taken
Speaker 1: it as a full frontal assault. Yeah, I mean, I
Speaker 1: tell these stories in the book. Like she she went
Speaker 1: and spoke at one conference, and just over breakfast that morning,
Speaker 1: she sat down with this kind of cryptocurrency privacy researcher
Speaker 1: and they were kind of talking about, like, what are
Speaker 1: the privacy properties of cryptocurrency as it stands, and this
Speaker 1: cryptographer sort of posited, well, we need to develop systems
Speaker 1: such that law enforcement cannot track these transactions no matter
Speaker 1: what crime may be taking place, you know they're in
Speaker 1: and Sarah responded, well, I don't know about that. There
Speaker 1: are definitely there will be bad things that happen if
Speaker 1: you truly can never trace these transactions. And then he said,
Speaker 1: well you eat babies then, which I was kind of like, wait,
Speaker 1: so there's nothing in between, but that's that is how
Speaker 1: the conversations, and she remembers this very clearly. I mean,
Speaker 1: she was shocked and somewhat offended, and I think only
Speaker 1: then sort of realized that this was not going to
Speaker 1: go over well in the sort of traditional crypto world.
Speaker 1: There's something bizarre and wonderful about lots of basically guys
Speaker 1: who think they're very smart, who have a perverse longing
Speaker 1: for secrecy, who believe they have created an or encouraged
Speaker 1: a technology that enables the secrecy being totally exposed by
Speaker 1: just truth seeking young female academic. Absolutely, I mean, but
Speaker 1: then she remains deeply ambivalent about it for her whole career.
Speaker 1: I mean, you said, it's like a perverse instinct to
Speaker 1: try to maintain secrecy, But there are good reasons for
Speaker 1: financial privacy too, and financial surveillance is not always a
Speaker 1: wonderful thing. And you know, I was lucky in a
Speaker 1: way that like Sarah is the person who represents that
Speaker 1: nuance and that complexity of the morality of surveillance. Basically
Speaker 1: throughout the story, she actually like finds some of the
Speaker 1: early big bitcoin thefts and then traces them and sometimes
Speaker 1: shows that that money ends up at an exchange and
Speaker 1: for a law enforcement agency with subpoena power, they could
Speaker 1: go solve that crime right now, and she puts that
Speaker 1: in the paper basically, so of course this gets the
Speaker 1: attention of law enforcement, and she soon after has this
Speaker 1: meeting with a federal agency, and she finds herself very
Speaker 1: turned off by the way that they are talking about
Speaker 1: privacy technologies and the dark web and cryptocurrency, and also
Speaker 1: her advisor kind of jokes that she's become this cybernarc,
Speaker 1: as he puts it. She finds herself torn between the
Speaker 1: privacy community who doesn't particularly like love her research, and
Speaker 1: the law enforcement agencies who she doesn't entirely want to
Speaker 1: be a part of. On background, will be right back.
Speaker 1: It's amazing to me that it takes five years from
Speaker 1: the time Satoshi creates bitcoin for anybody, let alone an
Speaker 1: academic at UCSD named Sarah Michael John to figure out
Speaker 1: that bitcoin is actually traceable, and a whole other year
Speaker 1: for Michael Groneger to create a business called chain analysis.
Speaker 1: I mean, Michael was reluctant to kind of say to me, like, oh,
Speaker 1: I just took all of Sarah's tricks, but he nonetheless says, yeah,
Speaker 1: I read Sarah's paper it was fantastic. So I think
Speaker 1: Michael Groneger would say, like, by then, certainly I would
Speaker 1: have not only come up with these tricks, but as
Speaker 1: he did, like built them into a polished, automated piece
Speaker 1: of software that he could then sell to law enforcement.
Speaker 1: So we're now onto like the real world applications of
Speaker 1: Sarah's work and who takes it into the world. What's
Speaker 1: the first big case where it's because of the kind
Speaker 1: of tricks that Sarah turned up. Well, ch Green Dambarian
Speaker 1: is in some ways like the real protagonist of my book,
Speaker 1: and he is this like kind of fascinating character. He's
Speaker 1: a criminal investigator for the IRS and a forensic accountant
Speaker 1: and but also a computer nerd. And he had looked
Speaker 1: at bitcoin from the beginning and had similar thoughts to Sarah,
Speaker 1: like there's a whole blockchain here, how could participants be
Speaker 1: anonymous like Sotoshi says? And then he was faced with
Speaker 1: this case where in the wake of the takedown of
Speaker 1: the first dark web black market for drugs, the Silk Road,
Speaker 1: he could see that there's one VA agent who had
Speaker 1: worked on that case was cashing out hundreds of thousands
Speaker 1: of dollars worth of bitcoin of unknown origin, and he
Speaker 1: guessed that this the EA agent Karl Mark Force, had
Speaker 1: stolen it from the Silk Road or had somehow enriched
Speaker 1: himself in the midst of his case, and so he
Speaker 1: kind of just like I don't know, emboldened by Sarah's paper,
Speaker 1: just sat down and started just clicking through bitcoin addresses
Speaker 1: and was able to trace this corrupt DA agents bitcoins
Speaker 1: back to the Silk Road, ultimately showing that Karl Mark Force,
Speaker 1: this DEA agent, had been selling law enforcement information to
Speaker 1: the creator of the Silk Road and being paid bitcoin
Speaker 1: and exchange exactly and also trying to extort money from him.
Speaker 1: So this is actually helps explain the tracking process. If
Speaker 1: this corrupt the agent had sold government information to the
Speaker 1: Silk Road bosses and been given bitcoin and just sat
Speaker 1: on the bitcoin and never moved it, he would have
Speaker 1: been unfindable, right So Fatig Green Gambarian, the case actually
Speaker 1: begins when he gets a tip from a cryptocurrency exchange
Speaker 1: basically that this sort of shady DA agents is cashing
Speaker 1: out hundreds of thousands of dollars and is trying to
Speaker 1: do it under a suit of him. That's the first
Speaker 1: kind of giveaway and then of course, like at this point,
Speaker 1: the silk Road, this dark web drug market has been seized,
Speaker 1: so the FBI actually has all of its bitcoin addresses.
Speaker 1: I think that Karl Mark Forrest is the agent just
Speaker 1: never really reckons with the fact that all of this
Speaker 1: would be captured in the blockchain. He believed, like everybody,
Speaker 1: that bitcoin was untraceable, and then in fact it might
Speaker 1: be kind of like the perfect kind of way to
Speaker 1: skim off the top is that you're going to steal
Speaker 1: untraceable money, how is anybody gonna catch you. It's a
Speaker 1: funny idea that people might have been lured into criminal
Speaker 1: activity because they thought they had a secrecy that didn't exist. Well,
Speaker 1: you know, it's like this kind of eternal idea about
Speaker 1: the Internet that like the anonymity there, or the perceived
Speaker 1: anonymity like unlocks your darkest desires. And I think that
Speaker 1: is true sometimes, and it seems to have been true
Speaker 1: for Karl Mark Forrest, like he sort of was seduced
Speaker 1: by this false promise of anonymity to become a corrupt
Speaker 1: cop and it wasn't alone. Like that's the crazy thing.
Speaker 1: T green Combarian then found like this other sum of
Speaker 1: hundreds of thousands of dollars of bitcoin that people had
Speaker 1: noticed was missing from the Silk Road, and everybody thought
Speaker 1: that it must be the same corrupt EA agent. But Tigren,
Speaker 1: who is now getting better at tracing cryptocurrency transactions by
Speaker 1: this point on the blockchain, figures out that it's another
Speaker 1: corrupt agent. The Secret Service agents based in the same
Speaker 1: Baltimore office as the DA agent Carl Mark Force, And amazingly,
Speaker 1: they were not even aware of each other's corruption. They
Speaker 1: did this independently as far as anybody can tell, and
Speaker 1: they were both just kind of, like, you know, seduced
Speaker 1: by this same the same misunderstanding about bitcoin being essentially like,
Speaker 1: you know, anonymous money that anybody can just grab and
Speaker 1: steal and nobody can catch them. I feel like we're
Speaker 1: in an episode of The Wire. Yes, there was a
Speaker 1: spectacular case called Alphabet. Could you just describe that case
Speaker 1: and the tools that the investigators used to crack it
Speaker 1: and bring it down? When the Silk Road is taken down,
Speaker 1: the first market this sort of combines the dark web
Speaker 1: and cryptocurrency to try to create untraceable black market transactions.
Speaker 1: That leaves this power vacuum that's filled by one market
Speaker 1: after another, and they a lot of them, like run
Speaker 1: away with everybody's money. The administrators steal the money and
Speaker 1: what we call an exit scam. A couple of them
Speaker 1: are taken down by law enforcements, and then finally a
Speaker 1: new one surface is called Alphabet, that seems to have
Speaker 1: made no mistakes, and law enforcements around the world cannot
Speaker 1: find any way to identify its administrator, who goes by
Speaker 1: the handle Alpha O two, and Alphabet eventually grows to
Speaker 1: be ten times the size of the Silk Road and
Speaker 1: is doing like millions of dollars in black market transactions
Speaker 1: every day, and what kind of things are being traded?
Speaker 1: Alphabet is sort of innovation? Is is that well? Alpha
Speaker 1: O two, in fact, was it kind of credit card
Speaker 1: fraudster originally a kind of traditional cyberchromin hacker. And so
Speaker 1: he has this idea to combine the cybercrime frauds credit
Speaker 1: card you know, hacking world with the narcotics market on
Speaker 1: the dark web and creates this behemoth that sells both
Speaker 1: kinds of contraband stolen data hacking tools like troves of
Speaker 1: credit cards, but also heroin and fentanyl and meth ampheta
Speaker 1: means and anything you can think of, So I can
Speaker 1: I can buy stolen data along with my heroin? Yeah,
Speaker 1: I mean why not. What's the first case where it's
Speaker 1: really cracked just by cryptography? So cha Analysis by late
Speaker 1: twenty sixteen and twenty seventeen has figured out basically how
Speaker 1: to map out Alphabet's bitcoin addresses across the blockchain and
Speaker 1: has created this like constellation of two point five million
Speaker 1: addresses that it knows belong to Alphabet. But within that
Speaker 1: it's it's still very difficult to identify, like in single
Speaker 1: person's transactions, not to mention to try to identify the
Speaker 1: kingpin of this whole black market Alpha O two. But
Speaker 1: these two FBI agents in Washington, DC, who asked me
Speaker 1: to just call them Ali and Aaron, they had this
Speaker 1: idea of looking at those exit scams that I mentioned
Speaker 1: where the boss of a dark web drug market just
Speaker 1: steals everybody's money and runs off of it. They thought
Speaker 1: of it this way, like when an exist scam happens,
Speaker 1: kind of freaks out in the whole dark web economy.
Speaker 1: They all start warning each other, don't store any of
Speaker 1: your bitcoins on a drug market unless you're about to
Speaker 1: spend them, because the administrator can steal them at any time,
Speaker 1: and you've got to be careful about this. And so
Speaker 1: everybody pulls out their money from those accounts. But the
Speaker 1: one person Ali and Aaron realized who would not have
Speaker 1: to worry about that would be the boss of a
Speaker 1: dark web market him or herself. And so they had
Speaker 1: this idea to just kind of look across this whole
Speaker 1: alpha bay cluster that cha analysis had really assembled and
Speaker 1: look for sums of money that had sat unmoved, like
Speaker 1: large sums even as everybody else got spooked by exit scams. Yeah,
Speaker 1: suggesting a sense of security in those pools of money exactly,
Speaker 1: or just really suggesting that that probably belongs to someone
Speaker 1: who is immune from an exit scam. It probably is
Speaker 1: therefore a boss of a dark web market and or
Speaker 1: really or really dumb, right, Yeah, that's also possible. So
Speaker 1: they try this technique and they kind of combed through
Speaker 1: all those alphabet addresses and finds several sums, but one
Speaker 1: in particular that is really big has sat unmoved through
Speaker 1: exit scams and then is eventually parceled out and trickles
Speaker 1: out to a cryptocurrency exchange whereas cashed out and they
Speaker 1: send a subpoena to that exchange. Now in the meantime,
Speaker 1: that turns out that the Fresno office of the DA
Speaker 1: got this tip that in the earliest days that Alphabet
Speaker 1: was online, it's user forums. It turns out basically leaked
Speaker 1: the email address of the administrator of Alphabet. This was
Speaker 1: back in twenty fourteen when nobody was paying attention to Alphabet.
Speaker 1: That this email address, which was pimp Underscore alex Underscore
Speaker 1: ninety one at hotmail dot com, was in the metadata
Speaker 1: of this email. But the First and office gets this
Speaker 1: tip and they start looking at that email address. They
Speaker 1: find other places where it has appeared in like forums online,
Speaker 1: and they tie it to this French Canadian guy, Alexander
Speaker 1: Kas who they then see has moved to Bangkok. Appears
Speaker 1: based on his like wife's and his in laws social
Speaker 1: media posts, to own a Lamborghini, to have a villa
Speaker 1: in the south of Thailand, all this stuff and that,
Speaker 1: and they so they are they caught an onto this,
Speaker 1: but they don't have any real confidence in their lead.
Speaker 1: They think it's almost like too good to be true.
Speaker 1: Maybe somebody is setting up this guy cause to look
Speaker 1: like Alpha O two. Even maybe he's being framed, and
Speaker 1: just as they get this leads and they start to
Speaker 1: look into it, the results from that subpoena filed by
Speaker 1: Ali and Aaron across the country in the FBI office
Speaker 1: come back in and it reveals that that cryptocurrency exchange
Speaker 1: account is owned by none other than Alexander Kaz, essentially
Speaker 1: like nailing this theory to a wall, you know, whereas
Speaker 1: it had before kind of just hung by a thread. Yeah,
Speaker 1: it's it's there. These stories are amazing stories, and the
Speaker 1: more you tell them, the more I wonder why anybody
Speaker 1: would try to do anything bad with crypto. Now, Well,
Speaker 1: like you'd have to be a you'd have to be
Speaker 1: a fool. I mean, Alexander kas was not dumb, no
Speaker 1: matter how much we want to make fun of him.
Speaker 1: He he did like try to you know, switch his
Speaker 1: currencies midstream. He tried to put them through mixers and
Speaker 1: other obfuscating tricks, some of which the FBI didn't even
Speaker 1: really want to tell me how they defeated. Or Chain Alice,
Speaker 1: who has also become you know, they are the masters
Speaker 1: at defeating these obfuscation tricks. So you know, it's absolutely
Speaker 1: I think a good maxim that's Bitcoin, especially of all
Speaker 1: cryptocurrencies is the opposite of untraceable. But I think, especially
Speaker 1: like you know, five six years ago, somebody like Alphos
Speaker 1: who would have thought that they could stay a step ahead,
Speaker 1: They would have thought that they were smart enough to
Speaker 1: win this cat and mouse game. We'll be right back.
Speaker 1: I'm back with Andy Greenberg on background. The question I
Speaker 1: wanted to revisit is, given what you've learned about how
Speaker 1: traceable crypto is, are you bewildered that we went such
Speaker 1: a long period where people, really smart people thought it
Speaker 1: it wasn't And how do you explain it? How do
Speaker 1: you explain the kind of the myth of untraceability that
Speaker 1: was all part of the bitcoin sales pitch early on.
Speaker 1: I mean bitcoin was working, you know, it like had value.
Speaker 1: It had gone from zero dollars exchange rate to one,
Speaker 1: and that was amazing, and it looks pretty private, and
Speaker 1: I think that that was enough for a lot of
Speaker 1: people to want it to be true enough, and especially
Speaker 1: the kinds of people who use cryptocurrency wanted to believe, well,
Speaker 1: I can use this and just smart enough of a
Speaker 1: way to stay a step ahead. And it was always
Speaker 1: this kind of subjective judgments like yes of course, cryptocurrency
Speaker 1: is traceable, but how traceable? I am kind of curious
Speaker 1: to know. Do you have a sense that the revelation
Speaker 1: that cryptocurrency transactions are are very traceable and very hard
Speaker 1: to hide has sort of seeped into the consciousness of
Speaker 1: the people who use cryptocurrency, and they're now very wary
Speaker 1: of doing things. They're not making this mistake that they
Speaker 1: think that what they're doing is secret, but it actually isn't. Yeah,
Speaker 1: now I think yes, like cryptocurrency users have wised up
Speaker 1: to what we, you know, all should have known all along,
Speaker 1: which is that blockchains make things very traceable. The other
Speaker 1: thing about blockchains is that they cannot be changed. That's
Speaker 1: the whole idea. It's like you cannot alter them or
Speaker 1: erase them. There they're like records copied out the thousands
Speaker 1: and thousands of computers. If you once believe that your
Speaker 1: cryptocurrency was untraceable and did something criminal with it, that
Speaker 1: is written in stone for any investigator to go, you know,
Speaker 1: excavate ends and use against you for years and years
Speaker 1: to come. Iris criminal investigators making massive cases against people
Speaker 1: accused of crypto crimes, sometimes even like ten years later,
Speaker 1: based on blockchain evidence, is it basically impossible to use
Speaker 1: that crypto without being caught. I don't want to say
Speaker 1: it's totally impossible. I mean, I mean this mistake ten
Speaker 1: years ago. I believe the bitcoin could be untraceable, so
Speaker 1: nobody should listen to me, but it does. I don't
Speaker 1: want to rule out that there is some way to
Speaker 1: use cryptocurrency in an untraceable way. It seems almost like
Speaker 1: the possibility is just vanishingly small. I am almost certain
Speaker 1: that whoever took this FTX money will be identified through
Speaker 1: cryptocurrency tracing, and you know, we'll find out if that
Speaker 1: was Sam Bakman freed or some hacker in North Korea
Speaker 1: or who knows. So that means whoever took the FTX
Speaker 1: money either did not understand, which you understand, how traceable
Speaker 1: crypto is, or maybe was playing some other game entirely,
Speaker 1: never intending to use the money, just that maybe the
Speaker 1: sole purpose of the theft was to create a theft,
Speaker 1: or maybe they were just kind of looking at their
Speaker 1: bank account dwindled to zero and their life savings evaporate,
Speaker 1: and because they work for FTX, and they panicked and
Speaker 1: tried to make themselves whole without really thinking about the consequences.
Speaker 1: That sounds that sounds plausible. But now they realize they
Speaker 1: can't do anything with it, so it's just going to
Speaker 1: sit there. Right, So there's half a billion dollars of
Speaker 1: unspendable bitcoin that was stolen out of FTX. What would
Speaker 1: the Department of Justice need in order to seize it?
Speaker 1: They know it's there, they can watch it. Why can't
Speaker 1: they seize it? Well, let's see, here's a few ways
Speaker 1: you could figure out, Like who took that money. You
Speaker 1: see that the person who stole it is now keeping
Speaker 1: it this address. You have a suspicion it's them. You
Speaker 1: seize their computer, you find the private key for that
Speaker 1: address on their computer. That's one way you see them
Speaker 1: trying to cash it out. And at an exchange. They
Speaker 1: think that they've laundered it enough that they can use
Speaker 1: in exchange that has their identifying information and they cash
Speaker 1: it out that way, or maybe they try to use
Speaker 1: like a rogue exchange in another country, but you can
Speaker 1: still find that they'd use their IP address or something
Speaker 1: to cash it out, or maybe even you take down
Speaker 1: that exchange and you seize its servers and you prove
Speaker 1: that they cashed it out. There, or maybe you know,
Speaker 1: just to include the full list of techniques. You interact
Speaker 1: with their address in some way where you trick them
Speaker 1: essentially into revealing their address through a kind of the
Speaker 1: equivalent of like a buy and bust, and so you
Speaker 1: know that that address belongs to a certain person and
Speaker 1: that address is like where the stolen loot is being kept.
Speaker 1: Who would be watching this pile of loot right now?
Speaker 1: What law enforcement types or Chapter eleven people, or like,
Speaker 1: how is it being monitored? Well, I rs criminal investigations.
Speaker 1: They have made this almost like their bread and butter
Speaker 1: to follow this money, to pay eiently wait for an
Speaker 1: opportunity to identify who is sitting on these giant piles
Speaker 1: of unspendable coins. The FBI has done this too. And
Speaker 1: but you know, even beyond these law enforcement agencies and
Speaker 1: the dj who oversees them all, there is like a
Speaker 1: whole industry of private sector tracers, starting with chainalysis. You know,
Speaker 1: it's funny to think that one of the subtexts of crypto,
Speaker 1: or even the texts of crypto from the beginning, was
Speaker 1: it was a way to operate outside of the purview
Speaker 1: of government, to be invisible to that kind of surveillance,
Speaker 1: and that crypto has become like the government's best business,
Speaker 1: that it's been unbelievably profitable to the government to go
Speaker 1: chasing after big piles of stolen crypto. Certainly, I mean
Speaker 1: it's it is like very ironic that billions of dollars
Speaker 1: worth of bitcoin I think still is sitting in like
Speaker 1: the US treasury waiting to be sold as like you know,
Speaker 1: the criminal proceeds basically. But also I think, just like
Speaker 1: the crazier thing even than that, is just like how
Speaker 1: well it has served the governments as a trap, like
Speaker 1: as a honey pod for people who thought that they
Speaker 1: could flout the government's financial surveillance, people who thought that
Speaker 1: they could like do really criminal things, and instead it
Speaker 1: just caught all of them, starting with like two corrupt agents,
Speaker 1: but you know, stretching two people doing truly abhorrent things
Speaker 1: with child exploitation, massive drug markets, and yeah, billions of
Speaker 1: dollars and thefts too. So since crypto was first invented,
Speaker 1: they've been all these stories about what it was for,
Speaker 1: and the story has sort of changed along the way,
Speaker 1: and each time it seems like crypto might be dead,
Speaker 1: another story kind of arises. So take us ten years
Speaker 1: from now, what is the story that people will be
Speaker 1: saying about crypto, what it's for, how useful it is? Wow, Well,
Speaker 1: you know, I kind of been waiting for you to
Speaker 1: tell me that in your book. Like, I've never been
Speaker 1: that interested in the legitimate uses of cryptocurrency. I don't know.
Speaker 1: I don't feel like it's my job to figure out
Speaker 1: why anybody should want to use cryptocurrency today, because it's
Speaker 1: not exactly obvious. But but I do think like the
Speaker 1: one part of this that I really will be following
Speaker 1: in ten years is this mouse game that continues. I mean,
Speaker 1: people really may have invented a truly untraceable form of
Speaker 1: cryptocurrency already, in the form of ze cash or perhaps
Speaker 1: even other ones. Ze cash really does seem like it
Speaker 1: might be an actual, you know, black box, truly anonymous
Speaker 1: form of digital cash for the Internet, and that will
Speaker 1: be fascinating to watch. I mean, if there really is
Speaker 1: a true crypto anarchic coin out there and it gains adoption,
Speaker 1: then you know, that's a world we've never seen before. Great.
Speaker 1: This was really helpful. It was helpful to me. Apart
Speaker 1: from the podcast, it was really interesting to hear all
Speaker 1: this well. Thank you. I really appreciate you talking to me.
Speaker 1: Your book's great. Thanks for spending the time. Oh it's
Speaker 1: my pleasure. Thank you. Andy Greenberg's a senior writer for
Speaker 1: Wired and the author of Tracers in the Dark. The
Speaker 1: Global Hunt for the Crime Lords of Cryptocurrency on Background
Speaker 1: is hosted by me Michael Lewis and produced by Katherine
Speaker 1: Gerardo and Lydia Jeancott. Our editor is Julia Barton. Our
Speaker 1: engineer is Sarah Bruguire. Recorded by Tofa Ruth at Berkeley
Speaker 1: Advanced Media Studios. Our music is created by John Evans
Speaker 1: and Matthias Bossi of Stellwagon. Symponette on Background is a
Speaker 1: production of Pushkin Industries. If you have any questions for me,
Speaker 1: just remember that we have the website atr podcast dot
Speaker 1: com where you can submit questions or complaints or whatever
Speaker 1: you'd like to submit. That's atr podcast dot com. To
Speaker 1: find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts,
Speaker 1: or wherever you listen to podcasts.