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  • Bitcoin Miners Brace for the ‘Halving’—and Race to Cash In

    Bitcoin Miners Brace for the ‘Halving’—and Race to Cash In

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    By the end of Friday, the size of the reward for mining bitcoin will have been cut in half. The event—known as the halving—takes place roughly once every four years, and it can be fatal for the mining companies that compete for the newly minted cryptocurrency.

    “You don’t see that in any other industry,” says Charles Chong, director of strategy at Foundry, a company that mines bitcoin and provides services to other miners. “You’re on a treadmill. If you don’t keep running, you are going to get left behind.” The only mercy, he says, is that “you get a lot of time to prepare.”

    In every halving, mining companies no longer able to cover their expenses have shut off their machines. Smaller, backyard operations have closed down entirely. As unprofitable mining equipment drops from the network, the Bitcoin system recalibrates, reducing the amount of computing power (and therefore the cost) it takes to win new coins. In time, an equilibrium is restored, whereby mining becomes profitable again for those able to absorb the initial blow.

    But this time it’s different.

    In March, the price of bitcoin rose to a record high of more than $70,000 per coin, so the danger for mining companies is reduced. In this case, although mining revenue will be cut in half, the associated earnings will still outweigh the cost to run the hardware, multiple mining companies claim.

    “If [the price of] bitcoin had not run recently, we would have had a very different post-halving environment,” says Asher Genoot, CEO of mining company Hut 8. “Right now, price is bailing a lot of folks out.”

    After every previous halving, the price of bitcoin has increased, leading to speculation about the prospect of another upswing. But the economic design of the system does not itself guarantee this pattern will be repeated. The problems for miners will arise if the bitcoin price moves in the opposite direction. Because bitcoin defies conventional valuation methods, its price is prone to sudden and violent swings. Mining companies must ensure they are not caught off-guard.

    In 2021, when the price of bitcoin last rose to a record high, many mining companies got it horribly wrong. They took on large amounts of debt to fund expansion and posted their mining equipment as collateral. The following year, when the price of bitcoin slumped and energy costs rose, they struggled to meet debt repayments and were forced to auction off their facilities at cut-price rates and turn over hardware to their lenders. Some went bankrupt.

    Mining companies are following different strategies to protect against this eventuality. Genoot says Hut 8 has built a large treasury of bitcoin, and instead of exchanging the coins for dollars after they are mined, it is betting on a further increase in price. The money is not a “crutch” to help offset a fall into unprofitability, says Genoot, but a reserve fund to be used perhaps to scoop up discounted hardware or facilities from ailing competitors.

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  • Crypto FOMO Is Back. So Are the Scams

    Crypto FOMO Is Back. So Are the Scams

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    An analysis performed on behalf of WIRED by crypto auditing company Hacken identified red flags in the token’s underlying code that might in some circumstances betray a scam. Those included the absence of a function that prevents the issuer from stealing away with the pool of tokens set aside to make trading on the secondary market possible, among others.

    Suspecting he has fallen victim to a scam, Ryan has tried to warn others away. “While $750 is a lot to lose, it wouldn’t be the end of me,” he says. “But I feel bad for those that really lost.”

    WIRED did not receive a response to a request for comment sent to email aliases listed on the Rebel Satoshi website.

    The type of swindle Ryan suspects he has been caught in is known as a token presale scam. The format has been around for a while, but amidst the FOMO that comes with skyrocketing cryptocurrency prices, people are particularly vulnerable. “These scams are broadly correlated to recent events,” says Ben-Natan. “They aren’t new phenomena, but they resurface.”

    There are variations on the theme, explains Ben-Natan, but the scams tend to pull from the same playbook. Typically, the developers—who remain anonymous—invest in glossy social media marketing and paid-for placements in crypto media outlets, advertising their token as the next hit memecoin and promising a discount to presale investors. In some cases, the token never materializes and the scammers make off with the funds. In others, the scammers abandon the project after selling off their own token holdings, or fail to deliver on the promise of long-term support.

    In the latter scenario, as with Rebel Satoshi, the line between a scam and an unsuccessful project is not always clear. And occasionally, because of the large sums of money involved, “something that wasn’t a scam initially can later transform into a scam,” says Ben-Natan. “As time passes, the line can become blurrier.”

    In large part, these scams are conducted by sophisticated cybercriminal groups, says Ben-Natan, not lone actors. A “micro-economy” has formed around them, he says, whereby separate parties might be responsible for managing different elements of the charade, from the marketing campaign to the website design, and so on. The largest of these operations can rake in hundreds of millions of dollars. “The numbers are staggering,” says Ben-Natan.

    For anybody willing to look for them, the warning signs are there, says Dyma Budorin, cofounder of Hacken. It is straightforward to check whether the creators have revealed their identities, for example, or whether a system is in place that prevents them from dumping their holdings without warning. But in their eagerness to enter into new projects early, few investors bother with due diligence. “It all comes from greediness,” says Budorin.

    In extreme cases, profit-hungry investors have taken to using “sniping bots” to automatically purchase tokens as they first begin to trade on the open market, says Budorin, in a bid to get in early. Others are engaging in copy-trading, a process whereby they blindly replicate someone else’s trades, so they don’t have to do their own research. Both techniques increase the likelihood someone is exposed to a scam.

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  • Yes, You Really Need a Budget

    Yes, You Really Need a Budget

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    Because you have to approve each transaction as you, er, transact it, YNAB requires more maintenance than other apps. I approve transactions a few times a week. Having to check in that frequently, however, means I can reflect on my priorities in real time. Once I paid off our living expenses, I assigned money for emergencies, summer camps for the kids, and vacation.

    Over the past few months, I’ve also decided that I would rather take my kids out for midafternoon boba than buy a latte for myself because I was bored or needed a walk. The goal of Friday family pizza and movie night is to not cook and to spend time together; frozen pizza does that even better than delivery.

    As you reprioritize and assign farther into the future, your money “ages” in your bank account. It stretches farther out, for longer. Once you’re no longer worried about your monthly or daily expenses, you can make bigger plans.

    “I’m not saying I want people to love money,” said Mecham. (He wasn’t.) “But what if money really was just the fruit of our labor? Let’s give it the respect it deserves. You can’t put a formula on someone and say, ‘This is what you need to do with your money or else you’re not adulting.’ You want to think about your money in an imaginative or inventive way, not a punitive way.”

    No Shame

    Both Mecham and I grew up in religious communities. He did not bring it up until I did, but he is a practicing member of the Church of Jesus Christ of Latter-day Saints, and I grew up as a devout Catholic. This brings me to the second thing about YNAB that I like so much, and which is mysteriously built into the UI as well.

    “You need to have a budgeting system that acknowledges human frailty and also provides a way to come back from it,” I said. “So many apps gamify money or fitness and then punish you. There’s no way to come back from it.”

    “That’s grace,” Mecham said. “You’re talking about grace.”

    Say you overspend in one category. A birthday party is coming up, and you want a new dress (even though you already own many, many dresses—this is not from personal experience or anything), so you impulse-buy. YNAB automatically shows you where you still have money free and lets you clear it immediately—with some reflection. OK, I did go over my clothes budget for the month. I will take that from the money I set aside to work on the garden. Do I really like clothes more than gardening? Interesting. You would never be able to tell from looking at me. Maybe I don’t.

    That’s what’s most interesting about YNAB. As you could probably tell from browsing the subreddit or the Facebook group, it’s really easy to become invested in your money management software if it focuses not just on the math of budgeting but also the psychological aspects.

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  • The Science of Crypto Forensics Survives a Court Battle—for Now

    The Science of Crypto Forensics Survives a Court Battle—for Now

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    On March 12, Russian-Swedish national Roman Sterlingov was found guilty of money laundering conspiracy and other violations by a federal jury in Washington, DC, for having operated Bitcoin Fog, a service criminals used to launder what authorities claim was hundreds of millions of dollars in ill-gotten gains.

    The conviction was heralded by the US Department of Justice as a victory over crypto-enabled criminality, but Sterlingov’s lawyers maintain the case against him was flawed and plan to appeal. They allege that the nascent science used to collect evidence against him is not fit for the purpose.

    The DOJ investigation used blockchain forensics, a technique whereby investigators scrutinize the public trail of crypto transactions to map the flow of funds. In a statement, Lisa Monaco, deputy attorney general for the US, described the DOJ as “painstakingly tracing bitcoin through the blockchain” to identify Sterlingov as the pseudonymous administrator behind Bitcoin Fog.

    Bitcoin and other cryptocurrencies have acquired an undeserved reputation for being less traceable than conventional money, but evidence collected this way has brought down many criminals over the past decade. Blockchain forensics was crucial to the trial of Ross Ulbricht, founder of the infamous Silk Road marketplace. But in the Bitcoin Fog case, the defense has pulled this investigative technique into the spotlight, effectively putting crypto tracing on trial in place of their client. The case is a “first-of-its-kind,” says Tor Ekeland, legal counsel to Sterlingov. “Nobody has challenged blockchain forensics before, because it’s brand-new.”

    Before Sterlingov’s trial, his attorneys asked the presiding judge to determine the admissibility of evidence from blockchain forensics experts that had used software from a firm called Chainalysis, which expedites the otherwise tedious process of sifting through the blockchain. He ruled the evidence was admissible.

    That decision has been characterized by Michael Gronager, Chainalysis CEO, as an endorsement of his firm and its methods. “We are now the only company in the world with a stamp of approval for our ability to look at a blockchain and create evidence,” he says. But Ekeland says he will work with Sterlingov to appeal both the guilty verdict and the judge’s ruling on the validity of blockchain forensics. The conviction of Sterlingov is the latest example of the unhappy phenomenon, claims Ekeland, whereby “newly emergent junk science leads to unjust verdicts.”

    Beth Bisbee of Chainalysis, formerly the company’s head of US investigations, disputes that characterization. “The evidence that the government presented to the jury demonstrated the exact opposite,” says Bisbee, who testified as an expert witness at the trial. “Our methods are transparent, tested, reviewed, and reliable.”

    Natsec Threat

    Until it was shut down by US law enforcement in 2021, Bitcoin Fog supplied what’s known as a crypto mixing or crypto tumbling service. Funds belonging to many parties are pooled, jumbled up, and spat out into brand-new wallets, masking the origin of the coins held in each. Mixers were originally promoted as a way to improve the level of privacy cryptocurrency could afford consumers, but they have been readily co-opted for the purpose of money laundering. Bitcoin Fog was among the first mixers to emerge, in 2011, making it “the longest-running bitcoin money laundering service on the darknet,” the DOJ says.

    In the past few years, the US government has cracked down on crypto mixers, which it considers a threat to national security. After taking down Bitcoin Fog, the US Treasury sanctioned Tornado Cash, another mixer, in 2022. The year after, it took down another, ChipMixer, and charged the founder with money laundering. To identify the individuals behind these operations, investigators had to follow the crypto money.

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  • Pav Gil Helped Bring Down Wirecard. His New Startup Aims to Shield Whistleblowers From Harm

    Pav Gil Helped Bring Down Wirecard. His New Startup Aims to Shield Whistleblowers From Harm

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    In September 2017, Singapore-based lawyer Pav Gill took a job at Wirecard, a high-flying German payments business worth tens of billions of euros. Not long after he started, he heard from a colleague that an executive at Wirecard Asia, the region Gill was responsible for, had allegedly been teaching staff how to trick auditors into thinking the firm had money it didn’t have.

    Gill quietly began an investigation, codenamed Project Phoenix. The results were damning: Wirecard had been fudging its numbers. But when the board of directors caught wind of his work they got “very upset,” says Gill. He was ordered to stand down, and his investigation came to nothing.

    The head of Wirecard Asia began to make Gill’s life “pretty horrible,” he claims, yelling at him in front of colleagues and attacking the quality of his work. He was effectively forced out. But before he left, in September 2018, he loaded a harddrive with an 85GB payload of email data tied to the investigation. It was filled, he says, with “irrefutable” proof of wrongdoing.

    Even after Gill left, Wirecard continued to haunt him. At job interviews, he felt the questions were disproportionately focused on the reason for his departure. Gill also began to suspect the firm was having both him and his mother followed (Wirecard had previously surveilled its detractors, but this was never proven in Gill’s case). But he never intended to leak the email data he’d extracted. It was a defensive maneuver. “As a lawyer, it is ingrained that you are not meant to leak, no matter how bad the situation,” says Gill.

    In the end it was his mother, Sokhbir Kaur, who took action. Without Gill’s knowledge, she had been liaising with the Financial Times, which had been investigating Wirecard for years. She had snatched the whistle and blown it on Gill’s behalf. He was beside himself. But after some debate, he agreed to give the reporters the data: Why should they be the ones living in fear when the truth was on their side?

    The first story based on Gill’s data was published in January 2019. By April 2020, a KPMG audit had found that the “lion’s share” of Wirecard’s profits could not be verified. Later, EY, the company’s original auditor, discovered that €1.9 billion was missing, because the money had never existed. By June 2020, Wirecard had collapsed into insolvency. Gill had played an indispensable role. Five years after leaving, Gill says he has “no regrets” about blowing the whistle, but that it did lead to a great deal of hardship. So now he’s trying to make the process safer.

    Gill is the cofounder of Confide, a startup aiming to help businesses detect and act on misconduct earlier—and stop them “taking revenge” on the employees that report it. Confide, cofounded with Ryan Dougherty, who Gill had hired at two previous companies, has developed a software platform that allows employees to file anonymous reports. The service creates a paper trail visible to both the whistleblower and the business accused of misbehavior—but one that’s stored on third-party infrastructure to prevent it being doctored.

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  • Wild Animals Should Be Paid for the Benefits They Provide Humanity

    Wild Animals Should Be Paid for the Benefits They Provide Humanity

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    We need to understand the value of nature if we want to protect it—and that should include paying ecosystems for keeping us alive, argues Ian Redmond, head of conservation for not-for-profit streaming platform Ecoflix and cofounder of Rebalance Earth, a company that aims to build a sustainable, resilient, and equitable economy. He’s trying to change the damaging equation where “if the minerals under the ground are worth more than the trees and the animals above the ground, then traditionally, the trees and the animals have to go.”

    Pricing nature’s benefits would help protect it, he suggests. Wildlife tourism shows that people are prepared to pay up to $1,500 simply to spend an hour in the company of an elephant in Rwanda, he points out—so tourists already know how valuable nature is. But what about local people? Filmmakers should share the profits of their wildlife films with those who protect or depend on the ecosystems they film.

    “The irony is that people who live in the developing world, where many of these documentaries are made, don’t get to see them because their national TV stations can’t afford to buy them,” he explains. “We should make people care about the wildlife in the countries where the wildlife lives.”

    And we should pay animals like elephants for their essential arboreal gardening, he argues. “Apes, elephants, and birds are seed-dispersal agents in tropical forests,” he adds. “They swallow seeds and deposit them in their droppings miles away.”

    This has a hugely beneficial effect locally and globally, because trees do so much more than just store carbon. A study in the Congo Basin found that the amount of wood in a forest where elephants still lived was up to 14 percent greater than one where elephants had died out. That basin sets up weather systems that ultimately produce rain in Britain and Europe.

    “Do you think any proportion of what you pay for your [electricity] goes to protect the elephants and the gorillas in the Congo Basin planting the trees that fill the hydro schemes in Scotland?” he says. “Not a penny. There is no valuation of that ecosystem’s service that every one of us benefits from.”

    Ralph Chami, formerly assistant director of the International Monetary Fund, calculated that the value an elephant provides the world during its life is worth around $1.75 million dollars per animal. “That’s roughly $30,000 a year, or $80 a day if the elephant were being paid for the service it’s providing the world,” he pointed out. “But, of course, no one’s paying that.”

    So, it’s time to pay the bill. “I want every gorilla, every orangutan, and every animal to be valued for what they do for the ecosystem, and for us clever humans to construct a system that allows that to happen,” he says. “At the last count, that was estimated at about $700 billion a year. It’s a lot of money. It’s not going to come out of the government’s coffers, it’s not going to come out of philanthropy, but it could come out of the global economy if we construct it thus.”

    This article appears in the March/April 2024 issue of WIRED UK magazine.

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  • Climate Finance Is Targeting the Wrong Industries

    Climate Finance Is Targeting the Wrong Industries

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    To achieve net-zero carbon emissions by 2030, we have to increase the amount of capital invested in climate tech by 590 percent, says Daria Saharova, managing partner at VC World Fund, a European venture capital firm specializing in climate tech. While European funds, including the UK’s, have €19.6 trillion ($21.1 trillion) under management—and invested €19.6 billion in 2022—that’s not enough. We need to invest at least €1 trillion every year.

    The good news? “Europe is leading the world in patent applications for climate technology,” she says. “Twenty-eight percent of all patents in this field originate in Europe, so almost one-third of the technology needed is created here.”

    The problem, Saharova warns, is the misalignment between emissions and venture capital. Forty-eight percent of VC investment in 2022 was into mobility technology, such as e-scooters. Mobility accounts for only 15 percent of emissions, while more polluting industries like manufacturing, food and agriculture, and the built environment are underfunded. “Eighty-five percent of emissions receive only 52 percent of funding,” according to Saharova.

    This matters, she explains, because personal behavior change will reduce only 4.3 percent of emissions. Technologies already in the market will account for 49.8 percent—meaning technologies under development and in need of investment will need to fill in the rest. “Forty-six percent of emissions will be reduced by technology that’s yet to be developed, and this is the tech we desperately need,” she says. “And we need venture capital.”

    Venture capital has had its fingers burned in this area before, she points out. “Between 2008 and 2013 there was a lot of investment and a lot of failures. So right now, R&D accounts for 35 percent of investment, private equity 37 percent, and venture capital just 13 percent of climate tech funding.”

    There’s a huge opportunity for VCs—as the fast rise of late-entrant private equity shows. The return on new investment in climate tech between 2015 and 2019 stands at almost 22 percent. But how do VCs pick the right investment areas when they often lack the skills?

    “We need a crystal ball for a tech product’s sales, the target market, the tech’s influence on that market, its climate footprint, and interrelations with other solutions—in particular, some serious climate science,” she explains. “That’s a long list.”

    World Fund has developed a benchmarking system called the Climate Performance Potential, or CPP, which is gradually filtering through to academia. It’s a blend of comparing the potential a startup has to avoid or reduce emissions, a willingness to ignore the startup’s own predictions, and its ability to look at the Total Addressable Market (TAM), which World Fund calls the Total Avoidable Emissions. This pairs a team’s ability to execute with an almost competitive product in a climate-effective technology bucket to understand the order of magnitude that your multiple can achieve.

    “This model is focused on the technology rather than the company, so it can be applied to large organizations as well,” she explains. “It allows us to measure the carbon market for a technology compared to others by 2040. We need more private capital and public capital, and this model makes it easier for them to predict success.”

    This article appears in the March/April 2024 issue of WIRED UK magazine.

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