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MIT Graduates’ $25 Million Crypto Crime Highlights Ethereum’s Leadership
If you graduate from the Massachusetts Institute of Technology with elite computer skills, you could make a lot of money working for a technology company — or even more money working on Wall Street. But if that doesn’t grab you and you want to get even richer, you can always try committing white-collar crimes like twenty-something brothers Anton and James Peraire-Bueno. The pair devised a scheme that allowed them to pocket $25 million in just 12 seconds. Unfortunately, it ended badly, as the feds announced yesterday in a Press release This sounds like a pulp novel.
“Unfortunately for the defendants, their alleged crimes were no match for Justice Department prosecutors and IRS agents,” the DOJ wrote. To be sure, the statement quotes an agent who declares that the crime was solved “with cutting-edge technology and good quality investigative work.”
Purple prose aside, the case involves some impressive detective work, as well as a sophisticated explanation from Justice Department lawyers about a new type of alleged crime involving the Ethereum blockchain. The crime involves the mysterious business of “Maximum Extractable Value,” or MEV, which involves packaging transactions into a block in a way that allows those who build the blockchain to profit from the transactions of others.
The miners who build blockchains do not do this, of course, out of kindness. Instead, the process relies on incentives that allow miners – in the case of Bitcoin, Ethereum and other chains – to earn a reward in the form of coins and transaction fees for adding a new block. However, when Ethereum switched to a new blockchain-building process known as proof-of-stake, it created new opportunities for miners to make money – including through front-running trades included in the blocks they package. This is what people mean by SEM. (Bitcoin investment company Riveras well as the DOJ criminal chargehas a good explanation of how exactly it works).
MEV has been around for a while, and although many people who work in cryptocurrencies find it distasteful, it is not illegal – and in fact, similar things happen in the world of traditional finance, such as the practice known as payment for order flow. The Peraire-Bueno brothers, however, went a step further when they detected a bug in popular software used to perform SEM. This allowed them to not simply manage Ethereum users’ transactions, but also alter them in a way that allowed them to steal from them outright.
All of this will likely draw new scrutiny into MEV’s shady practice and potentially lead to calls for reform among the Ethereum crowd. As for Peraire-Bueno, the episode also showed that those who graduated from MIT are also capable of doing stupid things the old fashioned way. Not only were they caught, but the DOJ also found evidence that they conducted web searches on things like money laundering and how to get away with financial fraud. Don’t Google your crimes, people! Finally, the brothers can at least take comfort that it’s not just MIT graduates accused of crypto crimes — the school is also the alma mater of one Sam Bankman-Fried.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
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Circle is transferring its legal base of operation from the US to Ireland, a move that could increase the company’s tax bill. (Bloomberg)
Tornado Money developer Alexey Pertsev is appealing his money laundering conviction. (CoinDesk)
Bitcoin jumped above $65,000, partly in response to encouraging CPI data. (CNBC)
Canadian Authorities arrested a self-proclaimed “crypto king” who took $40 million from around 160 investors and spent most of it on travel and luxury cars – a decision that also led to him being kidnapped and tortured by those he deceived. (CoinDesk)
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