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When Failure + Balls = Billion$

The mysterious method in which BitMart embarrassed themselves into $300 million

Dedicated to: Isaac Newton, who taught the world about gravity and money.   He had the balls to pursue truth; he is one of the greatest people ever; and, even Newton's one mistake (South Sea Company) was a gift to all of us.

I. Am. The Cyclist. Mang. * (why this paragraph about cycles for an article about treachery?)

I have no real politics, philosophy, or religion; however, I'm interested in all three, and study them as complex life-long subjects.  It's not that I think there are no right answers, I'm a consummate optimist to a fault, but the evasive "answers" would be complex and likely take a long time to see-- and a short time to forget.  But cycles are a much simpler {yet still HIGHLY complex) study.  For example, if you live far-enough north on this giant orb, you will need to "gather up your nuts for the long hard winter"-- literally.  Gardens don't provide any food in Pennsylvania in January and neither do chickens produce many eggs, so its handy to know how to tap the maple trees, hunt the deer, and trap the groundhogs to survive in colonial times.  We have a modern economic structure to handle all this now, but the prepare-for-winter concept hasn't changed since Durham, PA was a thriving cannonball manufacturing town.

[*] heading inspired by Bucks County's own Gene & Dean Ween, enjoy! https://www.youtube.com/watch?v=acQqpUf7vzs 

BitMart has a lot of balls-- maybe more than even Durham Furnace produced to change the course of the English world's history.

Durham Furnace had balls;

in fact, they made them.  It was a real company with multiple equity owners, and from the getgo (1727) they made products people needed and loved.  Tools, fireplace irons, and many other necessities to colonial efficiency in the 18th century.  But something changed over time, and control of the furnace passed from a British Colonel named Galloway [who ended up being an American scourge second only to (and outdone by) Benedict Arnold] to George Taylor-- an American patriot.

Maybe Galloway preferred leasing his factory building (to Taylor in 1753) because he wanted to get back to Philadelphia?. Maybe the factory owners bled money during a small "depression" [1: Panic of 1772] right before the factory was leased-out?  No matter the reason, Taylor would eventually produce cannons and cannonballs for the Revolution, and was even one of the signers of the Declaration of Independence from mother England.  While one could argue the politics of the men involved with Durham (Robert Durham, for whom the town is named, was a river-boat manufacturer whose boats were the very ones George Washington used to ferry across the Delaware River to win the Battle of Trenton-- the victory which led to American victory) Furnace, there's no argument the factory was a useful contributing member of society on which many many people prospered (the building was in use thru 1967-- later as a grist mill).

BitMart

...has a lot of balls too-- but a different set.  BitMart today has announced the raising of $20 million, in their 2nd round after raising $10 million initially. [1]  If you have spent a bunch of time researching BitCoin and arrived investing time or money into BSV (Bitcoin SV, BSV Blockchain, etc...) then you should become aware of BitMart as there are important ties already, and some of those ties may be highly unfavorable to you.  In Jiu Jitsu it is taught to never turn your back on the enemy or even suspected enemy-- so this article is about more than just idenitifying where we might be in the cycle.

Sounds familiar?

There are over 300 cryptocurrency exchanges in the world today [2], and in the late Summer of this year, BitMart was maybe ranked in the 50s-- not great.  Today, however, BitMart is marketed as a top 15 exchange [1].  That was fast!  What did BitMart do to grow so quickly?  Give away free crypto to suburban Dads?  Stellar marketing campaign involved a well known influencer or star?  A new innovation which vaunts them above their peers?  Without being a crypto-exchange aficionado, I would guess the potential reasons ventured above are all wrong.  So how has BitMart done it?  I will tell you up front I do not know-- but lets shine as much light and conjecture on it as possible so we can at least vow to learn how.

BitMart entered the BitCoin Satoshi Vision with a bang.  During the June 24 thru August 4 highly-capitalized professional-criminal attacks on BSV, BitMart was known as the ONLY exchange in the world who suffered a loss from the attack.  All other exchanges had no problems-- likely due to table-stakes-level security and KYC/AML protocols.  Let's describe the difficulty of this attack.

Exchanges are hard to crack

"Description of an Oceans 11 level swindle"

Most exchanges refuse to trade BSV and use ANYTHING as an excuse to expel BSV from the exchange.  BSV-followers know this very well.  Kraken, Coinbase, Binance and other top 10 exchanges have all shunned BSV for one unbelievable reason after another.  In fact, the Bitcoin Association's representatives are probably on a first name basis with the small handful of exchanges which DO allow BSV to be traded.  These very exchanges who still allow customers to trade BSV mostly worked quite closely with Bitcoin Association and nChain to secure their exchanges.  It turns out they didn't need the help, because their internal KYC/AML and security firewalls wouldn't have allowed a double spend ANYWAY.  Yet some of them shut down trading for over a month.  This is NORMAL behavior for a financial institution.  Yet BitMart did NONE of this, despite the fact their exchange somehow was a well-financed [3: 1st round $10mm], very serious exchange looking to gain hard-to-earn market share in a massively overcrowded sector.  Worse, BitMart did NOT have proper security controls, as evidenced by their VERY visible filing with the New York courts that they'd been hacked.  Even worse, the filing with New York courts was the ONLY way Bitcoin Association even found out anyone had been double-spent at all!  Such weird behavior!

With reputation on a tightrope, BitMart management decided that the best approach was to seek no help from honest experts whose entire reputation was on the same chopping block as BitMart, who would bend over backwards to protect the exchange and Bitcoin SV reputation in the near term.  Keep in mind, Bitcoin Association ceases to exist if big enough blows occur to BSV's reputation, and this is obvious to a child, much less an exchange CEO in the same exact situation.  LATER, BitMart files directly in jurisdiction of the biggest city in finance, to the court with MAXIMUM visibility in the entire financial world, that they were robbed in broad daylight, and no other exchanges in the world but them suffered the same damage!

888888888 this below in right spot?

No contact:  Mysteriously BitMart didn't reach out to Bitcoin Association when they realized their "customers" had lost money to a hacker in a double-spend consummated on their exchange.  Strangely, BitMart wouldn't report this to a neutral organization tasked with the proper and honest running of a blockchain?  This doesn't make sense.  If a proprietor suffers a loss from theft, typically any means possible to recover the lost funds is implemented.  There's also the loss of reputation for a financial institution at play; in other words, even if the loss can be tolerated, in finance the exchange's security reputation is just the ante for having a going concern.  Unless there's mafia violence threatened, what proprietor would NOT attempt to get all the help he could?

If your exchange is a budding start-up with a rank in the 50s, you as founder look to the future constantly.  How do you raise money if your exchange is the only one who lost money in an attack on one of the coins you've authorized? In the old days, trust was a big deal, and if a financial institution was robbed by a posse or suffered a security breach-- their reputation pulverized.

Folks, I've been a professional researcher of corporate behavior for decades and I've NEVER seen or heard of a response by management to a crisis like this.  What occurred was the equivalent of Penn State University (a college most know, unfortunately, for it's football team) President discovering internally he had a Jerry Sandusky problem, and with the days, weeks or months he had to assess the situation before needing to make it public, he decided to first reveal the problem in a Super Bowl advertisement.  Even the CEOs with the highest integrity who meet crisis dead-on, aren't interested in maximizing the visibility of the fuck-up.  But that's what BitMart did.  They bypassed every logical means of fighting the problem while it was possible to remain private, and then when reporting the problem to the world did it about as loudly as a financial institution could.  It would've been slightly less suspect to take out a front page ad in the Wall Street Journal, than to initially report the incident with a New York court.

What is BitMart doing in New York anyway?  The founder is Sheldon Xia with offices in China, South Korea and the US, and is domiciled in one of the world's biggest tax havens-- The Cayman Islands.  

"The trading platform has espoused an advanced multi-layer and multi-cluster system architecture to corroborate the system’s stability, security, and scalability."-- cryptonewsz.com's review of BitMart
source: cryptonewsz.com

This sounds great doesn't it?  Stability, security emphasized.  But this attack proved otherwise-- so much for fancy technology words like "multi-layer (isn't it better to have one layer?), multi-cluster system".  They were obviously of no help when the main problem was simply identifying crooked customers and crooked trading behavior.  Remember, in this particular attack, to actually steal (make off with) the coins, the attacker is battling time as the exchange can at any time freeze the funds, and the successful appeal to the New York court even proved that cyptocurrencies' (Ethereum? gasp) CORE DEVELOPERS (hint hint, Kleiman vs Wright) can freeze coins.  There's a laundry list of things to do for this theft to work (AS IT APPEARS-- the OTHER easier way to make money with this attack is discussed below)

PREMEDITATED SUPERHEIST:

To pull off this crime, the attackers needed to get thru more obstacles than a Marine recruit:

1) create double-spent coins, spending a decently large amount of money to do so as upfront costs before knowing they get away with the crime.  The block rewards were given to Zulu and TAAL, to cloak the attack.  Mining is expensive, those costs are also lost.  To create the double-spend situation, MANY blocks need to be made quickly, and this requires buying more equipment than TAAL has ($40mm was their last investment round, and most of it has gone to ASIC-servers/hashpower), OR renting the same amount of equipment which makes you even MORE visible.  Really hard, REALLY risky to remain anonymous, and a VERY well-financed professional attack.  Most people with access the amount of capital needed for this attack, really have no incentive to commit crimes.  WEIRD!

2) Attacker needs to then DEPOSIT the double-spent fake coins into a decently large exchange to get the liquidity needed to trade BSV into some other cryptocurrency which is NOT double-spent.  Fake coins exchanged for real coins-- that's the play.  Let me over-stress the liquidity need here.  With a large amount being attempted to be stolen, the myriad of tiny exchanges which may list BSV would have it's BSV trading pair do REALLY wonky things with the insertion of large orders.  While an attacker may have spent months (this timeline is important later-- so emphasis on MONTHS would be required) establishing trust at BitMart, this doesn't mean BitMart just rolls over and lets the attacker's accounts do whatever.  Deposits are examined, and a COMPETANT exchange probably checks for things like forks, orphans, and double-spends (running a non-mining Node isn't a bad expenditure here, eh?) before giving full trading and withdrawal rights to deposited cryptocurrency.  Remember, cryptocurrency began life with Silk Road assassination markets, heroin sales, and sex trafficking as its first "customer".  If you want HIGHLY VISIBLE BILLIONAIRES (hint hint, coming later) to invest in your exchange, you probably might want to have state-of-the-art security.

3). Trading Liquidity for BSV.  Let me tell you in no uncertain terms, I have relationships with large entities who tell me all the time how impossible it is to buy BSV with any real liquidity-- you have to seek out the most well-known exchanges in the world.  We already talked about how most of the well-known exchanges have shunned BSV.  The big exchanges who DO allow BSV to be traded do so in wonky fashion (Genesis demands $250,000 minimum for instance), but the emphasis here is on the word BIG.  If a trader wants good liquidity to sell a large amount of BSV, he has to visit a tier-one exchange executing the state-of-the-art KYC/AML + trading and withdrawal security protocols, software, and technology.  These exchanges, like the Australian Stock Exchange, would need to hire pre-Bitcoin Craig Wright to protect them.  So this step is nearly IMPOSSIBLE to achieve.  Bittrex has been, for all practical purposes, the best liquidity provider to medium-sized traders.  I've tested liquidity for BSV/USD multiple times, and it trades a couple times per minute, AT BEST.  No hacker looking for fast trading would go near it, plus even with small capitalization Bittrex has implemented KYC/AML and security protocols.  Not happening there.  Not happening on Genesis, DHR (Cumberland), or Coinbase's hidden BSV trading.  Enter BitMart, an exchange with tier-one dreams and capital, but with apparently Shit-for-brains security and zero KYC/AML despite having customers in the world's most overly-policed jurisdiction-- New York-- home of the nearly-impossible-to-get BitLicense (ask your mostly friendly Fabriik contact "when NY BitLicense?").  Bingo, BitMart saves the day, a high-end exchange, who SOMEHOW apparently had decent BSV liquidity to satisfy a nervous crook, with industry-worst security (remember, no other exchanges reported lost money).

4). WITHDRAWAL Gestapo!  Here's the biggest stopgap in crypto no matter WHO you are.  Exchanges HATE withdrawals; so much so, they typically charge egregious percentages which suburban Dads don't read when choosing an exchange.  I've personally had a small amount in Coinbase since 2013 when it opened doors, and it's impossible to get it out of there between btc's double-digit-dollar fees and all the fee-crazy stuff Coinbase itself piles on.  Good luck removing $50 and expecting anything left after the vultures gobble their fill at your expense.  So withdrawals are BEYOND hard.  Nothing would please an exchange more, than freezing some suspect cryptocurrency, in the age of "DeFi" interest/yields, to float [ref "float" financial SLic definition] the balance sheet.  Even if that's not possible in some jurisdictions, it adds to AUM which aides an exchange in marketing, raising capital, and other ways.  But MOST importantly, the withdrawal is the exchange's LAST CHANCE to prevent theft.  Once withdrawal is authorized, the exchange has lost any control and must ask for help to recover funds from criminals large and small.  No problem here for the BSV attackers, BitMart to the rescue!

5) CRYPTO-FREEZE.  An-caps and other revolutionaries have huge interest in cryptocurrencies thinking them safe from governmental meddling.  Other than some dark coins which last year were universally shunned from first-world exchanges with whom BitMart is trying to compete in New York especially, would it be surprising to know that some core developers of cryptos can freeze coins?  I would think it would be surprising to many in the revolutionary camp.  New York court, where BitMart filed first notice of theft from it's exchange, actually DID issue a freeze on the stolen coins-- which by then were in cryptocurrency(ies?) NOT named BSV; in fact, "Ethereum" seemed to be mentioned if my memory serves (Consider this a call for citizen-sleuths and Dick Tracys into WHICH cryptos the thieves used).   If Ethereum was one, hmmm, what we mention below becomes even MORE interesting.  (we don't know the status of this freeze)

WOW!!  This is one humdinger of a theft.  Large upfront expenses, five ways it can go wrong, and up against a few entities who stand to loose billions (BSV ecosystem) and millions (BitMart, or billions if considering future profit potential).  It didn't work ANYWHERE, due to the requirement of finding a needle-in-a-haystack exchange with bad security and oddly large BSV liquidity.  BitMart, home of the nearly impossible!

 [

tiny, the liquidity is SUPER small

2021: The Year of the Double-Spends

On January 21, '21 21:21 there was a very suspect double-spend on the btc (what most humans mistakenly call "bitcoin"-- the $60k+ one) network.  The following article highlighted what that attack might have been all about:  https://sym.re/PaTF56p.  btc HODLers will say it was not a double-spend; BSV BUIDLers will say it was a model double-spend (Knowledge SEEKERs on www.SLictionary.com would say "if you look up double-spend in the dictionary, there's a picture of btc network on January 21, 2021" ).  No matter which side you take, that double-spend sure looks like a battle in a war-- one btc lost.  The attacker seems quite clever and sophisticated crypto-tech-wise, and coordinated.

Then BSV's price began to rise not long after that attack.  From $100s to almost $500 it climbed in the Spring.  Mysteriously, given BSV's obvious and many performance advantages to Bitcoin Cash (bch), BSV could not hold its gains-- one of the only serious digital assets that couldn't in 2021.  Hmmmm.  Neither large BSV whales nor individuals (who are waiting for a flippening, BSV to $66k and btc to $50?) would likely have any interest in selling at $500, so how did it drop from $492 to $104 so fast?

MENTION

Why theft with New York customers only?  Nifty trick by the exchange... err the hackers(?).


Wars (Twitter headline: The most critical task in battle is identification of "friend or foe".  Don't know your friends? You can end up killing them by mistake-- shooting thyself in the foot.  Don't know thy enemies?  Hard to fight an enemy without squaring-up face-to-face.  BitMart: Friend or Foe?

$$$$$$$$$$$$$$$$$$$$$$--FUND NEXT ARTICLE--$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Writing is a burden, but writing with my children (their future adult-versions) in mind, it's much easier.  While they are the primary intended audience, if you get value from this article please contribute to grease the chain for the NEXT article:

$JOHNPITTS -- Handcash

or

johnpitts@moneybutton.com

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Read your References for best understanding:

Dedication:  Gravity is one of the main sources underlying cycles. I'm a cycles-guy above all else. But a lifelong study in sociological and economic cycles, for me, always stemmed from physics not the study of people (which certainly must follow if toiling in this subject). The money part of Newton is just a nice ironic sideshow, since ironically he participated fully in the historical equivalent of cryptoCurrency speculation: buying South Sea Company on the way down from its bubble peak. He is proof that it doesn't matter how wise you are, anyone can fall for cycles because herd-based cycles are rooted in greed, sadness, desperation, exultation, pride and a few other staple human emotions. "God bless" the Gravity Mang, Isaac Newton.

[0] A very unique and important history of Durham, PA

https://explorepahistory.com/hmarker.php?markerId=1-A-162

[1] BitMart has raised $30 million in cash so far, more than every BSV Venture Capital firm has raised in the past 3 years

https://techcrunch.com/2021/11/09/crypto-exchange-bitmart-in-talks-to-raise-at-300-million-valuation/ 

[2] Number of cryptocurrency exchanges

https://coinmarketcap.com/rankings/exchanges/

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pete tipped:
Very plausible.
sydomb tipped:
john replied:
San Francisco’s office vacancy rate has risen to 21.8 percent with the amount of vacant office space surpassing levels after both the 2008 Great Recession and the dot-com bust. According to data from JLL , San Francisco also recorded the lowest level of new leasing activity since at least the 1990s.
john replied:
whoops, wrong "paste".
john replied:
what I meant to say was: this article is in VERY raw form, and I only posted it here for an editor to review it. Apologize for the random nature of the beginning of the article.