#305: On-Chain Analysts Knew About DOJ’s Bitcoin Seizure A Week Before The Public Announcement, & More

Last week, scientists from Baylor College of Medicine, Harvard Medical School, Technical University of Munich, and the University of Copenhagen made a compelling case for NFTs – or an NFT-like personal health information framework – that would give consumers ownership and control over their personal health data. The paper reinvigorates the possibilities that ARK analysts explored in 2016.

The US spends more than $3 trillion – nearly 20% of GDP – annually on healthcare, in part because of inefficient and ineffective data management systems. Recent advances in blockchain technologies and legal frameworks suggest that the time is ripe to focus on public blockchains and solve systemic, data-related weaknesses in the healthcare system.

Alphabet’s DeepMind recently released a new artificial intelligence program that ranks in the top 54% in coding competitions, signaling significant progress in the critical thinking necessary for software engineering tasks. ARK’s research suggests that AI tools could double the productivity of software engineers, increasing the output of global knowledge workers by $56 trillion and creating roughly $80 trillion in enterprise value by 2030.

To achieve success in coding competitions, DeepMind’s researchers pre-trained a transformer-based language model on open-source code and fine-tuned it with samples from a competitive programming dataset. Released less than a year after OpenAI launched Codex, the DeepMind model did not match top-level human performance but did achieve impressive results, bolstering our confidence that AI models will outperform human programmers before 2030.

This week, the U.S. Department of Justice (DOJ) announced its largest financial seizure in history––over 94,000 bitcoins worth approximately $3.6 billion that had been stolen during the well-publicized Bitfinex crypto exchange hack in 2016. The DOJ arrested Ilya Lichtenstein and Heather Morgan, accusing them not of the hack but of laundering the funds after the hack.

As reported in TIME, during the 2016 hack various Bitfinex users “approved” approximately 2,000 transactions, sending nearly 120,000 bitcoins to the hacker’s wallet. In 2017, Lichenstein and Morgan obscured the original hack and laundered the funds via Alphabay, a darknet marketplace similar to Silk Road. When US law enforcement shut down Alphabay the same year, the laundering shifted to Hydra, a Russian darknet marketplace, as did the “mixing” of bitcoins via the Wasabi Wallet. Given its access to Alphabay user accounts, the DOJ linked the Bitcoin addresses to the perpetrators’ day-to-day financial accounts and activities, including small shell and bank accounts and purchases of gold, NFTs, and PlayStation gift cards.

Though they did not know the entity involved, public on-chain analysts knew about the seizure one week before the DOJ announced it, highlighting the openness and transparency of Bitcoin’s blockchain. Importantly, on-chain specialists discerned that an entity likely associated with a government agency had moved the unlaundered bitcoins, as the entity in question did not attempt to mask the transaction in any way and consolidated the stolen bitcoin into a single address.

Anyone can track bitcoin transactions in real time, which in this case helped on-chain analysts detect that a government had retrieved stolen bitcoins. In other words, public blockchains do not allow the information asymmetry that has powered traditional financial markets, suggesting that a global financial system built on blockchain technology could prevent the counterparty risk that has been at the epicenter of financial crises like that in 2008-2009.