Glitch Weekly: Have you thought about surveillance lately?
Glitch Weekly: Have you thought about surveillance lately?
Plus: How AI could replace KYC for crypto exchanges, and fake journalists are taking over the internet
Happy Friday! Glitch Weekly #3 is here. Please share with your Glitchy friends and AI significant others.
Boys Club wants to talk about surveillance.
The future of the internet. Big topic. Lots to think about. Where should we even start? How about with surveillance? That’s what Boys Club would like you to do, and it just threw a big party in New York about it.
Surveillance was the theme of The Net Gala, the Brooklyn warehouse-housed extravaganza TechCrunch described as “a chic tech answer to The Met Gala.” The party, which drew around 500 guests, featured among other things “a camcorder hooked to a vintage television that replayed the event in real-time” and a piece of generative artwork that “mirrored the movements of guests passing by.” Meanwhile, an artist named Heno released new music by blasting it “through VR headsets that took one into the metaverse.”
Parties are core to the strategy for Boys Club, whose founders, Deana Burke and Natasha Hoskins, named their effort as a nod to what they are trying to help undo about the current internet and crypto culture. “Being in person is very important to the work that we do,” Hoskins said during a talk in March at ETH Denver entitled “Why People Hate Crypto (and What We Can Do About It).” Hoskins said they started Boys Club to “bring new voices to the new internet.” Besides parties, Boys Club sends newsletters, records podcasts, and holds live events. A big part of its mission is freshening up crypto’s pop culture brand, which has taken quite a beating over the past two years.
In theory, one way to do that is to shift the focus from the scam-infested crypto casino to the crypto-computing revolution that is quietly promising to form the foundation of a new internet free of the kind of mass surveillance we’ve come to take for granted in Web 2.0, or whatever you want to call it. “As we design a new internet, the overcollection, commodification, and weaponization of personal data is something we hope gets left behind in Web2,” Boys Club told TechCrunch. We couldn’t have said it better ourselves.
The crypto dream of replacing KYC with AI just took a step toward reality.
In the crypto world, “KYC” is a bogeyman. If you are a crypto developer, Knowing Your Customers so that you can report their identities to the government (if they are suspected of, say, laundering money) is likely anathema to your values. As we’ve discussed many times in the context of the embattled Ethereum-based privacy protocol Tornado Cash, legally requiring developers of a blockchain-based software application to impose KYC measures would defeat the purpose of building on a blockchain. It would effectively ban an emerging class of software.
But what if illicit activity could be detected and marginalized without requiring users to identify themselves? That’s the premise of a machine learning project that researchers at MIT, IBM, and the blockchain analytics firm Elliptic have been working on. In a recently published paper, the researchers unveiled an enormous training dataset “for learning the set of ‘shapes’ that money laundering exhibits in cryptocurrency and accurately clarifying new criminal activity.” They also described how a model trained on the data performed in the real world.
The researchers say the dataset has value beyond crypto, particularly for an emerging field of machine learning called “subgraph representation learning,” which they define as “a technique for analyzing local structures (or shapes) within complex networks.” But the most concrete near-term use would be detecting shady behavior patterns in blockchain data.
When the researchers tested their model on a real, unnamed exchange, they found 52 instances where it predicted that money laundering had occurred. According to Elliptic, 14 of the accounts the model said had engaged in illicit behavior had already been flagged for money laundering by the exchange. Now the exchange’s investigators “are going to look into the remainder of those to see, wait, did we miss something?” Mark Weber, one of the paper’s authors and a fellow at the MIT Media Lab, told Wired.
“Importantly, the exchange’s insights were based on off-chain information, suggesting that the model can identify money laundering that would not be identifiable using traditional blockchain analytics alone,” Elliptic added in a blog post.
The model identified known money laundering patterns, like “peeling chains,” in which small bits of the pot are transferred to new wallets in a process that creates long chains of transfers that can obfuscate the criminal money trail. “However, it also identified novel patterns such as the use of intermediary ‘nested services’ in specific ways,” Elliptic said. The paper describes these as “businesses that move funds through accounts at larger cryptocurrency exchanges, sometimes without the awareness or approval of the exchange.”
Elliptic is already using this dataset, and now the researchers have made it available to the public. Weber told Wired that the group is “hopeful that this is much more than an academic exercise.” That’s not so far-fetched: 404 recently showed how cheap and easy it is to get an image of a fake government ID realistic enough to dupe a crypto exchange, suggesting that the need for tools to detect bad actors will only become greater.
“So FTX was … illiquid and solvent?”
Good question by Bloomberg columnist Matt Levine after news broke that the defunct crypto exchange had suddenly found itself with billions of dollars more than what it needed to pay back customers affected by the November 2022 collapse. If the answer is yes, that paints its former CEO Sam Bankman-Fried’s crimes in a new light. Either way, this shows how crypto exchange bankruptcy is a new kind of bankruptcy.
To recap: when FTX imploded in November of 2022, its users had around $8 billion in cash and cryptocurrency deposits on the exchange. A big chunk of FTX’s assets were in cryptocurrencies.
That now seems to be paying off in a very weird way—much of the money the company has raised to pay off its debts appears to have come from a spike in the price of SOL, the native coin of Solana. The coin, 10% of whose supply was once held by SBF himself, was trading at just $12 when FTX went bust. By March of this year, it was around $200.
FTX also raised a bunch of money by selling its stakes in various startups, seizing chunks of SBF’s personal real estate, and unloading Robinhood stock. According to John Ray, FTX’s new CEO, the result is that creditors will recover between 118% and 148% of their petition date claim values. In other words, if you made a claim against FTX in November 2022, you just made a gain of 18% to 48%. Ray called that “an unbelievable result,” given that in most bankruptcy cases, creditors are paid back pennies on the dollar.
As is usually the case with crypto, there’s more here than initially meets the eye. The return rate accounts for a 9% annual interest rate, carried out over two or three-year terms. But it's still a big loss for many customers who had their FTX deposits in crypto, since the amount they’ll be paid back is determined by the US dollar value of their tokens at the time of the claim. That means if you had one bitcoin in your FTX account in November 2022, you’ll get back about $19,600—the price of Bitcoin at the time (~$17,000) plus the calculated interest. But the price of one bitcoin now is $62,000. Also, while you have the cash, you no longer have the coin itself.
That makes headlines implying that victims are getting a full recovery a bit misleading. Still, as David Z. Morris of Dark Markets pointed out on Twitter, maybe these confused headlines are “perversely a good thing for crypto’s public perception?” Maybe they make crypto seem a little less bad?
Let’s not forget about the man at the center of it all. SBF is serving a 25-year prison sentence for defrauding FTX customers, and some have called him the new Bernie Madoff. But he was also a dyed-in-the-wool crypto trader. As Levine points out, SBF’s well-documented view is that when FTX collapsed it had a liquidity problem, not one of solvency. He asked for more time to come up with the money, but he didn’t get it. “But John Ray had another 18 months to find the money, and he did,” writes Levine. Whatever your takeaway, this outcome could not be more crypto—and it shows how finance is changing whether you like it or not.
ODDS/ENDS
Jack Dorsey has left the board of Bluesky, the company behind the open-source AT Protocol for decentralized social media. He helped get the now-independent project off the ground while still at Twitter.
Peter Thiel’s Founders Fund led a $13.2 million seed round for a zero-knowledge cryptography startup called Lagrange Labs. The company says its mission is to “unlock new types of data-intensive and cross-chain applications by enabling verifiable computation over blockchain at ‘big data’ scale,” using what it calls a “ZK Coprocessor.” We ask again: Do YOU need a zero-knowlege proof?
Worldcoin’s iris scanning centers have been seeing long lines in Argentina, where soaring inflation and growing unemployment have helped inspire half a million people to stare into the Worldcoin’s chrome orb in exchange for a bit of the company’s cryptocurrency. According to Rest of World, a network of intermediaries working on commission has “lured” many into signing up.
Fake journalists are “infecting” the internet to a greater degree than we may realize. A wildly thorough—and just wild—investigation by Futurism shines a spotlight on a company called AdVon Commerce, whose AI-generated product reviews (often featuring bylines of people who don’t seem to exist) have made their way into many otherwise legitimate publications, from Sports Illustrated to the Los Angeles Times. The future of the internet is a darkly bizarre forest.
In a new essay in The Atlantic, Louise Matsakis flags the alarming trend of Western lawmakers arguing that Chinese-style internet regulation and censorship may be better for children. “What rarely gets mentioned in these discussions, however, is the fact that the Chinese government has built the most comprehensive digital surveillance system in the world, which it primarily uses not to protect children but to quash any form of dissent that may threaten the power of the Chinese Communist Party,” Matsakis writes.
CIA gets an air-gapped LLM that’s just for spooking. US spy agencies have apparently been lusting after generative AI tech, but worried that anything connected to the internet would be, you know, bad at keeping secrets. Luckily Microsoft had a solution: build a fully “isolated” version of a GPT4-type AI that’s not connected to the internet and doesn’t retain any information about the classified questions it’s asked. Bloomberg reports the model went live last week. Hopefully it is better at dispensing reliable information than the model Microsoft built for New York City.
Consensys founder Joe Lubin says the SEC has been “gaslighting” the US crypto industry about the regulatory status of ETH. The agency has apparently told the firm it plans to bring a lawsuit regarding MetaMask, Consensys’s popular crypto wallet software. In a Q&A with Wired, Lubin said the impending lawsuit shows that the SEC does in fact consider ETH a security, despite past suggestions by the agency that the asset is a commodity. If that’s true, it would have a “chilling effect,” Lubin said. “Software developers wouldn’t be able to develop Ethereum further or build applications on the protocol.”
Crypto fans are furious over President Biden’s announcement that he would veto a bill that repeals a controversial but influential SEC staff bulletin. As Noelle Acheson of Crypto is Macro Now explains, the bulletin effectively “makes it prohibitively expensive” for banks to offer crypto custody services by requiring that they record the dollar amount of crypto assets they hold for their customers as liabilities on their balance sheets. The Biden admin’s stance on this is “more than nuts, it is alarming, and it shows how narrow and yet controlling the US government wants to become,” writes Acheson. Crypto is fast becoming a partisan issue in DC.
Follow us on Twitter or get corporate with us on LinkedIn—if you want.