Andy Greenberg

The Ponzi of Crypto

Air Date: January 30, 2023

"Tracers in the Dark" author Andy Greenberg discusses crypto corruption.


Heffner: I’m Alexander Hefner, your host on The Open Mind. I’m delighted to welcome back to the Open Mind, Andy Greenberg, Wired correspondent, author of Sand Worm, A New Era of Cyber War, and The Hunt for the Kremlin’s Most Dangerous Hackers, the subject of our last conversation, and author of the new book, Tracers in the Dark, the Global Hunt for the Crime Lords of Cryptocurrency. Andy, welcome back.


Greenberg: Good to be talking to you again.


Heffner: Andy. I think the question on everyone’s mind right now is this, is crypto a Ponzi scheme?


Greenberg: Well, you know, I am never, um, been, I guess, I would say I’m agnostic on the value of cryptocurrency, uh, and whether it will continue to rise and justify everybody putting all this, you know, billions of dollars into it or whether it will occasionally, you know, uh, crash to something like 25% of its value of the day before. Um, but when I wrote the first print magazine piece about Bitcoin for Forbes Magazine…

Heffner: What year was that?

Greenberg: That was in 20 11, 11 years ago, believe it or not. So, uh, and Bitcoin was worth a dollar at the time. And even then I thought, you know, this could go up, this could go down. I don’t really know like what the value of this thing should be. It seemed kind of remarkable that it, that it has gone from 50 cents to a dollar just in the last, in the last year or so. But, you know, the, uh, even then I was not like particularly interested in the value of Bitcoin, but rather in this, this other feature of it that it was advertised to be untraceable and anonymous and to be a kind of digital cash for the internet. You know? Um, I don’t think anybody can say whether Bitcoin, um, remains a good investment today. You know, it could still go up, it could go down. It’s of course appreciated thousands and thousands of percents over the, that $1 in 2011. But what I’ve been fascinated to see is the way that it has, it had this other promise of being a untraceable perfect kind of crime coin for many people. They thought that they could use it like unmarked bills in a briefcase, and then that promise has turned out to be completely the opposite of true. I mean, Bitcoin has turned out to be extremely traceable, and that is, you know, the story that I’ve been now really fascinated to, to tell over the last couple of years of how it turns out that, that Bitcoin and cryptocurrency served as a kind of trap for people seeking financial privacy and in particular cyber criminals.

Heffner: So why was there the illusion or delusion that it was going to be untraceable?


Greenberg: Well, that’s like the fascinating thing. I mean, it seems so, um, almost like ridiculous now to think that Bitcoin could be thought to be untraceable because it is all based on this thing called the blockchain. You know, the, the, the way that Bitcoin works is that every transaction is recorded in this accounting ledger called the blockchain that’s copied out the thousands and thousands of computers around the world. Um, but when, when it first appeared this, this blockchain thing seemed really interesting for kind of anarchists and privacy advocates and libertarians, because Bitcoin wasn’t backed by any bank or government. It was guaranteed by this like independent thing, the blockchain. And even though that was a list of every transaction, the blockchain didn’t record people’s identifying information, it seemed, it just recorded these Bitcoin addresses that are like 34 long, uh, strings of characters that seemed to just be nonsense, and it didn’t seem like you could drive any kind of like, identities out of that. So if it wasn’t anonymous, at least looked like pseudonym at the time, like you could hide behind your pseudonym of your Bitcoin address. And even Satoshi Nakamoto this mysterious creator of Bitcoin back then, you know, in this initial email introducing his invention to the world to this, well, first through this cryptography mailing list, he said that participants can be anonymous. So even though there was this thing, the blockchain that had a list of every transaction, it seemed like it still might be that kind of like, you know, um, holy grail for a certain kind of privacy seeking person of untraceable or anonymous digital cash for the internet.

Heffner: Okay. So take us through the, the phase of realization when, uh, people engaged in criminal activity discovered that it was highly traceable and that they were gonna be punished. There is a very high profile example transpiring as we speak today.

Greenberg: Well, exactly. We’ll get to, to FTX, I think. Um, and which is a cryptocurrency tracing story in part. But, um, but yeah, to answer, I mean, to kind of answer your question now, you know, I guess if we like look back 11 years later, Bitcoin is the opposite of untraceable. And the story of this book that I published is really about how a small group of detectives figured that out much earlier than, than I did, really. And, um, and used this traceability of cryptocurrency to go on a kind of incredible investigative spree and take down one massive cyber criminal operation after another surprising each of these, like, you know, um, syndicates essentially like of, of criminals, one bigger than the last, but each one bigger and bigger, but flashing, you know, if we go back in time to…so in 2011 is when I first wrote about Bitcoin, people truly believed it was anonymous and untraceable at that time. You know, the Silk Road dark web drug market appeared around that time too. This was like a black market for drugs on the dark web that accepted Bitcoin as its kind of, um, only only monetary form of payment. And that was because people believed in this anonymity property and that that drug market persisted for two and a half years online, uh, until its creator was, you know, identified and arrested in this public library in San Francisco. And cryptocurrency tracing was never used to, to crack that drug market or to find its administrator. So it took years, in fact, for law enforcement to catch up with this idea that cryptocurrency could be traced. But by 2013, just before the Silk Road was taken down in this massive bust, a paper did come out, A paper was published, the lead author of it was this very interesting researcher, uh, known as her name was Sarah Meiklejohn, and she was at the University of California San Diego, and she published this kind of seminal paper that showed that yes, with some tricks you could start to, to actually show that like sometimes dozens or thousands of of cryptocurrency addresses of Bitcoin addresses belonged to a single person or a service or a dark web market like the Silk Road. And that if you use some other tricks, you could then sometimes follow the money, you could trace the, the payments of those entities until sometimes they hit a cryptocurrency exchange, for instance, where people buy and sell cryptocurrency for traditional money. And you can trade your dollars for bitcoins in an exchange. And those exchanges are legally required if they have American customers to collect identifying information about people. So if you can send a subpoena to that exchange, if you can trace the money to one of these identifying points, like in exchange or sometimes do a kind of undercover transaction with the service and therefore identify, uh, you know, like a drug dealer online or another kind of criminal, like, because you did a kind of, you know, equivalent of a, of a police buy-in bust or you did your own transaction with them to identify their, uh, their Bitcoin addresses, that in many cases you could actually identify people. And that was the kind of first big crack in this myth of cryptocurrencies anonymity, um, that would soon be kind of weaponized. I mean, um, after that paper is when a company called Chain Analysis launched, founded by a Danish entrepreneur named Michael Granier, that was the first startup, the first tech startup to truly focus on cryptocurrency tracing today, you know, skipping ahead, it has grown into an 8.6 billion company because of the power of this technique. But chain analysis was the first to build a tool that would eventually be adopted by lots of law enforcement agencies to, you know, in this very polished and automatic way, allow people to trace cryptocurrency. And they’re kind of constantly improving that tool with new tricks to find fingerprints and giveaways and tells in the blockchain that can be used to identify people.

Heffner: Are we not about to discover if your thesis ultimately can be substantiated at this level of F T X, where the scandal enmeshed, you know, all these users who were exploited, victims of having their funds outsourced for, um, other purposes, you know, basically having their funds stolen. Um, now if, if the thesis is true that crypto ultimately is just like a public Venmo, then aren’t we gonna be able to know precisely where all of the victims’ funds were transferred?

Greenberg: Well, I think, um, so there’s, there are two different kind of, I would say like buckets of criminal allegations against FTX, you know, this massive cryptocurrency exchange that has now just k melted down and lost billions of dollars of people’s money, including many, you know, unwitting potential victims of a Ponzi scheme. I think as you were getting at earlier. Um, and some of that will be identified through traditional accounting. Like we’ll get to look at the FTX’s books when, because they’ve declared bankruptcy and because there’s a lot of creditors, uh, demanding their money back. And then we’ll see whether Sam Bankman freed or how much he like took their money and put it into his hedge fund, essentially. That’s kind of the central claim of the whole FTX scandal. But then there is this other really interesting thing happening that’s sort of more my kind of story as somebody who writes about, you know, uh, I don’t know, cyber crime, I guess, which is that just after FTX declared bankruptcy, no less than 400 million dollars, perhaps much more, uh, hundreds of millions of dollars, at least around half a billion was just simply stolen, was taken out of its accounts. And we still don’t know who took that money. Uh, it may have been a kind of insider embezzling money perhaps trying to, you know, uh, keep themselves whole as their company just fell apart around them and, and, and, you know, keep their life savings. Or it may have been external hackers who were exploiting the chaos of this event. But the really interesting property of cryptocurrency is that you can trace that money, you know, you can watch this heist, whatever it may be like. However, whoever the, the thief is, you can watch this money move on the blockchain. And many of the cryptocurrency tracing detectives that are kind of the main characters of my book are watching that money move around the blockchain and sort of watching, um, the, the thieves prepare it to be laundered or cashed out. But it’s going to be extremely challenging because of this transparency and traceability of cryptocurrency for whoever took that FTX half billion dollars to do anything with it or launder it or use it without identifying, but without being identified. And so they’re in kind of a bind, you know, it’s sort of a situation where like you’ve stolen a, as one of, you know, the detectives who I talked to about this sort of described it to me, it’s like, you’ve stolen half a billion dollars from a bank, but then the dye packs exploded in your face. And how are you gonna now get rid of that money or spend it without being identified? And I think we will probably through cryptocurrency tracing and the evidence in the blockchain learn whether that was an external hack or an inside embezzlements, which that is the big mystery right now, sooner later…

Heffner:  You mentioned the drug lords on, on the black market. When you spoke with these detectives, especially the international ones, is there evidence that rogue terrorists are attempting to buy WMDs, uh, or chemical weapons with, uh, crypto or in the case of the Russian invasion of Ukraine, that arms dealers are working in crypto?

Greenberg: There absolutely have been smaller, like relatively in the scheme of things, relatively small sums that have been raised by like Al Qaeda linked groups. Um, there was a, there have been fundraisers where groups with ties to Al Qaeda and also to Hamas, uh, and Hezbollah have posted cryptocurrency addresses online and said, please donate here as a way to fund our, you know, uh, essentially vi uh, violent militancy. And they’ve raised millions of dollars that way, some of which has been sometimes traced and seized, but sometimes, you know, it goes, it’s not in a place where it can be taken even if it can be traced or you can’t do anything about these extra, you know, uh, beyond extradition countries and the people raising money there. In the case of Russian Ukraine…

Heffner: Your point, Andy, the secrecy that was anticipated may might not have come to fruition. Therefore, engaging in multinational criminal activity across borders through crypto is not necessarily foolproof or more of, of a, a secure way of, of trying to not get caught than other means…

Greenberg: Well, what, what really what it really turns out is that there were, in fact all of these crypto criminals, drug dealers, um, even, you know, human trafficking, child sexual abuse video networks that were run by people in, in extradition countries, you know, like, uh, in United States and in Canada, in South Korea and Bangkok, you know, places, uh, these, these are the kind of locations of the, some of the kind of central criminals of the story I’ve told. And they are in extradition countries, and they thought that cryptocurrency would render them untraceable, and that turned out to be the opposite of true in many cases. Then there are also criminals like Russian hackers who are carrying out ransomware attacks, right? And demanding extortions in cryptocurrency, North Korean hackers who are stealing billions of dollars in cryptocurrency. For all we know, they were the ones who stole this FTX money potentially. Um, you know, who knows?

Heffner: But as these exchanges face in face increased scrutiny, it’s probably more and more challenging, I mean, certainly for the North Koreans, but for anybody to get it into the currency that, that they wanted and to true certainly it from digital processing systems into dollars or yen or whatever.

Greenberg: Yeah, absolutely. The, the cash out has gotten harder than ever, but most importantly, cashing out without being eventually identified has become extremely difficult or impossible. And, and only if you are in a, in Russia or in North Korea, can you, you know, escape or if you are like an Al Qaeda terrorist who whatever, like in some safe haven or already on the run from the law, um, can you, do you not really care about being eventually identified. Um, you know, I, to answer your other question, like Russian paramilitary groups in Ukraine have also raised, uh, millions of dollars, I think probably single digit millions is all I’ve been able to prove or hear from investigators. Um, so, you know, this is, this is not like a, a perfect tool. It’s very easily traced as part of the problem, but it is also to, the advantage of it for these kind of rogue figures globally is that it’s also very often hard to sort of regulate or stop or, or, you know, as some people put it, like you can’t censor these payments, you can’t stop them, but you can often trace them and figure out who is involved. So now only if you are somebody who doesn’t care about being identified, does it make sense to use cryptocurrency for crime anymore?

Heffner: Andy, I think we’ve demonstrated for those lay folk out there that non crypto natives, uh, or owners why this matters, right? Because it, it can trigger, precipitate calamitous events. Um, it can also be used to support Ukrainian refugees for, for instance, it does go both ways. Um, but I want to ask you the central question about what crypto is. A lot of folks still are puzzled by, by the idea, because if you buy, even if you bought shares in a defunct company or investment in like Enron, you knew what it was intended to do. You buy Clorox, you know what the product is intended to do. So am I correct in understanding crypto as the processing software that you are investing in that processing software as, as much as you would a, a Krispy Kreme donut or, uh, a web browser like Google and its ad business? Is that the best way to understand what crypto actually is that people are investing in?

Greenberg: Yeah, I’ve never heard it put that way before I, but I would say it’s a little different than that. It’s like, um, it’s a scarce digital commodity, you know, that’s like what Bitcoin was, that was truly unusual. It’s that, um, there is this Bitcoin through this really complicated process of mining and like, and um, sort of bundling up everybody’s computing power to make it impossible to add a fake or forged transaction to the blockchain, and then copying out the blockchain to thousands of computers so that everybody agrees and cannot change this collection of, of who has which bitcoins. That meant that you could have a system with no kind of central authority, no bank, no government, but you can only have a, but there are only a certain number of Bitcoins out there, and nobody, even though it’s digital, it’s not like an MP3 where you can just make as many copies of it as you want…

Heffner: Is that true though? Because some of these currencies have, some of the Bitcoin currencies have added to their commodity, the, the, to the volume, right? They release more?

Greenberg: Yeah, I mean the, then within the, the system of every cryptocurrency there is an agreed upon like, uh, sort of schedule of like how many coins will be made or minted. Sometimes people complain that like, uh, there are, there are some cryptocurrencies that are before they’re even released, like the creator of the, of the cryptocurrency gives themselves like a whole bunch of them. Uh, but that was not the case with Bitcoin. I mean, that, and that is not the case today with Bitcoin. And I would say like most of the, you know, sort of respected and, uh, or I don’t know, more respected and, um, trusted coins is that they have a, Bitcoin is on this kind of like very carefully planned schedule where there will only be a certain number of them ever, and then there, there cannot be anymore after that. You cannot make any more after that point. And I forget which year it is that all Bitcoins will be minted and they will all mines all be created, then that will be it. Then they’ll be like a, and you know, this is, this is, if there is any kind of financial promise of Bitcoin, it’s this, it’s that, like it’s, uh, you know, sorry, again, I’m not like a booster or a, um, anti-crypto investment person at all. Um, I unfortunately did not buy any of those Bitcoins of $1 when I wrote about it in 2011. But, uh, but you know, Bitcoin is described to be like a, a deflationary currency because there will never be more of them. So you can’t print more, you can’t like devalue the currency. Um, in fact, it’s supposed to get more and more valuable over time, but, you know, it has, its, its nonetheless has its like, you know, occasional dips to put it euphemistically.

Heffner: Ultimately. Do you think it will go bust, uh, or, you know, you have done some detailed reporting here, so I think you’re in a prime position to tell us if in fact this is gonna have the fate of AOL or Enron or whichever analogy you wanna make, or, um, if the this is really here to stay and, and people are going to be buying most things in Bitcoin or digital currency in the future?

Greenberg: Well, I definitely don’t think people will be buying most things with digital, uh, with cryptocurrency. And that’s, I mean, Bitcoin has, has proven not to be cash, not to be digital cash. It’s not anonymous like cash. It can’t be easily spent by a cup of coffee, like cash. It actually is like quite slow and has transaction fees and, you know, a lot of the, those promises turned out to be empty. Bitcoin, if anything, you know, the, I think the, the promise that it has left for it is that it’s kind of like gold. You know, it’s a place to store your value and you don’t ideally have to worry about inflation. Like you, you’re not keeping your money in dollars where, uh, the government can print more of them if you are a libertarian or doesn’t trust governments in this way. And I think that that’s like, I don’t know how much that’s worth, you know? But I do think it is something and it’s just, you know, I, I hesitate to even say like, this, this another positive thing about Bitcoin. But, but you know, having once seen it go from zero to one as a $1 and then, you know, um, thinking that that was a lot. In fact, you know, sadly, uh, I, if I had bought it at that point, I would probably be retired by now. But, um, then seeing it go to a thousands and then 10,000 and then, you know, in its peak, uh, I think at the end of last year it was 60 some thousand dollars. Yes. Now it’s crashed to a quarter of that, but that’s still just gigantically more than it was a decade ago. It’s still, you know, overall not a bad investment considering that it went from one to 10, you know, to more some somewhere between 10 and 20,000 dollars. But by the time people are watching this, I would say, so it, it’s a, I know it’s like a, I probably have a kind of weird perspective, but I think that that’s the perspective that a lot of, like bitcoin boosters, which I’m not are coming from, is that they saw this thing from its beginning when nobody even would believe that it was worth a dollar. And even though it’s crashed from its peak, it’s still, you know, orders and orders of magnitude higher than where it started.

Heffner: We have a few minutes left. The former CEO of Twitter, Jack Dorsey, uh, is a, a major Bitcoin investor, booster, advocate. He’s shifted over from Twitter to being involved heavily in the crypto space. I see he recently visited Africa, and, uh, he is also, uh, a philanthropist who is concerned about, uh, wellbeing apparently in, in that, um, continent. And, um, the extension of that is to believe that crypto can be an economically democratizing force in second or third world countries or less developed countries. Um, he’s obviously on that bandwagon. What we just discussed does not suggest there’s evidence of holistic, um, economic democratization as a function of Bitcoin. But he seems to disagree.

Greenberg: I don’t…I think

Heffner: Or at least he’s, he’s showing for the cameras or for the, for tweeters that this is helping communities, you know, the, the concept of give directly giving directly through mobile currencies, um, where access to banks is not, uh, available in, in many rural parts of, of Africa.

Greenberg: Yeah. You know, I don’t know that much about what Jack Dorsey’s advocating or really like, um, that much about what cryptocurrency has done for, you know, I don’t know, like sub-Saharan African.

Heffner: That’s concerning though, because I mean, he, he’s billing himself as a, a Twitter, uh, um, as a crypto evangelist. I mean, this is his…

Greenberg: Right, right. I, but I, I just dunno what the, the real promise of that is. But I can say that like, as a form of remittance, it is interesting to look at, at cryptocurrencies and Bitcoin. Um, and I’ve seen places like Ukraine, you mentioned Ukraine, um, where like, I, I mean you could call them paramilitary groups or you could call them sort of volunteer groups, um, supporting the Ukrainian war effort, but also the Ukrainian government itself and Ukrainian kind of, um, civilian groups that have raised tens of millions of dollars through Bitcoin, and they, in some cases had their Venmo accounts and their PayPal accounts frozen, because Ukraine is a war zone and because, uh, you know, those companies have conservative policies about raising money in that way. And yet this form of wire transfer, essentially, um, it actually has proven to be quite effective. And I think that you could imagine, I’m not sure if it’s, uh, if it’s gonna be Bitcoin, perhaps it’ll be something that is like more like a cryptocurrency that’s more like cash that is more easily spent, that does start to gain adoption in countries with remittances. Um, but I don’t know, like I I also am just inherently skeptical of this. It almost feels like it’s too late for Bitcoin to ever be a democratizing or, or like equalizing force when it is actually turned out to be one of the most elitist forms of money ever. In just terms of, in terms of who holds it and Right, the number of, of like, you know, white tech dudes who, um, invested early and made off like bandits while many, you know, more kind of normal people that you could say have instead the victims of, of the sort of Ponzi schemes you were alluding to earlier.

Heffner:  Andy, what is the institution of accountability that you think is needed, uh, in the wake of FTX? What kind of agency needs, um, must there be to prevent, uh, future FTX?

Greenberg: Well, the SEC just needs to catch up and treat cryptocurrency with the same kind of tight controlled monetary policies as every other kind of finance. And I would say that, you know, like just the same way that Uber has stayed ahead of the taxi commission, like cryptocurrency has stayed ahead of the S E C and that should not be the case. I mean, there should be financial regulations, but the good thing about cryptocurrency is that it is actually very traceable and that all these like criminal bad actors can be tracked down and found, and that is happening right now. So part of the solution is built into cryptocurrency too. Whether that was the plan for Satoshi Nakamoto or not.


Heffner: Thank you, sir.